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?

No, an employment agreement 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, provided the work does not relate directly to the employer's business or actual/anticipated research and development.

The Legal Framework of Intellectual Property Assignment

Most employment contracts contain an Invention Assignment Agreement. While often bundled with NDAs, these are distinct legal instruments. An NDA protects confidential information, while an Invention Assignment clause dictates who owns the fruits of your labor. Employers frequently attempt to draft these clauses as broadly as possible to capture everything you create during your tenure.

State-Specific Protections

Several states have enacted statutes that explicitly limit the reach of these clauses. If you work in these jurisdictions, your employer's contract cannot override state law:

• California (Labor Code Section 2870): Prohibits employers from requiring employees to assign rights to inventions developed entirely on their own time without using company resources, unless the invention relates directly to the employer's business or actual/anticipated R&D.
• Washington (RCW 49.44.140): Provides similar protections, ensuring that inventions created on personal time remain the property of the employee.
• Illinois (Employee Patent Act): Limits the scope of assignment agreements to protect inventions developed independently.

Key takeaway: Even if you signed a contract stating the company owns "all work created during employment," state law often renders that clause void if the work is unrelated to your job duties and created without company assets.

Criteria for Determining Ownership

To determine if your side project is safe, evaluate it against the following four-factor test. If you meet all four, your employer has a weak legal claim to your work.

The "Relatedness" Trap

The most common point of litigation is whether a project is "related to the employer's business." If you are a software engineer for a fintech company and you build a personal budgeting app, the employer may argue that your project competes with their business. This is why documentation is critical.

Steps to Protect Your Intellectual Property

1. Audit your contract: Review the "Inventions" or "Proprietary Rights" section of your employment agreement. Look for language that excludes inventions developed on your own time.
2. Maintain strict separation: Never use a company-issued laptop, Slack account, or cloud storage for personal projects.
3. Document your process: Keep a timestamped log of your development. If a dispute arises, you need evidence that the work was performed during off-hours.
4. Disclose if necessary: In some cases, it is safer to provide a written disclosure to your employer stating that you are working on a project that falls under the state-protected category, ensuring they are aware of the separation.

Red Flags in Employment Contracts

Be wary of contracts that contain the following language, as they are often designed to overreach:

• "All work created during the term of employment": This is overly broad and likely unenforceable in states like California.
• "Any idea, concept, or invention": This attempts to claim intellectual property that hasn't even been developed yet.
• "Related to the company's current or future business": This is a catch-all phrase that companies use to claim almost any software-related project.

Key takeaway: If your contract lacks a specific carve-out for inventions developed on your own time, you are at higher risk of a dispute. Always seek to negotiate an amendment or a written clarification before starting a high-value side project.

How to Mitigate Risk

If you are concerned about your current contract, the best approach is to be proactive. Do not wait for a conflict to arise. If you are building a project that could be considered competitive, consult with an employment attorney to draft a formal disclosure. This creates a paper trail proving you acted in good faith and clearly delineated your personal work from your professional duties.

TermScore can automatically analyze your employment contract to identify overreaching invention assignment clauses and highlight language that may threaten your personal side projects. By uploading your agreement, you receive an instant breakdown of your rights and potential liabilities, allowing you to negotiate with confidence.