Does an employment NDA cover side projects created on personal time?

Does an employment NDA cover side projects created on personal time?

An employment NDA (Non-Disclosure Agreement) is designed to protect trade secrets and confidential information, not to claim ownership of your personal work. However, most employment contracts include a separate 'Invention Assignment' clause. If your contract is poorly drafted, it may grant your employer ownership of side projects created on your own time if they are deemed 'related' to the company's business.

Key takeaway: An NDA is a confidentiality tool, while an Invention Assignment clause is an ownership tool. Never confuse the two when evaluating your legal exposure.

The Difference Between NDAs and Invention Assignments

To understand your risk, you must distinguish between the two primary clauses found in employment agreements:

• NDA (Non-Disclosure Agreement): Restricts you from sharing proprietary data, client lists, or internal processes. It does not inherently grant the company ownership of your creative output.
• Invention Assignment Clause: Explicitly transfers ownership of any intellectual property (IP) you create during your employment to the company. This is the clause that poses the greatest threat to your side projects.

Action Item: Search your employment contract for the word 'Assignment' or 'Invention.' If you find a broad clause that claims everything you create during your employment, you are at risk.

Criteria for Employer Ownership

Employers generally cannot claim ownership of everything you do, but they can claim projects that meet specific criteria. Courts typically look at three factors to determine if an employer owns your side project:

• Use of Resources: Did you use company laptops, software licenses, servers, or office space?
• Temporal Proximity: Was the work performed during your contracted working hours?
• Business Relevance: Does the project compete with, or relate to, the employer's actual or demonstrably anticipated business?

Action Item: Maintain a 'clean room' environment. If you are building a side project, ensure it is physically and digitally isolated from your employer's ecosystem.

Jurisdiction-Specific Protections

Some states provide statutory protections that override overly broad employment contracts. For example, California Labor Code Section 2870 prevents employers from claiming ownership of inventions developed entirely on your own time without using company resources, provided the invention does not relate to the employer’s business.

• California: Strong protections for employees under Section 2870.
• Washington/Illinois: Similar statutes exist but often have different thresholds for what constitutes 'business relevance.'
• General Rule: If you live in a state without these specific statutes, the language in your signed contract is the final word.

Action Item: Research your state's labor laws regarding 'Invention Assignment' to see if your contract's language is legally enforceable or overly broad.

How to Protect Your Side Projects

If you are planning to launch a side business, follow this protocol to minimize legal friction:

1. Audit your contract: Identify if your agreement contains a broad 'Invention Assignment' clause.
2. Document your work: Keep a log of hours worked and hardware used to prove the project was developed on personal time.
3. Disclose (if necessary): If your project is in a grey area, consider a formal disclosure to your employer to obtain a written waiver.
4. Use personal infrastructure: Never use company email, Slack, or cloud storage for any part of your side project.

Key takeaway: Documentation is your best defense. If a dispute arises, a clear audit trail showing that no company resources were used is your strongest evidence.

The Role of AI in Contract Analysis

Manually parsing dense legal jargon to find hidden IP assignment clauses is prone to human error. TermScore uses advanced AI to instantly scan your employment agreements, highlighting risky 'Invention Assignment' language and explaining your potential exposure in plain English. By uploading your contract to TermScore, you can identify exactly which clauses threaten your side projects before you start coding or building, allowing you to negotiate or plan with confidence.