Reviewing Your Employment Contract: Protecting Your IP and Your Side Hustle

Starting a new job usually means focusing on salary, hours and leave. But if you have a side business, freelance work or intellectual property of your own, there are other parts of your employment contract that deserve attention.

Who owns what you create?

Generally, an employer will usually own IP created by an employee in the course of their employment. Employment contracts often contain broader IP assignment clauses which can extend to IP created during the entire period of employment, or to anything relating to the employer’s business.

If you have already developed a business, software, designs, content or other IP, make sure it is expressly identified as pre-existing IP and excluded from the employer’s ownership provisions. Similarly, if you intend to continue developing projects outside work, the contract should clearly distinguish those projects from IP created as part of your employment.

What about your side hustle?

Side businesses are increasingly common, but employment contracts do not always accommodate them.

An outside activities or conflict of interest clause might require an employee to obtain the employer’s consent before undertaking any other employment, business or paid activity. Other clauses may prohibit activities that are “similar to”, “related to” or “compete with” the employer’s business.

That wording can be problematic

If you have an existing side business, consider whether it can be specifically identified in the contract and carved out from these restrictions. At a minimum, the clause should be targeted at genuine conflicts or competing activities rather than giving the employer unrestricted control over what you do outside work.

If you run a small business completely unrelated to your employment, there may be little reason for your employer to have an ongoing right to control it. If the side business operates in the same industry, the position is more complicated. The employer may have legitimate concerns about competition, use of confidential information or conflicts of interest.

And then there’s the restraint of trade

Many employment contracts also contain post-employment restraints, including non-compete and non-solicitation provisions.

At common law, restraints of trade are generally presumed to be unenforceable unless the party seeking to enforce them can establish that the restraint is reasonable and protects a legitimate interest.

For an employer, that might include protecting genuine confidential information or customer connections. The restraint must also go no further than reasonably necessary in its duration, geographic scope and activities restricted.

Employment restraints are generally scrutinised more closely than restraints imposed in connection with the sale of a business because an employee’s ability to earn a living is directly affected.

This does not mean every restraint is unenforceable. Seniority, access to confidential information, customer relationships and the nature of the employee’s role can all be relevant.

If you have a side business, the restraint should also be considered in that context. A restraint that is drafted broadly enough to capture your existing business could have consequences well beyond your employment.

The takeaway

Intellectual Property, outside activities, confidentiality and restraint provisions should be reviewed together. What looks like a standard employment contract can have significant consequences for a business or IP you have built independently.

If you have a side business or existing IP, it is worth addressing these issues before you sign — not after a dispute arises.

How we can help

Our Corporate and Commercial team is available to assist with any questions you may have regarding employment contracts and trade restraints generally. For assistance contact us.