What legal issues should I consider if I have a business “side project” separate from my day job?

What legal issues should I consider if I have a business “side project” separate from my day job?

Plenty of people spend their nights and weekends working on a startup or another business “side project” that’s separate from their day job. That can be exciting and rewarding. But it’s worth taking a second to make sure you have the legal rights to work on your side project in the first place.

Say you’re a software developer at Xcorp from 9 to 5, and on your weekends you are building a mobile iOS app that you hope will generate side income. Or maybe you’re a graphic designer at Ycorp, and in your free time you sell your own greeting cards on Etsy. There are a few simple steps you can take to avoid legal problems with your employer down the road.

First, have you signed a non-compete agreement or NDA with your employer that prevents you from working on your other project?

When you join a software company, they’ll often have you sign an NDA (confidentiality or non-disclosure agreement) saying that in addition to not disclosing your employer’s secrets to the outside world, you can’t use those secrets for your own purposes or for any competing efforts. You may have also signed a non-compete agreement that says you can’t work on any projects that compete with your employer. “Compete” may be defined broadly or narrowly, or it may not be defined at all. Give a close read to any paperwork that you signed when you joined the company. Note that these provisions may appear in a company employee manual or code of conduct: it may not be a separate document that looks like a contract.

Second, have you granted your current employer any intellectual property rights to things you create outside the workplace?

Another document that you often sign when you join a tech company is something usually called an “invention assignment agreement,” an “intellectual property assignment agreement” or a “work for hire agreement.” This document usually says that if you work on any projects (i) using the company’s property, (ii) on the company’s premises or (iii) relating to the company’s business, then anything you create that can be patented or copyrighted will be considered the company’s property. So if you spend your weekends coding an app that does anything related to the business of your regular employer, your code might all belong to your employer. That would mean that you would have to get the employer’s consent to market it and let consumers use it – and likely give your employer any resulting revenue!

This isn’t necessarily an employer being greedy; the employer’s just trying to make sure an employee doesn’t try to claim that something they built for the company actually belongs to the employee. But sometimes these documents are written in a way that is broader than they need to be. If you’re concerned about the reach of a document like this that you’ve signed, it’s usually possible to negotiate an exception to the agreement. Ideally, you’ll do this at the time of accepting an employment offer: if you’re asked to sign a broad assignment agreement, generally you may just disclose that you’re already working on an XYZ app, and you’d like to be clear from the beginning that the employer will never claim any rights to that app. If you start working on the side project after you joined the company, it’s often still possible to explain the situation to your employer and just identify that project (in writing) as an exception to the agreement.

So why does this matter? First, to make sure your work is not all in vain. If you’ve signed documents that give your employer the rights to your own personal work, then you can’t legally do anything with that work. You can’t sell it, and can’t even give it away for free; if you’ve already sold it, then the company may be able to claim the revenue.

Second, if you ever want to find investors for your own startup, uncertainty about the issues described here is a quick way to ensure no investor will talk to you. Investors need to know from day 1 they will never have your employer claiming the rights to your work product. They’ll ask to see these legal papers.

Finally, the threat of being sued by an employer is real. And even if you win the lawsuit, it will cost you thousands of dollars and endless stress.

These are the most common legal issues that could affect your work on side projects, but this isn’t an exhaustive list. Your attorney can help you review or negotiate these documents quickly.

Opticliff Law, LLC is a Portland, Maine law firm helping creative professionals, tech workers, startups and other small businesses.

Adam Nyhan

Adam Nyhan represents clients in Maine, Silicon Valley and globally in software, privacy, trademark and business law matters. He is also the co-founder of a Software-as-a-Service startup and a former in-house attorney at a software firm in New York City.