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Can my employer claim the company I'm building on the side?

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It depends on what you signed when you were hired, and most people signed more than they remember. The standard confidential information and invention assignment agreement used by technology employers assigns to the employer any invention that relates to its business or its reasonably anticipated business, whenever and wherever it was made, and invention in that clause means code, designs, business plans, know-how and customer lists, not only patents. A founder building something in the same field as their day job, on their own time and equipment, may already have assigned it. Investors know this, and a founder who cannot show a clean break from a former employer will be asked about it in every round.

Read what you signed

The offer letter, the invention assignment or proprietary information agreement, the employee handbook and any equity agreement. Look for the scope of the assignment, any carve-out for inventions made on your own time without company resources, any list of prior inventions you disclosed when you joined, and any non-compete or non-solicit. Some states limit what an employer can claim: California, for example, will not enforce an assignment of an invention made entirely on your own time without company equipment or trade secrets, unless it relates to the employer's business or results from your work for them. That last clause is the one that catches most founders.

Keep the two apart

No company laptop, no company accounts, no company office, no company time. Nothing from the employer's code, data or documents, and no customers approached through the employer's relationships. Do the day job properly until the last day. Keep records showing when the new work was done and on what. The less overlap there is between the employer's business and the new company's, the less there is to claim, and the earlier the idea is when you leave, the less has been created under the agreement.

Asking permission, and leaving

A written acknowledgment from the employer that it claims no interest in the new venture is the best evidence there is, and some employers give it. Asking also tells the employer what you are doing, and a refusal leaves you worse informed than before you asked. Judge that on the employer. Either way, the cleanest answer is to leave as soon as the venture can support it, and to have every co-founder do the same review of their own agreements, because a co-founder's employer can claim their contribution just as easily.

None of this eliminates the risk. It reduces the chance of a claim and the strength of one. A founder with a real overlap with a former employer's business should get a lawyer's view of the agreement before raising money, because an investor will.

Written by the lawyers who built Arabella. This is legal information, not legal advice for your situation, and reading it does not make us your lawyers. For a real dispute or a high-stakes decision, talk to a licensed attorney. More questions.