October 23, 2026
Your employer owns your side project only if your agreements give it to them or you built it on their time, equipment or confidential information. Read your invention assignment agreement, not just your offer letter: many assign anything you create during employment that relates to the employer's business, even on nights and weekends. About ten states, led by California (Labor Code § 2870), void assignments of inventions made entirely on your own time without company resources, but none of them protect work that relates to the employer's business or uses its trade secrets. Before you quit, keep the project on personal equipment, document when and how you built it, and have a lawyer review your agreements, because investors will ask.
Key takeaways
Start with every document you signed when you joined and any you signed later: the offer letter, the employment agreement if there is one, the invention assignment agreement (often called a PIIA or CIIAA), the employee handbook, and any equity award agreements, which sometimes repeat restrictive covenants. The offer letter rarely contains the IP terms. The invention assignment agreement does.
Look for four things. First, the scope of the assignment: does it cover inventions "related to the company's business," everything created "during the period of employment," or only work "within the scope of employment"? Second, a prior inventions schedule: if you listed your project when you joined, it may be excluded. Third, a holdover clause, which presumes that anything you conceive within some period after leaving, often 6 to 12 months, was conceived during employment. Fourth, disclosure obligations, which may require you to tell the employer about every invention you make while employed, including ones it doesn't own.
The analysis comes down to three questions.
Did you use the employer's time, equipment or confidential information? Code written on a work laptop, stored in a company cloud account or built during work hours is the easiest claim for an employer to win, regardless of what the project is. Use of confidential information, such as internal roadmaps, customer data or proprietary code, is worse, because it adds a trade secret claim.
Does the project relate to the employer's business or its actual or demonstrably anticipated research? This is where most disputes are fought. A large company's business can be very broad, and "anticipated research" can reach a product line you've never worked on.
What did the agreement assign? If you signed a broad assignment and no statute limits it, the contract may give the employer your project even if you built it entirely on your own time.
California is the model. Labor Code § 2870 makes an assignment clause unenforceable for any invention the employee developed entirely on their own time without using the employer's equipment, supplies, facilities or trade secret information, except inventions that relate at the time of conception or reduction to practice to the employer's business or actual or demonstrably anticipated research or development, or that result from work the employee performed for the employer. Delaware (19 Del. C. § 805), Illinois, Kansas, Minnesota, North Carolina and Washington have statutes very close to California's. New Jersey adopted a similar law in 2019, and New York added Labor Law § 203-f, effective in September 2023, which protects inventions made on the employee's own time without the employer's equipment, supplies, facilities or trade secret information unless they relate to the employer's business or result from the employee's work. Utah's statute draws its own line between "employment inventions" and those made on the employee's own time. Nevada goes the other way: unless a written agreement says otherwise, the employer owns patentable inventions and trade secrets an employee develops in the course and scope of employment that relate directly to the employee's work.
Two limits matter. These statutes protect independent work, not competing work: if your project relates to your employer's business, the statute doesn't help. And several of them speak of "inventions," so whether they reach copyright in code is not settled in every state. Which state's law applies depends on where you work and the agreement's choice of law clause, which California and some other states override for their residents.
No. A moonlighting or conflict-of-interest policy limits outside work, and breaking it can cost you your job, but it doesn't by itself make the employer the owner of what you built. Ownership turns on the assignment clause and the statutes above. While you are employed, though, you also owe your employer a duty of loyalty. In most states you can prepare to compete, for example by incorporating, writing code on your own equipment and talking to investors, but you can't actually compete, divert opportunities or solicit customers and colleagues until you leave.
Trade secret claims under the federal Defend Trade Secrets Act and state law don't depend on any assignment clause. If you take documents, code, customer lists or know-how that your employer treats as confidential, you can be sued even in California. General skills and knowledge are yours; specific confidential information is not. See Trade Secrets.
Non-competes are a matter of state law. A Texas federal court vacated the FTC's nationwide non-compete rule in August 2024, and in September 2025 the FTC dropped its appeal and accepted the vacatur, then removed the rule in February 2026, so there is no federal ban. California, Minnesota, North Dakota, Oklahoma and Wyoming void most employee non-competes, Washington's near-total ban takes effect on 30 June 2027, and many other states limit them by income level or duration. We don't recommend non-competes for your own employees, but you may still be bound by one your employer wrote. See Non-Compete Clauses.
Non-solicits of employees and customers are more widely enforced, though California voids most of them. Read yours before you talk to colleagues about joining you. See Non-Solicitation.
Some invention assignment agreements offer a path to clarity: you disclose the invention and the employer confirms in writing that it has no claim. That can produce a clean release, but it also tells the employer exactly what you're building, so decide with a lawyer whether to use it. If you work at a company that is unlikely to care about your project, a short written release or carve-out is the best document an investor can see.
Before you resign, work through this list:
If you want to incorporate before you leave, see Can I Start a Startup While I Still Have a Day Job?
Yes. Diligence usually asks where each founder worked while building the product and asks the company to represent that no founder's work infringes a former employer's rights. Some investors ask founders to confirm it personally. A credible claim from a prior employer can stall or kill a round, so it is far cheaper to resolve it before you raise. Once the company exists, assign the project to it under your stock purchase agreement; see How Do I Assign IP I Built Before Incorporating?
Example. Priya is a backend engineer at a large enterprise software company. Over eight months she spends about 15 hours a week, roughly 520 hours, building a budgeting app on her personal laptop, nights and weekends, in a personal GitHub account. Her employer sells HR and analytics software and has no consumer finance product. She signed a standard invention assignment agreement assigning all inventions "conceived during the period of employment that relate to the company's business," with a six-month holdover clause.
If Priya works in California, § 2870 protects the app: she built it entirely on her own time, with her own equipment and no trade secrets, and it doesn't relate to her employer's business or demonstrably anticipated research. The answer changes if her employer has announced a payments product or she worked on one, because then the app relates to its business and the statute no longer applies.
If Priya works in Texas, which has no invention assignment statute, the contract governs as written. Her agreement only reaches inventions related to the employer's business, so she is likely still fine. A coworker who signed a broader form assigning "all inventions conceived during employment" would have a real problem, because nothing in Texas law limits it. In both states, Priya should not build features based on her employer's internal analytics roadmap, and she should remember the holdover clause: anything she conceives in the six months after leaving that relates to the employer's business is presumed to belong to the employer, so an analytics feature for HR teams should wait.
For more, see Who Owns Startup IP?, CIIAA, Trade Secrets and How Do I Assign IP I Built Before Incorporating?
If you're building a startup while employed and want your agreements reviewed before you resign, contact us.
