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 contract 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 'Invention Assignment' clauses, these are frequently limited by state-specific labor laws that protect an employee's right to innovate outside of their professional duties.

Understanding Invention Assignment Clauses

An Invention Assignment Agreement (IAA) is the legal mechanism that transfers ownership of work product from the employee to the employer. While often bundled with NDAs, these clauses are distinct. An NDA protects information; an IAA transfers property rights.

The Scope of 'Work Made for Hire'

Under the U.S. Copyright Act, 'work made for hire' applies to works created within the scope of employment. If you are a software engineer, code written for your employer is theirs. However, if you are a software engineer building a gardening app on your personal laptop on a Sunday, that work falls outside the 'scope of employment' unless your contract is drafted with extreme, and often unenforceable, breadth.

Key takeaway: Always distinguish between your 'scope of employment' and your personal time. If your contract defines your scope as 'any and all software development,' you are at higher risk than if your scope is limited to specific product lines.

Action Item: Review your employment agreement for the definition of 'Inventions' or 'Developments.' If it includes 'any work created during the term of employment,' it is likely overbroad.

Jurisdictional Protections: The State-by-State Reality

Several states have enacted specific statutes that render overly broad assignment clauses void. These laws serve as a shield for employees.

The Three-Prong Test for Ownership

Most protective statutes utilize a three-prong test. To keep your side project, you must generally prove:

• The invention was developed entirely on your own time.
• No company equipment, supplies, facilities, or trade secret information was used.
• The invention does not relate directly to the employer's business or actual/demonstrably anticipated research.

Action Item: If you live in a state without these specific protections, your contract language is the only law that matters. In these states, you must negotiate an 'IP Exclusion' addendum before signing.

Red Flags in Your Employment Contract

When reviewing your contract, look for these specific red flags that suggest your employer is overreaching:

• 'Any and all' language: Clauses that claim ownership of 'any and all ideas, concepts, or inventions' conceived during your employment.
• Lack of 'Carve-outs': The absence of a schedule or appendix where you can list pre-existing intellectual property.
• Broad definition of 'Business': Definitions that include 'any business the company may enter into in the future,' which effectively claims everything you ever create.

Best Practices to Maintain Ownership

To ensure your side projects remain yours, follow these strict operational guidelines:

1. Hardware Separation: Never use a company-issued laptop, phone, or tablet for personal projects.
2. Software Licensing: Do not use company-provided software licenses (e.g., Adobe Creative Cloud, JetBrains, Microsoft 365) for personal work.
3. Network Security: Do not use company VPNs or internal servers to host or store your personal code or assets.
4. Documentation: Keep a log of when you worked on your project to prove it occurred outside of your 9-to-5 hours.

Key takeaway: If you use a single line of company-owned code or a proprietary library in your side project, you may have inadvertently granted the company a claim to the entire project.

Action Item: Create a 'Pre-existing IP' document. If you have projects you are currently working on, disclose them in writing to your employer during the onboarding process to establish a clear boundary.

How TermScore Protects Your IP

Navigating the nuances of IP assignment clauses can be daunting, especially when legal jargon is designed to obscure your rights. TermScore uses advanced AI to scan your employment agreements, identifying overbroad invention assignment clauses and highlighting language that conflicts with state-specific labor protections. By using TermScore, you can identify potential ownership risks before you sign, ensuring your personal innovations remain yours alone.