Can an employment NDA legally claim ownership of personal side projects built without company resources?

Can an employment NDA legally claim ownership of personal side projects built without company resources?

In most jurisdictions, an employment NDA or Proprietary Information and Inventions Agreement (PIIA) cannot legally claim ownership of personal side projects developed entirely on your own time, using your own equipment, and without utilizing company trade secrets or proprietary information. While employers often include broad "work-for-hire" language, state laws frequently override these clauses to protect employee innovation.

Key takeaway: An NDA is not a blanket claim to your intellectual property. If your project is unrelated to your employer's business and uses none of their resources, it is likely yours, regardless of what a boilerplate contract claims.

The Legal Framework: Why Overbroad Clauses Fail

Employers often draft "Invention Assignment" clauses that are intentionally broad to capture any intellectual property created during the term of employment. However, courts generally view these as restrictive covenants. If a clause is too broad, it may be deemed an unreasonable restraint on trade.

State-Specific Protections

Several states have enacted specific statutes to prevent employers from overreaching. California is the gold standard for these protections.

• California Labor Code Section 2870: This statute explicitly states that an employer cannot require an employee to assign rights to an invention developed entirely on their own time without using the employer's equipment, supplies, facilities, or trade secret information.
• Washington and Illinois: Similar statutes exist in these states, providing "safe harbors" for employees who develop technology outside the scope of their employment.
• The "Scope of Business" Test: Even in states without specific statutes, courts often look at whether the invention relates directly to the employer's business or actual/demonstrably anticipated research and development.

Action Item: Review your contract for the phrase "relates to the business of the Company." If this phrase is missing or defined too broadly, your side project may be at higher risk.

Red Flags in Your Employment Agreement

Not all IP assignment clauses are created equal. You must identify the specific language that creates risk. Look for these common red flags:

• "Any and all inventions": Clauses that claim ownership of everything created during your employment, regardless of subject matter.
• "During the term of employment": Language that fails to distinguish between work done on company time versus personal time.
• "In any way related to": A vague catch-all that could be interpreted to include any project involving software, even if the industry is entirely different.

How to Mitigate Risk

1. Document Everything: Keep a log of when you work on your project and what hardware/software you use.
2. Use Personal Assets: Never install company-licensed software or use company-provided cloud storage for personal projects.
3. Disclose Early: If your project is in a grey area, consider a formal disclosure to your employer to obtain a written waiver.
4. Check Your NDA: Use a tool like TermScore to scan your contract for "Invention Assignment" clauses that exceed the scope of your actual job duties.

Key takeaway: If you are building something that could be considered a competitor to your employer, the legal risk increases significantly, regardless of whether you used company resources. Consult with an attorney before launching a competing product.

The Role of "Work-for-Hire" Doctrine

The "Work-for-Hire" doctrine under the U.S. Copyright Act generally applies to works created within the scope of employment. If you are a full-time employee, the law assumes that work created as part of your job duties belongs to the employer. However, this does not automatically extend to side projects. The burden of proof often shifts to the employer to demonstrate that the work was created within the scope of your employment duties.

Protecting Your Future

Navigating the intersection of employment law and intellectual property is complex, but you do not have to do it alone. TermScore automatically analyzes your employment contracts to identify aggressive IP assignment clauses and restrictive covenants that could threaten your personal projects. By flagging these issues early, TermScore helps you understand your rights and negotiate better terms before you sign.