You built something on your own time. You used your own laptop. You are certain it belongs to you. Whether that is true depends on a clause you signed on your first day and probably never read, and on which state you happened to be working in. Side hustle IP is one of the few areas where the default rules vary enormously by geography, and where a broadly drafted employment agreement can reach further than most employees expect.
This is not a theoretical risk. It surfaces at the worst possible moment: when the side project starts making money, when an acquirer runs diligence, or when you resign and your former employer reads your new company’s website.
What You Will Learn
- How invention assignment clauses actually work
- Which states limit what an employer can claim
- Why work made for hire is narrower than people assume
- How trade secret law reaches side hustle IP even without a contract
- Seven traps that hand your project to your employer
- What to do before you build anything
Invention Assignment Clauses Do the Heavy Lifting
Most employment agreements contain an invention assignment provision requiring the employee to assign to the employer any invention, work product, or intellectual property conceived during employment. The aggressive versions reach anything created during the term of employment, full stop, regardless of time, equipment, or subject matter.
Courts do not always enforce the broadest versions, but the starting position matters. If your agreement assigns everything and your state has no limiting statute, you are arguing uphill. If your state has a carve-out statute, the clause is narrowed by operation of law whether or not the contract says so.
Read your agreement for four things: the scope of assignment, the definition of confidential information, any non-solicitation term, and any duty-of-loyalty or outside-activities provision. Each can independently affect side hustle IP.
State Statutes That Protect Employees
A meaningful minority of states limit employer claims to inventions developed entirely on the employee’s own time, without employer equipment, supplies, facilities, or trade secret information. California, Illinois, Washington, Minnesota, Delaware, Kansas, North Carolina, Utah, New Jersey, and New York all have some version of this protection.
New York’s provision, Labor Law Section 203-f, took effect in September 2023 and makes overbroad assignment provisions void as against public policy. But the carve-outs are wide. An employer can still claim inventions that, at the time of conception or reduction to practice, relate to the employer’s business or its actual or demonstrably anticipated research and development, or that result from work performed for the employer.
That phrase, demonstrably anticipated research and development, is the one that swallows side hustle IP. A software engineer at a payments company who builds a payments side project is likely inside the carve-out even in a protective state. The same engineer building a recipe app is likely outside it. Subject matter adjacency is the variable that matters most.
Work Made for Hire Is Narrower Than People Assume
Under copyright law, a work prepared by an employee within the scope of employment is a work made for hire, and the employer is the author from the outset. Outside the employment relationship, the doctrine only applies to nine enumerated categories of commissioned works, and only with a signed written agreement.
Scope of employment is the operative limit. Work genuinely outside your job duties, on your own time and equipment, is generally not a work made for hire. But employers do not rely on the doctrine alone. They rely on the contractual assignment, which is why the clause matters more than the statute. The U.S. Copyright Office publishes a plain-language overview in Circular 30, and the USPTO maintains the corresponding basics for patentable inventions.
Trademarks follow a different logic entirely. Rights arise from use in commerce rather than from creation, which is why a side project’s brand can be protectable independently of the underlying code. We cover this in our piece on how trademarks are built through use.
Trade Secrets Reach Further Than Your Contract
Even with no assignment clause at all, trade secret law provides an independent path. Under the Defend Trade Secrets Act and state analogs, using an employer’s confidential information to build a competing or adjacent product creates exposure regardless of who owns the resulting code.
The practical risk is contamination. Customer lists, pricing models, internal benchmarks, vendor terms, and roadmap knowledge all qualify if reasonably protected. A side project that benefits from any of that inherits a claim. Our discussions of defining confidential information and the non-disclosure agreement explain how broadly these definitions are typically drafted.
Restrictive covenants add another layer. The Federal Trade Commission’s proposed nationwide noncompete ban was vacated in litigation, and in February 2026 the agency formally removed the rule from the Code of Federal Regulations. Enforcement is now case-by-case under Section 5 of the FTC Act, which means state law governs enforceability again. That makes location decisive. See our coverage of Illinois noncompetes and why Wisconsin noncompetes are not dead.
Seven Traps That Cost You Your Side Hustle IP
- Using the company laptop. The cleanest way to hand an employer a claim. Employer equipment defeats the protection in nearly every carve-out statute.
- Working during business hours. Even a few hours undermines the own-time element and is easy to prove from commit history or badge records.
- Building in your employer’s subject matter. The adjacency trap. Related to the employer’s business is broader than competing with it.
- Using the company email or cloud account. Creates a record on employer systems and arguably uses employer resources.
- Recruiting colleagues. Triggers non-solicitation terms independent of any IP question.
- Pitching your employer’s customers. Converts an IP question into a duty-of-loyalty and trade secret question.
- Assuming a verbal blessing counts. A manager saying it sounds cool is not a written waiver and will not survive that manager’s departure.
What to Do Before You Build
The order of operations matters more than the legal theory. Get your own copy of every agreement you have signed, including the offer letter, the handbook acknowledgment, and any equity documents, since assignment terms often hide in the equity paperwork rather than the employment agreement.
Then separate everything. Personal device, personal email, personal cloud storage, personal accounts, work done outside business hours. Document it as you go, because the burden of showing you built it on your own time will fall on you.
If the project is adjacent to your employer’s business, the only durable answer is a written carve-out. Many employers will grant one, particularly for projects clearly outside their roadmap, and asking early is far cheaper than litigating later. If you are already forming an entity around the project, the founder documents should include a clean assignment from you to the company, which is covered in our founder-led company legal map and in our guide to bringing on a co-founder.
Side projects in regulated industries carry an extra approval layer. Cannabis and hemp ventures in particular involve ownership disclosure obligations, discussed at Cannabis Industry Lawyer, with operational planning handled by Collateral Base. If a former employer has already sent a demand letter, that is a litigation posture handled by Howard Law Group.
Frequently Asked Questions
Does my employer automatically own my side hustle IP?
Not automatically. It depends on your employment agreement, your state’s invention assignment statute, whether you used employer time or resources, and whether the project relates to your employer’s business or anticipated research and development.
Does it matter which state I work in?
Considerably. States including California, Illinois, Washington, New Jersey, and New York limit how far an employer’s assignment clause can reach. States without such statutes generally enforce the contract as written, subject to ordinary contract defenses.
What if I signed an agreement I no longer have a copy of?
Request it from human resources. Employees are generally entitled to copies of agreements they signed, and many states give employees a right to inspect their personnel file. Do not build on assumptions about what it says.
Can I get permission in advance?
Often, yes. A written carve-out identifying the project and confirming the employer claims no interest is the most reliable protection available. Get it signed by someone with authority to bind the company.
Next Steps
If your side project is generating revenue, attracting investors, or approaching your employer’s subject matter, the ownership question should be resolved before it becomes someone else’s leverage. Howard East reviews employment agreements, negotiates carve-outs, and structures entities for side projects becoming real businesses. Contact our team for a review before the stakes rise.
This article is general information, not legal advice. No attorney-client relationship is created by reading it. Attorney Advertising.
