Is Your Employment Contract Limiting Your Career? — Probably!
Have you heard of Evan Brown?
He was an employee at the technical support department of the telecommunications company DSC/Alcatel USA when he came up with a new idea during his free time.
After ending his employment he was forced to show up at the office every day for three months and write down hundreds of pages of computer code without pay.
All because his employment contract had a clause in it that handed over all legal rights to his inventions to his employer.
Even though he had not created his invention yet, it was just an idea, it belonged to his employer — they owned his thoughts.
Do you have a clause like that in your employment agreement?
Over the past ten years, I have seen how asking employees to sign over their Intellectual Property rights has become common practice in both the tech and start-up industries.
Some of the legal clauses used are so far-reaching that you are even signing away rights to inventions you make after your employment ends.
This will make most other companies very hesitant to hire you and you are also risking your employer claiming your best side projects as their own.
Many companies make their employees sign contracts that limit what future job tasks they can work on, which industries they can work in, and where in the world they can work at all.
And most employees sign these contracts without knowing the potential consequences.
Are you allowed to use your skills to help out that nonprofit you support? Can you design your best friends new website? Would it be ok for you to contribute to open sources code projects?
Let’s find out:
You are probably a bit confused now and maybe you cannot even remember what your contract actually says.
Go get that contract and let’s take a look at the most common clauses that restrict your options.
1. Intellectual Property
The traditional interpretation of intellectual property (IP) rights used to be that the results you produced at work belonged to your employer.
The rule was that the output from your innovation would become the property of your employer. That meant that technological advances, scientific discoveries, and artistic works would belong to the company you worked for.
Slowly but surely this right has been extended further and further into the personal lives of the employees.
Now the concept has been widened to also include the talent you put into innovation such as skills, know-how, creativity, experience and entrepreneurial efforts. If the thought is in your brain — it could belong to your employer.
If you have a clause like this, it is very likely that the company you work for can claim the rights to all your ideas and inventions:
to any and all inventions, original works of authorship, developments, concepts, know-how, improvements, trademarks, domain names or trade secrets, whether or not patentable or registrable under patent, trademark, copyright or similar laws, that I may solely or jointly conceive or develop or reduce to practice or fix in a tangible medium, or cause to be conceived or developed or reduced to practice or fixed in a tangible medium, within the scope of and during the period of time of the Relationship (collectively referred to as “Intellectual Property”). I further acknowledge that all Intellectual Property which is developed by me (solely or jointly with others) within the scope of and during the period of the Relationship is a “work made for hire” (to the greatest extent permitted by applicable law) and is compensated by my salary, unless regulated otherwise by mandatory law.
Even if your clause is not worded exactly like this chances are that you would still be obligated to sign over all or at least the majority of IP rights to your employer.
2. Non-Competition
Companies want to keep their most valuable employees and they most definitely do not want them to start working for their competitors.
Non-compete clauses have become a standard requirement in today’s labor market. Employees routinely sign non-competes promising to not work in their profession in the same region for a period of time.
Often times these clauses are too broad and might not be upheld by the courts. But by the time you as an employee reach that point, you will be heavily set back by legal fees.
And even more importantly, the new company you want to work for will not take the risk of hiring you. Companies have been known to send letters to competitors warning them about the existence of a non-compete clause, causing the employee to be fired from the new job.
If you have a clause like this, you are obligated to not work in your chosen field for two years following your termination.
Employee agrees that for a period of two years following the termination of the Employee’s engagement for any reason or without reason, Employee shall not in any capacity whether in the capacity as an employee, officer, Employee, partner, manager, Employee, agent or owner directly or indirectly advise, manage, render or perform services to or for any person or entity which is engaged in a business competitive to that of the Company or any of its subsidiaries within any geographical location wherein the Company or any of its subsidiaries produces, sells or markets its goods and services at the time of such termination or within a one (1) year period prior to such termination.
With a clause like this, you are blocked from taking a linear approach to your career. Two years is too long to be locked out of the market. Your skills will no longer be relevant if you are not allowed to practice your trade.
3. Non-Solicitation and Non-Poaching
So, if you cannot be hired, maybe you can start your own business?
Not so fast!
Most contracts include non-solicitation clauses that restrict employees from starting new businesses where services and products are offered to the same customers as the company they were previously hired to work for.
In some cases, even “indirect” solicitation is forbidden. This can include advertising or publicity, which makes it almost impossible to advertise a new business.
Even if you manage to target a different market, you still need to be careful about who you start the company with and who you choose to employ.
It is very likely that your contract has a non-poaching clause that prevents you from causing other employees to leave their jobs.
Clauses that prevent you from competing with your former employer can look something like this:
You agree that for a period of two years following termination, You shall not directly or indirectly, whether for your own account or on behalf of any person, firm, corporation, partnership, association or other entity or enterprise, solicit, recruit, hire or cause to be hired any employees of the Company or any of its affiliates, or any person who was an employee of the Company during the six (6) months preceding Your date of termination of engagement, or solicit or encourage any employee of the Company or any of its affiliates to leave the employment of the Company or any of such affiliates, as applicable.
You agree for a period of one year following the termination of your employment, that you will not solicit by mail, phone, electronic communication, personal meeting, or any other means, either directly or indirectly, business from any customer of the Company who you served or whose name became known to you during your employment with the Company.
A clause like this makes you both difficult to hire and limits the types of side projects you can be involved in. Combine this with the fact that your employer most likely owns your IP and you are locked into a very narrow path.
So, is your employment contract limiting your career?
Probably — but there are things you can do to take back control.
- Examine your employment agreement. What did you really agree to do? The best is if you understand what you sign before you sign it. If you have already signed you need to know exactly what your limits are to avoid getting sued and to make sure that you keep the rights to your ideas.
- Negotiate your contract. Yes, negotiation is possible. I have never had a client get a job offer revoked based on negotiation. The worst outcome is that they say no. Best case scenario, you get to keep most of your creative freedom.
- Only work for companies that offer fair employment agreements. They are out there and they are very interested in working with people like you who value personal growth, innovation and have big career ambitions.
