If people work on a startup as a side project, do their employers have any claim over what they create?

August 29, 2008 8:42 AM

I have some interest in getting a little startup going. I'm thinking through who could help, and some of the people on my list are still at my former employer. I worked there for quite some time, and would like to ask a couple of folks there if they want to commit some off-hours to this as a side project. Problem is: will their employer (my former employer) have any claim on what we create - since they still work there? I'm thinking of the whole anything-you-invent-while-working-here clause we all sign when we get a new job. It's not a competitive idea, necessarily, though it is something the aforementioned company should do themselves and might even be interested in buying someday. Would I spoil things by involving folks who still work there? This is in California.
posted by anonymous to work & money (14 comments total)

I think those clauses cover anything done while "on the clock" or on company computers. What they do at home is their own business (in this case literally... har har!). I don't think you, or they, have anything to worry about.
posted by jluce50 at 9:04 AM on August 29, 2008

Part of your start-up financing will include a legal budget. You're going to have a business plan and an adequate budget, right?

You will need legal advice about whether your proposed activities will violate any employment contracts or give the present employer any rights against you under California law.

For now, keep this project 100% away from "the aforementioned company."

IANYL and this is not legal advice. I know nothing about the facts of your case.
posted by JimN2TAW at 9:22 AM on August 29, 2008

I'd second jluce50's analysis. I've been subject to clauses like that in the past; when I've asked for clarification I've always been told that it only applies to things you create or think up on company time.

More limiting in my experience are clauses forbidding employees from going into business with (or recruiting) other employees after leaving the company.

And yes, keep things quiet from your employer; if you must approach other employees about working with you on the project, consider carefully whether they're likely to be able to keep a secret, and definitely keep any discussion away from your workplace.
posted by le morte de bea arthur at 9:27 AM on August 29, 2008

Data point: my company's invention policy specifically mentions that ANYTHING created is owned by the company, whether on company time or equipment, or NOT. Everything, even things totally unrelated to the field. (Yes, it sounds draconian, and as a freelance web developer it made my warning bells go off. However they rarely, if ever, IMPLEMENT the policy.)

My point is that us internet folk have no idea what the exact policy is of your ex company. The current employees do know, however. Go see a lawyer.
posted by Meagan at 9:51 AM on August 29, 2008

You're asking a very specific and complicated legal question. You probably can't afford a real lawyer for your startup idea, but if you can you should ask them. Otherwise, well, usual disclaimers apply. I'm not a lawyer and am not qualified to give legal advice. But I can guess for you!

You should read your friends' employment agreements in detail to understand what the company things their obligations are. Often the agreement will say something like "anything you do we own". California is quite worker-friendly in this respect, though, and I believe those agreements are not entirely enforceable. I've been told that as long as you do your own work on your own time on your own equipment, a California employer cannot claim ownership. Of course your work also has to not infringe on the company's intellectual property: patents, copyright, and trade secrets still apply. Be very certain all the work you do is original, do not "borrow" anything.

Another common part of an employment agreement is that you're not allowed to recruit employees for 1-2 years after leaving the company. That clause may or may not be enforceable in California (there was a recent decision on this I can't find right now). However it's easy to work around this by simply not explicitly recruiting someone.

There's a wide gulf between the letter of the law and common practice. If you're discreet and aren't directly threatening your former employer you're probably OK. Do be careful to act ethically and do be careful to respect your fomer employer's intellectual property. You'll probably be fine.
posted by Nelson at 9:51 AM on August 29, 2008 [1 favorite]

The problem with the "on-the-clock" answer is that exempt employees aren't on the clock. If what they are doing is related to their job then the odds of it belonging to the employer go way up. If you are hiring a software programmer to be a wine taster, not job related. If the programmer works for a bank and you hire him to write software for your winery, probably not job related. If you hire her to write something that would be used by a bank (even if not part of the company's current product line) there chance of trouble goes up, especially if you want to sell the software back to the programmer's current employer. So, think scope of employment, not on-the-clock. (And be aware that their contract be even broader than that)

I have also worked for employers that had a system where you were supposed to get your boss's approval for outside work. Certainly if the company signs off that something is not competing and therefore permitted then you have some protection. In my situation, I had a reasonable boss and a personal project (writing a book in my area of expertise) that didn't threaten them so it was easy.

If you still have a copy of your old employment contract, check it out. If the business is going to be worth real money, then get a lawyer and make sure you are doing it right.
posted by metahawk at 10:11 AM on August 29, 2008

Seconding Nelson's comments:

There's a wide gulf between the letter of the law and common practice. If you're discreet and aren't directly threatening your former employer you're probably OK. Do be careful to act ethically and do be careful to respect your fomer employer's intellectual property. You'll probably be fine.

There are many bad things that could happen in the world, and most of them are unlikely.

If you're on decent terms with the previous employer (you still occasionally have lunch with them, for example) and they're not directly threatened by what you're doing, and, then I wouldn't sweat it.

I would however say that you should get IP agreements from your friends that say they won't give you secrets from any other company, and I would make absolutely sure that no one uses the other company's resources, not even for sending and receiving email (there are some companies that are fine with this, but they are the rare exceptions in my experience).
posted by zippy at 10:32 AM on August 29, 2008

I've seen contracts where if I signed, were I to write even a recipe book for blueberry muffins, entirely on my own time and with my own equipment, the company would prevail if they decided to lay claim to it. So:

You (or they) will first need to check their contract.
If the language is broad and inclusive (and it probably will be - the idea being that it's easier for the contract clause to lay claim to everything and let the company just use discretion in when to use that clause, than it is to try to write reasonable exclusion into the clause without also giving someone a way to benefit from work that should belong to the company), then they probably will want to get the company to agree, in writing, that their work for you is excluded from the clause. This will presumably mean explaining enough of what you intend to do that the company can agree it doesn't impinge on their interests. Or if you have a good relationship with the boss, he might be happy to just take your word for it.
posted by -harlequin- at 10:51 AM on August 29, 2008

IANAL, but I think you're on tricky ground- it's true that a lot of overly-broad noncompetes get tossed out in court, but that won't stop your employer from dragging you into court.

A buddy of mine was recently slapped with an injunction to try to stop him from going to work for a competitor. Owner of former company, feeling vindictive because several people were leaving decided to make an example of my friend and another guy who left to work for the same new company. It took the judge all of a few minutes to tell the former company to take a hike, but it still cost my friend around $5k, I think, and that was only because he and another guy split the fee.
posted by mkultra at 11:10 AM on August 29, 2008

I'm thinking of the whole anything-you-invent-while-working-here clause we all sign when we get a new job.

As mentioned above, step 1 is to actually read the things you signed. "We all" did not sign the same text. Step 2 may be to talk to a lawyer. Step 2 may also turn out to be "do it anyway." It's up to you and we don't have enough info to really give you useful information.

One thing I would do starting now is to track all of your time. If the course you take is to do this project anyway and the result is the company coming after you, in California you will at least have a fallback position of claiming overtime for the time you spent on the project, given that you don't make more than ~$105K.
posted by rhizome at 11:14 AM on August 29, 2008

People actually sign those stupid contracts that say "we own everything you do - even your shopping lists"??? I thought everybody just crossed them out and initialled them. Seriously, no one should sign a contract like that. It's plain ridiculous - verging on a joke. If they really want to give you a job, then they won't care a damn that you've removed their unfair clause. If they do care, then you're better off moving on the the next employer.

Getting back to your specific case, I suggest that you refrain from even discussing your ideas with someone who is still bound by such a contract. Don't let them work on your project, whatever you do!
posted by mr. strange at 2:04 PM on August 29, 2008

In my experience, I recall a lot of tech startups have pretty strong anti-poaching clauses in employment agreements, so if you leave to start a company, you can't just pull all your old coworkers into it (this is ignoring the whole "does the company have any rights to my idea" thing).

I knew someone that basically did this by quitting their job, then starting a company, and to make sure all their new employees (old co-workers) were free of any anti-poaching clauses, they made sure that people that also left their old company to work for their new one took a couple weeks off in between with paid client work, so at least on paper it could look like they were freelancing for a little while before joining a new startup (that happened to be run by their old coworkers).
posted by mathowie at 5:04 PM on August 29, 2008 [1 favorite]

Unless it explicitly says in thier contracts tha they are allowed to take on outside work, get a contract lawyer. Get one anyway.

Bit of trivia Non-compete clauses are unenforceable in CA, among other common contractual things. However that doesn't mean that the employer can't make someone's life legal hell if they feel like it.
posted by Ookseer at 6:33 PM on August 29, 2008

Do a google news search on Barbie and Bratz, to get a good idea of what can happen. I would not mess with having current employees work on this without their employer's prior written approval.
posted by kingjoeshmoe at 12:47 PM on September 1, 2008