Can an employment NDA legally prevent me from working on personal side projects?

Can an employment NDA legally prevent me from working on personal side projects?

An NDA itself usually only restricts the disclosure of confidential information. However, most employment contracts include an 'Invention Assignment Agreement' (IAA) that can legally grant your employer ownership of your side projects if they relate to the company's business, use company equipment, or are developed during work hours.

Key takeaway: An NDA is rarely the primary barrier to side projects; the real risk lies in 'Invention Assignment' clauses that automatically transfer your intellectual property rights to your employer.

Understanding the Contractual Landscape

When you sign an employment agreement, you are often signing a bundle of restrictive covenants. It is critical to distinguish between the three most common clauses that impact your ability to build personal projects.

1. The NDA (Non-Disclosure Agreement)

This clause prevents you from sharing trade secrets or proprietary data. If your side project is entirely unrelated to your employer's business and uses none of their data, an NDA should not restrict your work.

2. The Invention Assignment Agreement (IAA)

This is the most dangerous clause for side-hustlers. It states that any intellectual property (IP) you create during your employment belongs to the company. These clauses often include 'catch-all' language that covers anything 'demonstrably related' to the company's current or anticipated business.

3. The Non-Compete Clause

This restricts you from working for a competitor or starting a business that competes with your employer. While the FTC has attempted to ban non-competes, their enforceability remains a state-by-state issue.

Action Item: Review your contract for an 'Exclusions' or 'Prior Inventions' list. If you have existing projects, ensure they are explicitly listed in an addendum to your contract before you start your job.

Jurisdictional Protections

Your location significantly impacts how these clauses are interpreted. Some states have passed laws to protect employee rights to build on their own time.

• California (Labor Code Section 2870): Employers cannot claim ownership of inventions developed entirely on your own time without using company resources, provided the invention does not relate to the employer's business or actual/anticipated research.
• Washington & Illinois: These states have similar statutes that limit the scope of invention assignment agreements to protect employee innovation.
• Other States: In the absence of specific statutes, courts generally enforce the contract as written, meaning broad assignment clauses are often upheld.

Action Item: Search your state's labor code for 'Invention Assignment' or 'Employee Invention Protection' to see if your state offers statutory carve-outs.

How to Protect Your Side Projects

If you are planning to launch a side project, follow these steps to minimize legal exposure:

1. Audit your contract: Identify the specific language regarding 'Inventions' and 'Proprietary Information.'
2. Use separate hardware: Never use a company-issued laptop, software license, or cloud account for your personal work.
3. Maintain strict time separation: Work on your project only during non-working hours.
4. Avoid company data: Ensure your project does not utilize any proprietary methodologies, customer lists, or internal codebases.
5. Negotiate an carve-out: If you are a high-value hire, request an amendment to your contract that explicitly excludes your specific side project from the invention assignment clause.

Key takeaway: If you use a company laptop to write code for a side project, you have likely already handed the ownership of that code to your employer, regardless of what you do on your own time.

When to Seek Legal Counsel

If your side project has the potential to generate significant revenue or if it is in the same industry as your employer, the risk of litigation is high. A standard NDA might be the least of your worries if your employer decides to claim ownership of your IP. If you are unsure about the scope of your restrictions, consult an employment attorney before launching.

TermScore allows you to automatically analyze your employment contracts to identify high-risk clauses, such as overly broad invention assignment provisions or restrictive non-competes. By uploading your agreement, you can receive an instant breakdown of your rights and obligations, ensuring you understand exactly what you are signing before you start your next big project.