If an employer owns any work you produce whilst employed, do you have to be un-employed before you can begin a startup?

Question

I've always liked the idea of owning a start-up company, during my employment history I've encountered problems and developed solutions I think could be developed into an actual product. I'm concerned about what effects the standard "company X owns all work produced whilst employed" has on my ability to take an idea and begin a start-up in my free time.

For example, I've previously made software which collects specific data from the factory floor and displays it live. This software is very specific to the company's needs, but could be generalised and adapted to work across a variety of manufacturing companies.

In theory, this idea could be packaged as a product, sold separately and be the foundation for a software startup. The end product, whilst inspired by the original task, would be very different from its current implementation.

Would the previously mentioned clause mean that the idea (and any development on it) is owned by the employer as it was originally conceived on company time?

Is this still property of the company, no matter how much external development is done?

In a similar vein, If something I encounter at work inspires me with a different idea and I start work on it in my free time rather than during office hours, does the company own that idea? As I wouldn't have encountered the problem my idea solves if I didn't work at the company?

Surely there is a limit to what a company can reasonably claim as their intellectual property, as it seems unreasonable for a magnetics manufacturer to claim a app which provides cooking recipes as IP just because it was developed by one of their employees.

To properly pursue any start-up ideas I have, would I have to be completely unemployed or otherwise out of the industry for a grace period before I can legally work without infringing on the company's IP?

Any help is greatly appreciated!

Answer 1

Ideas aren't property

Your employer does not own your ideas. However, neither do you.

Ideas are not something that is protected by intellectual property law. To be IP, you need more than an idea.

What is IP?

The most common types are:

• Patents - protect inventions and new processes
• Trade marks - protect logos, words and other branding
• Copyright - protects art, writing, music, film, and computer programs
• Registered designs - protects the visual design of a product
• Circuit layout rights - protect layout designs or plans of integrated circuits used in computer-generated designs
• Plant breeders rights - protect the commercial rights of new plant varieties.

The normal operation of IP law is that if a person is engaged under a contract of service (e.g. an employment contract) then their employer owns all the IP they make which includes progress towards something that might be IP (e.g. all the work that leads up to a patentable invention). However, if they are engaged under a contract for service (e.g. an independent contractor), then the worker owns the IP.

The work the employer owns is generally limited to work in the course of the employment. So if you are a software developer they will generally own all code you write that is useful for their business but won't own the romantic novel you write in your spare time.

In either case, the specific contract can override the default assumption.

What can you do?

You can certainly use the idea for the app but you can't use anything that is subject to your employer's IP. That means you can't use any code or copy the user interface - it all has to be redeveloped from scratch. You also can’t develop something that would be of use to their business while you are still an employee.

Answer 2

Contract terms are a negotiation. If you think "company X owns all work produced whilst employed" is an unreasonable term, then your legal option is to refuse to sign it.

Of course, the company can turn around and say "no deal" but this is because you are not Linus Torvalds (or any other prominent free software developer). Imbalance in bargaining power is generally not a legal issue though.

I don't know what the job market is where you are but it's generally worth asking the question. I'm sure a lot of HR teams will have heard it before, and you won't be the first person that asked about side gigs. Maybe it's the culture in your country/industry that terms aren't negotiable and maybe you just need to ask.

Answer 3

Draconian employment agreements are not always enforceable. This is especially true in "right to work" jurisdictions. Courts have essentially ruled that employers can't have it both ways. That is they cannot fire at will and control all aspects of an employees life.

Additionally (from a legal perspective) many are poorly written and can be voided on other technical errors.

To be 100% sure you would need to consult a lawyer, however, one thing is sure. If at any time you use your company's assets to develop your idea into a product they probably have some right to ownership.

The key is to keep things 100% separate, your own computer, internet access, email, office supplies, phone, web site provider, etc....

As richarddb pointed out in his answer, there is nothing stopping you from renegotiating this agreement now. Then you are free to turn your idea into a product with impunity.

Answer 4

As you're not providing a country, in Germany this is regulated like this ("Mehrfachbeschäftigung"):

• In principle, an employer cannot forbid you to have secondary employment, or be self-employed, or earn money on the side with whatever method you're choosing, as long as you're fulfilling the contract with your employer. I.e., if your side work taxes you so much that you cannot work the amount of hours for your employer, and just don't show up, that is simply a regular breach of contract, it has nothing to do with the reason why you can't fulfill it. If you are so overworked that your performance suffers heavily, this will just be treated as such - your employer can / will treat you like any other employee who performs badly.
• One exception to this basic principle is that your employer can forbid you to do a side job which is more or less the same as the work you are doing for your employer. For example, if I work as a DevOps Engineer for my employer, but on my side I also offer my skills as DevOps Engineer to another company or as a freelancer, it definitely becomes interesting. Especially if I do that for a customer which would potentially or actually a customer of my employer. There could be real conflicts of interest here - e.g. I could use my knowledge from my work at the employer to undercut his rates towards the customers, steal customers wholesale, and so on and so forth.
• Using any IP from your employer (where "IP" has a concrete meaning; random ideas or general approaches to solve problems are never IPs) can and will get you in trouble - that's what the term "intellectual property" (emphasis "property") means. If what you are using is property of your employer, he can and must protect his property if he thinks that is more important in your individual case than keeping you as an employee. The example you're giving (to create a system which visualizes a factory) can be very general (no problem) or very specific (potentially a problem if your employer decides to go to court).

Answer 5

Even if you agree to the general clause in the contract about all IP belonging to your employer (and yes, in the UK at least, technically that does mean ALL IP, including random stuff completely unrelated to your work that you do outside of company time and using no company equipment or resources), if you have an idea that you wish to pursue and to retain ownership of, you can negotiate that with the employer. It's pretty common in my line of work for people to turn up at HR and say "I've had this idea I want to pursue, please can I have a waiver for it" and then the company gives them a signed letter saying "we waive all our rights to X" and then off they go to work on it in their spare time.

Answer 6

In the united-states the default rule, in the absence of a contract, is that the copyright of any work created by an employee "prepared by an employee within the scope of his or her employment" is a work-made-for-hire and the copyright belongs to the employer, see 17 USC 101. This means that work done as part of the employee's assigned tasks, and work of the same sort (narrowly construed) as the work normally assigned to the employee by the employer. Beyond that, the employee retains any copyrights except as a written contract may provide otherwise.

An independent contractor owns all copyrights of work created during the assignment except as a written contract may provide otherwise.

I believe that the US rule for patents and other IP is similar.

Using the code created for and owned by the employer as a basis for a new, more general app, might well make the new app a derivative work. If it did, the employer's permission would be needed to lawfully create or distribute such an app.

Answer 7

I worked in an Indian IT shop once (in India, where I live) which had language like this in their contract; I told them I wanted to work on an app and got the relevant clause changed. They mostly wanted me to promise not to compete with them and not to work on it during weekdays, so it was an easy negotiation

Answer 8

If your idea is related to your company's business then it likely belongs to them.

Examples:

1. You work at Google. You work on maps. While at home you have an idea for a better coffee maker.

2. You work at Google. You work on Android's audio system. While at home you have an idea for a better search algorithm.

3. You work at Google. You work on Search. While at home you have an idea for a better search algorithm.

4. You work at Google. You work on Search. While at home you have an idea of how to solve the bug you're fixing at work.

I gave 4 examples to hopefully show there's a spectrum and I hope the last one shows why, at least in some states/countries, the general thinking is "if it's related to the company" or "if it's related to your work" then it belongs to the company.

In #4, it seems common sense (to me at least), that having an idea directly related to your work that you happen to have outside normal hours doesn't make it yours. It would seem untenable for you to be able to go to work the next day and demand more money because you had this idea of how to solve your work problem outside of work hours. Every employee would just claim all solution ideas happened outside of work. The company likely pays you a salary, not an hourly wage which is supposed to cover the fact that you'll be thinking about the company and your job at irregular times. Second, you wouldn't even be aware of the bug except for the fact that you're working on their product.

In #3, it's not really too far from #1. Especially for knowledge work, the company is paying you for your knowledge regardless of when it occurs to you.

In #2, it's more iffy. My guess is again, the company's business includes search. I don't know how this would go in court. My personal guess is Google would win because they're in the search business even though your job is not personally in search.

In #1, it seems relatively clear you're safe.

Unfortunately between #2 and #1 there's a big range of projects, especially for a company like Google that does a zillion things. Fortunately, at Google, as an employee, you can ask them and they'll tell you up front if they see it as a conflict and if not they'll give you a legal letter stating they have no ownership of your idea. Of course not all companies have such a system.

To your specific questions, your first question sounds very much like #3 above. The thing you want to make is in direct competition with your employer. As such it would likely belong the company. If you want to pursue it you'd need to quit (and hopefully live somewhere that doesn't have non-compete clauses)

For your second question, it's not clear what the ideas are and how close they are to your company's line of business. The closer the more likely they could claim ownership. None of us can answer if they are too close or far enough. You options are (1) quit and pursue your ideas (2) ask for legal permission/clarification (3) do it anyway and pray you don't have your work taken from you.

Answer 9

Some more on the situation in germany, in addition to what AnoE says:

• What IP your employer can claim does not depend on it being developed during working hours e.g. for inventions and software. The rules how to decide whether the employer has a right differ between different types of IP.

• There are some situations where IP is yours, but you have to tell your employer. One would usually not want this, and in many cases it is plain impossible to do business under such obligations (e.g. I usually have NDAs with my customers)

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If you want to start a side business, the legal default is IMHO not suitable: even if your software turns to not be in your employer's sphere of interest (which I would not bet on in the case you describe), there is a substantial legal risk. And you'd want to spend your time developing your product rather than preparing a defense for meeting your employer in court.

So my recommendation would be to be entirely open about you wanting to start a business and negotiate suitable changes to your working contract. This will include clauses that very clearly separate what IP your employer can claim and what is yours.
This advise may be biased due to the fact that I have successfully negotiated exactly this: a part-time contract giving me time in parallel to start my business with clauses suitable for starting my business - even though the services my business provides are essentially what I did for the employer (but my business is not competition for them - they don't sell this particular service, they need it).

Answer 10

"Beginning a startup" will involve many things that have nothing to do with your current employment. Creating a company, finding office space (possibly at your home), finding a company director (often yourself), getting financing, writing business plans, finding out about all kinds of legalities, like what taxes to pay, that is all work that for most people has nothing to do with their current employment.

So independent of any IP problems, you can start your startup company while still employed.