Question: I just started working for a tech firm, and one of the documents I was asked to sign is a trade secret confidentiality and intellectual property assignment agreement. Do I need to have a lawyer review this agreement before I sign it?
Answer: It’s a good idea to have a lawyer review any contract before you sign it, but this kind of agreement in particular calls for review by a lawyer because it can significantly limit your rights, including ownership of the works you create, your ability to sue the company in court, or even whom you can work for after you leave the company.
It is common for employers in all industries, not just technology, to require new hires to sign trade secret and intellectual property agreements. Both kinds of agreements are designed to protect the employer’s interests, but some are drafted in ways that reach beyond legitimate employer interests.
By signing a true trade secret agreement, an employee typically agrees not to disclose the employer’s trade secrets to anyone outside the company. Trade secrets include confidential information, discoveries, designs, developments, patents and other intellectual property, and the like. But, trade secrets may also include other information about the business, including customer lists, marketing plans, budgets, prices, and even suppliers, as long as the information is protected by the company and not generally available to the public. By signing such an agreement, you promise not to disclose this confidential information to people outside of the company, including a competitor of your employer, or to otherwise use it to compete against your employer.
By signing an intellectual property agreement, you agree to give your employer ownership of any patents, inventions, written works, and other intellectual property that you develop during your employment. A reasonable agreement will usually only give an employer ownership of patents and inventions that were created during work hours or using company resources, or that otherwise flow out of the employee’s work for the employer. However, an intellectual property agreement may go even further by giving your employer ownership of any of your patents or inventions created during your employment, even if they are not related to your work and are developed on your own time. Some states prohibit employers from going this far, so it’s important to consult an attorney who has experience with your state’s employment laws.
Some employers will also insert unrelated or unexpected terms into these agreements. For example, some employers include a broad arbitration provision in a trade secret or intellectual property agreement that covers all types of disputes, not just disputes relating to trade secret or intellectual property issues. Many trade secret and intellectual property agreements also routinely include an “at-will” provision stating that your employment may be terminated at any time for any reason. If you have an employment agreement that states otherwise, you should be aware of any conflicting terms that identify you as an at-will employee.
Another term that employers often add is a noncompete clause, which limits your ability to work for a competitor for a certain amount of time after you leave the company. In general, an employer must have a legitimate business reason for including a noncompete clause, and the restrictions must be reasonable (except for California, where noncompetes are illegal as a matter of public policy). For example, a provision that prevents you from working for a direct competitor for one year might be reasonable, but one that stops you from working for all tech companies for five years may not be. You’ll want to know exactly how far reaching these restrictions are before you sign a noncompete agreement.
Your employer may also insert a nonsolicit clause, which prevents you from soliciting or contacting clients, employees, vendors, and other parties that your company wants to prevent you from contacting. This is especially likely for employees who have regular contact with clients, such as salespeople. The laws in some states limit the scope of nonsolicitation agreements, so be sure to ask an employment lawyer about that.
You should also watch out for terms about what state’s laws will apply or where you can bring a lawsuit. Although you might expect both to be the state where you’re performing the work, that’s unfortunately not always the case. In some agreements, the employer will designate the law of another state as the law governing the agreement. The agreement may state that any dispute will be heard in another county or even another state.
And, sometimes these agreements contain terms that give the employer other advantages in any dispute, such as by setting a certain amount of damages that the employer can recover if you breach the agreement or requiring you to pay for your employer’s attorneys’ fees.
If you have questions about or are confused by any agreement your employer asks you to sign, you should have an employment lawyer look it over in order to protect your interests. Not all of the provisions listed above should necessarily be deal-breakers or mean that you shouldn’t sign the agreement. You might even decide to sign after the lawyer explains all of the provisions, good and bad. But at least you’ll be doing so with full knowledge of what you’re agreeing to and how it may affect you in the future.