Can an employment NDA legally restrict me from working on personal projects during my free time?

Can an employment NDA legally restrict me from working on personal projects during my free time?

An NDA typically restricts the disclosure of confidential information, not the act of working itself. However, most employment contracts include 'Invention Assignment' clauses that can legally claim ownership of your personal work. If your side project relates to your employer's business or uses their resources, you are likely at risk.

Understanding the Legal Distinction: NDA vs. Invention Assignment

It is a common misconception that an NDA is the only document governing your side projects. In reality, your employment agreement likely contains three distinct types of restrictive covenants that interact to limit your freedom:

• Non-Disclosure Agreements (NDA): Prohibit the use or sharing of proprietary company data.
• Invention Assignment Agreements (IAA): Automatically transfer ownership of any intellectual property you create to your employer.
• Non-Compete Clauses: Restrict you from working for a competitor or starting a business that competes with your employer.

Key takeaway: An NDA prevents you from using company secrets in your side project, but an Invention Assignment clause is what actually threatens your ownership of that project.

Action Item: Review your employment contract specifically for the section titled 'Proprietary Information and Inventions' or 'Intellectual Property Assignment.'

The Role of State Law in Protecting Your Side Projects

Several states have enacted legislation to prevent employers from overreaching into an employee's personal time. These laws generally protect your right to own your inventions if you meet specific criteria.

Criteria for Protection

To qualify for these protections, you must generally prove that your project:

• Was developed entirely on your own time.
• Did not use any of the employer's equipment, supplies, facilities, or trade secret information.
• Does not relate directly to the employer's business or actual/demonstrably anticipated research.
• Does not result from any work performed for the employer.

Action Item: Check if your state has an 'Invention Assignment' statute. If you live in a state without these protections, your contract terms will govern the outcome entirely.

Red Flags in Your Employment Contract

When reviewing your agreement, look for these specific red flags that indicate an overbroad restriction on your personal time:

• 'Work Made for Hire' language: This is a legal term that automatically grants the employer copyright ownership of anything you create.
• 'Related to the Business' clauses: If this is defined broadly (e.g., 'any software development'), it could capture almost any tech-related side project.
• 'Duty of Loyalty' provisions: Some states imply a duty of loyalty that prevents you from even preparing to compete while employed.
• Broad definitions of 'Confidential Information': If the definition includes 'general knowledge' or 'industry trends,' it may be used to stifle your side projects.

Key takeaway: If your contract claims ownership of 'all inventions conceived during the term of employment,' it is likely overbroad and potentially unenforceable in states like California.

Action Item: Highlight any clause that does not include the 'on your own time/no company resources' carve-out.

How to Safely Pursue Personal Projects

If you want to build a side project while employed, follow this step-by-step process to minimize legal risk:

1. Audit your contract: Identify if you have signed an Invention Assignment Agreement.
2. Use separate hardware: Never use a company-issued laptop, phone, or cloud storage account for personal work.
3. Document your time: Keep a log showing that your project was developed outside of working hours.
4. Avoid company IP: Ensure your project does not use any code, data, or methodologies you learned or accessed at your job.
5. Request a carve-out: If you are starting a significant project, ask your employer for a written waiver or an 'Excluded Inventions' addendum.

Action Item: Create a 'clean room' environment for your project, ensuring no company assets are ever present on your personal development machine.

Conclusion

While an NDA is primarily about secrecy, the combination of invention assignment and non-compete clauses can effectively block your ability to innovate on your own time. Understanding the specific language in your contract and the protections offered by your state is the only way to ensure your side project remains yours.

TermScore can automatically analyze your employment contracts to identify overbroad invention assignment clauses, hidden non-compete language, and restrictive IP definitions, giving you the clarity you need to pursue your personal projects with confidence.