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Works for Hire and the No Moonlighting Clause: If You Write and App on the Side, Does Your Boss Own it Anyway?

By Britton Payne

Developers (and coders and programmers) dream of creating the next Facebook, Uber, or Spotify. Yet dreaming doesn't pay the bills, so these developers probably work for someone else in the meantime. When dreaming turns into coding on nights and weekends, things start to get tricky with regards to employment agreements.

Developers are a very smart class of people, and often rely on their own judgment when looking over employment paperwork at a new job. Unfortunately for both employee and employer, this often leads to adversarial consequences. When the programmer wants to leave the job to work on the dream, and the legal meaning of language in a contract doesn't line up with the developer's understanding, both the job and the dream can go up in smoke. This problem doesn't affect just tech companies -- many large companies hire developers in one capacity or another. There are many ways an employment agreement can trip up a dreaming developer and employer, often wrapped up in the No Moonlighting and Work for Hire clauses.

"No Moonlighting" Clauses can Turn "Personal Time Developing" into Breach of Contract

With or without a traditional 9:00 to 5:00 in an office, most developers feel like they have a pretty good understanding of what their jobs are: If you do your assignments for the benefit of the company, you're doing your job. Unfortunately, a developer's obligations to the employer may also include the things they don't do in addition to the things they do. Employment agreements often include limitations on what employees can do with their non-work time -- the "No Moonlighting" clause. The idea is that some jobs want you to put all creativity and effort into helping the employer, and not someone else (including the employee). Sometimes this is limited to work related to the job, but sometimes it is for any work at all. Here are sample No Moonlighting clauses:

-...The Employee shall devote substantially all of his business time and attention to the performance of his duties hereunder...

-You agree that you will not engage in any other business activities or render services of a business or commercial nature on your own behalf or on behalf of any other person, corporation or any other entity, whether for compensation or otherwise, without [Company]'s prior written approval.

A narrow No Moonlighting clause might restrict one from freelance developing on one's own time; a broad No Moonlighting clause might restrict one from even tending bar on personal time.

As you can see, the devil is in the details, and a particular clause may not be that easy to understand without the help of an attorney. A client of mine went to quit his job to work full time on his personal time project, and an amicable employer became suddenly aggressive. His employer claimed that not only did it own his project under the Work for Hire clause, but the (now former) employee was in breach of contract under the No Moonlighting clause. Naturally, he panicked. We got him through it, but he would have been much better able to manage his project, or even change his employment agreement, if he had consulted with an attorney before he signed his employment agreement.

"Work for Hire" Clauses can Easily Capture Personal Time Programming

Even without a No Moonlighting clause, most developers realize that a Work for Hire clause is standard, and that it limits their ability to own the programs and code they create for their employers. Developers generally understand that there is some rule about creating outside programs on work computers, during work time, or at the office. Unfortunately for developers, this could mean the difference between owning the intellectual property in outside work, or having to give it over to the employer. Some sample Work for Hire clauses include:

-I hereby assign to the Company... all my right, title, and interest in and to any and all inventions, original works of authorship... which I may solely or jointly conceive or develop... during the period of time I am in the employ of the Company... except an Invention that (i) I develop outside of the Company's normal working business hours and (ii) does not relate to the Company's business as currently conducted, or as conducted in the future. I further acknowledge that all original works of authorship which are made by me (solely or jointly with others) within the scope of and during the period of my employment with the Company and which are protectable by copyright are "works made for hire," as that term is defined in the United States Copyright Act.

-You acknowledge and agree that [Company] is the owner of the copyright in any work which it or you produce in connection with your employment...

-All inventions, innovations, improvements, methods, designs, drawings, characters, props, molds and all similar or related information (whether or not patentable) that relate to the Company's or its Affiliates' actual or planned business, research and development or existing or planned products or services and that the Employee conceived, developed, or made while an employee of, or a consultant to, the Company (collectively, the "Work Product") ... consisting of copyrightable subject matter is "work made for hire" as defined in 17 U.S.C. ยง 101 and such copyrights are therefore owned by the Company.

The terms of these clauses vary, as does the intellectual property they intend to capture. A more narrow clause would only capture personal time programming that is in connection with the "employment." However, a broader clause captures personal time programming that relates to the company's "actual or planned business," whether or not that relates to the developer's particular job. One developer client used a database program at work that he felt was inadequate. On his own time, he built a better database program for the purpose. He hoped to quit his job and have his employer become his first client. He knew that he had a Work for Hire clause, but because his job did not involve making database programs, he thought his project was outside the scope. When the employer got wind of his plan, they disagreed, and it led to some tense and adversarial negotiations that were unfortunate for both sides. A similar case from the pre-Internet era showed a court's thinking on how broadly "scope of employment" can be construed:

Miller's job description did not specifically state that he was to develop computer programs. Miller was not assisted by others in the development of the computer programs. Finally, Miller did not receive any type of additional compensation for the work done on his own time. However, the driving force behind the creation of the computer programs was to benefit CP by making the quality control laboratory more efficient. Furthermore, the development of the computer programs was clearly incidental to the other work performed by Miller. . . . [T]he court concludes that the development of the computer programs by Miller was within the scope of his employment.

Miller v. CP Chemicals, Inc., 808 F. Supp. 1238, 1244 (D.S.C. 1992). Neither side could have been pleased that it was stuck in a lengthy litigation.

Counseling before Signing the Employment Agreement is Good for the Employer and the Employee

Several of my pre-employment counseling clients have been referrals from employers. Developers are generally very smart and quite comfortable acting independently, but employers have seen relationships with developers go bad over the intellectual property terms of their employment agreements, even when both sides initially think that the terms are reasonable. Many employers of developers want to employ the kind of talented and enthusiastic developers who would build apps on their own time, and have no interest in owning or slowing down their truly outside projects. It may be better to have a special employee like that for only two years than a less motivated employee for 10. At the same time, employers (and their contract drafters) have an obligation to nurture and protect their companies' intellectual property. As friendly as an employer and a new employee may be, the employee is at a disadvantage when understanding the meaning and application of No Moonlighting and Work for Hire clauses. In addition, there are several other standard clauses peppered throughout a developer's employment agreement (and even the company policy documents) that might affect a developer's ownership of personal time programming.

Don't Give Up Hope: The Terms are Often Just the Starting Point for Negotiations

No one wants to go to court, no matter how much bluster one side or the other might display, and it may not even be in either side's interest to strictly enforce the No Moonlighting/Work for Hire clauses of an employment agreement. Further, overreaching or poorly written No Moonlighting restrictions or Work for Hire grabs may not be enforceable in court. When employment ends, the terms of the employment agreement may dictate strict adherence. In practice, they often serve as simply the basis for negotiations, especially once the developer leaving the job has representation. One client created a proof of concept app that was unrelated to his assignments, but which would help his employer. When he quit the job to develop it fully, the employer claimed that it owned the app. However, as it was only at an early stage of development, it was practically useless without further development from the ex-employee. The sides came to a negotiated agreement involving joint ownership of the new company formed to develop the app that adequately incentivized the developer, while giving the employer some benefit of the bargain set forth in the employment agreement.

Further Reading,

Mattel, Inc. v. MGA Entm't, Inc., 616 F.3d 904, 912-13 (9th Cir. 2010), as amended on denial of reh'g (Oct. 21, 2010) (exploring the ambiguity of the phrase "at any time during my employment").

Advanced Tech. Servs., Inc. v. KM Docs, LLC, 330 Ga. App. 188, 196, 767 S.E.2d 821, 828 (2014), reconsideration denied (Dec. 4, 2014) (finding a developer employment agreement for personal time programming to be ambiguous).

J & K Computer Sys., Inc. v. Parrish, 642 P.2d 732 (Utah 1982) (finding that elements of computer programs are trade secrets that can be protected from use by former employees, even though a few customers had access)

Jumping Ship: Legal Issues Relating to Employee Mobility in High Technology Industries, 17 Lab. Law. 25, 106 (2001)

The Moonlighting Survival Guide

Do You Need an Employee Moonlighting Policy to Protect Your Business? http://www.bizfilings.com/toolkit/sbg/office-hr/managing-the-workplace/employee-moonlighting-policies-protect-business.aspx

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This page contains a single entry from the blog posted on May 3, 2016 7:09 PM.

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