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Protecting Your Side Gig

Posted on Posted in California, Employment, Entities, Washington

Millennials are hard workers, interested in building their own lives and careers.  Don’t believe me?  Right around 40% of millennials are working second jobs, either for the money itself, or to build something that’s important to them.  Almost 30% of millennials have lived off the income of their small business, and up to half WANT to start their own business.  This is a generation that doesn’t shy away from striking out on their own.

If you have a 9-5 already, however, or your hands are in multiple startups, it’s important to think about how to separate the obligations you owe to your main job, and to your side hustle and partners.  This is especially important if your side hustle is in the same industry or creative area as your main job.

Non-Competes

The first issue to check is whether you are contractually allowed to have a side gig, particularly one in the same wheelhouse as your day, or primary, job.  In general, non-competes govern whether you can take a job with a similar firm to yours after leaving your prior job.  These are generally non-enforceable in California, but they will be enforceable in Washington, provided the non-competes are reasonable.

The question of non-competes does not generally arise until after you have left your primary employment.  During employment the more pressing question is whether your contract with your employer restricts you from working another job, or from working in the same field.  While employers cannot restrict all out-of-work activities of their employees, depending on the role you play in the company your employer may require “loyalty” from you, which could include not working for a similar company doing similar work.  The place to find this information would be in a written employment contract or written handbook.  You should have access to both these documents and should review the language carefully before embarking on your side venture.

Needless to say, while on your primary job’s work site, or during work hours, you should not be using their resources to develop your side business.  Besides the intellectual property issues discussed below, most companies will frown on company resources (your time, their paper or computing power) being used to make profits for someone else.

Intellectual Property

One problem many startups fail to consider carefully is who owns the intellectual property of the startup, and how to determine that.  This gets even more difficult if you are working in the same field in both your primary job and your side gig.  If you are an app developer by day, and an app developer by night, you can see how that could start to bleed between the two more than a night job involving selling bespoke soap on Etsy, or starting a craft coffee roasting company.

There are two sources to look at to determine whether you will own what you create, or whether your primary company will: (1) state and federal law and; (2) your employment contract and company handbook.

In the absence of a written employment contract or handbook on the subject, employees in California and Washington will own what they create on their own time and with their own resources, but this can be limited by a contract (see below), or if the development is related to what the company does or is developing.  In addition, anything that can be patented usually belongs to the individual inventor, unless there is a contract in place for patented inventions, or the company is allowed a free license to use the development.

In general, your employment contract will likely provide that what you create on behalf of the company, on company time with company resources will belong to the company.  However, some do reach a little farther and allow the company to lay claim to products created by the employee at any time.  You’ll need to review the policies closely to determine exactly what you are allowed to develop on your own time.  If possible, talking to your primary employer ahead of time may be helpful.  If that is simply not possible, you will run the risk that your employer could attempt to lay claim to your developments once your side gig becomes profitable and starts to compete for customers or vendors with your primary job.  The closer your side gig is to your primary job the stronger that claim is likely to be.

As stated above, these IP issues are one of the reasons to avoid working on your side gig while on the clock for your primary employer.  This would include answering side-gig emails via a website on your work computer, or even on your phone while you’re on the clock, using your primary job’s research facilities, or even taking paperclips.  Your best bet is to keep your primary job and side gig as separated as possible.

Finally, you’ll want to make sure that you’re not using trade secrets of your primary job in your side gig.  This would include information that your employer is actively trying to prevent the public from knowing.  If it’s stamped “confidential” or “trade secret”, locked up, or only a few people are allowed knowledge of it, there’s a good chance the company will claim trade secret protection and sue you for the value of the trade secret if you use it outside your primary job.  Generally, this would include things like customer lists and proprietary software.  The most well-known examples are the recipes for Coca-Cola and Kentucky Fried Chicken.

Entities

Finally, it may be worth looking into whether you want to put your side gig into an entity of some sort.  See the previous post on entities here for a longer explanation.  Basically, if your revenue from your side gig is over a certain threshold (talk to your accountant!) you may want to put your business in an entity to save on taxes.  Alternatively, if you are running a company that has several people producing IP for it, you may want an entity to own all that IP, rather than the several inventors, as a way of keeping the technology in one place, increasing the value of the company overall.  And finally, if you are in an industry that creates the possibility of lots of liability, such as manufacturing or pharmaceuticals, you may want to have an entity to limit your liability in the event of a lawsuit.

Your best bet is to enlist the assistance of an employment and/or IP attorney to look over your contracts and make sure you are on firm ground.  A side hustle can be a great way to unleash your creativity or start a new career, but you want to be sure that you can keep your developments safe for the long-term.

NO SPECIFIC LEGAL ADVICE IS INTENDED OR GIVEN BY PUBLICATION OF THIS POST.  NO ATTORNEY CLIENT RELATIONSHIP IS CREATED.