Are confidentiality agreements that claim ownership of all side projects created during employment valid?

Are broad IP assignment clauses for side projects enforceable?

Broad confidentiality and IP assignment clauses that claim ownership of all side projects created during employment are frequently unenforceable. Courts generally invalidate these provisions if they are overly broad, unrelated to the employer’s actual business, or do not involve the use of company resources or proprietary information.

Key takeaway: An employer cannot simply claim ownership of your personal intellectual property through a boilerplate contract if that work is developed independently and falls outside the scope of your professional duties.

The Legal Landscape of Invention Assignment

Most employment agreements contain an 'Invention Assignment' clause. While these are standard for protecting company trade secrets, they often overreach. To determine if a clause is valid, courts apply a 'nexus' test, looking at whether the project competes with the employer or utilizes their specific assets.

The Role of State Statutes

Several states have enacted specific labor codes to protect employee innovation. 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 equipment or trade secrets, provided the invention does not relate to the employer’s business.
• Washington (RCW 49.44.140): Similar to California, it protects inventions developed on the employee's own time, provided no company resources were used.
• Illinois (Employee Patent Act): Limits the scope of assignment agreements to inventions that relate directly to the employer's business or result from work performed for the employer.

Action Item: Check your state’s labor code for 'Invention Assignment' protections. If you reside in a state with these protections, any clause in your contract that contradicts them is likely void as a matter of public policy.

Red Flags in Your Employment Agreement

When reviewing your contract, look for language that signals an overreaching claim. If you see the following, the clause may be legally vulnerable:

• "All work performed during the term of employment": This is a massive red flag. It fails to distinguish between work done for the company and work done on your own time.
• "Any and all ideas, concepts, or inventions": This is overly broad. Intellectual property law typically protects specific expressions or inventions, not abstract ideas.
• Lack of 'Carve-outs': A valid contract should explicitly exclude projects that do not relate to the employer's business.

Action Item: If your contract contains these red flags, request an 'IP Exclusion' addendum that lists your existing side projects and clarifies that future projects unrelated to the company's business remain your sole property.

Best Practices for Protecting Your Side Projects

Even with legal protections, you must maintain a strict separation between your professional and personal work to avoid litigation.

1. Use Personal Hardware: Never use a company-issued laptop, tablet, or phone for your side projects.
2. Maintain Separate Accounts: Use personal email addresses and cloud storage (e.g., GitHub, Google Drive) for your projects. Never sync personal work to company servers.
3. Document Your Time: Keep a log of when you work on your side projects to prove they were developed outside of your contracted business hours.
4. Avoid Competitive Overlap: Do not build products that directly compete with your employer’s current or anticipated product roadmap.

Key takeaway: The strongest defense against an employer claiming your side project is a clear, documented separation of resources and time. If you never touch company property, their claim to your work becomes significantly harder to prove.

When to Seek Legal Counsel

If you are building a high-value project or preparing to launch a startup, do not rely solely on your interpretation of the contract. If your employer discovers your project and threatens a breach of contract suit, the burden of proof often shifts to you to demonstrate that you did not use company resources. Consult with an employment attorney to draft a formal disclosure or a 'Proprietary Information and Inventions Agreement' (PIIA) carve-out.

Action Item: Before signing any new employment contract, use a tool like TermScore to automatically scan for overreaching IP assignment clauses. TermScore highlights these specific risks, allowing you to negotiate better terms before you start your new role.

TermScore utilizes advanced AI to instantly analyze your employment contracts, identifying overly broad IP assignment clauses and confidentiality traps that could threaten your side projects. By flagging these issues before you sign, TermScore empowers you to negotiate with confidence and protect your intellectual property rights.