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Starting Up While Still Employed

Budding founders in full-time employment often seek our advice on issues they should consider while they work on their “side hustle”.  Such clients usually have a great idea which they work on in their free time.  The logic is that they are “testing the waters” before quitting and pursuing their venture full-time. So is this ok, legally speaking?  Like most legal questions, there isn’t a black and white answer that applies to everyone, but here are some key considerations (the below is certainly not exhaustive).

Intellectual Property Ownership

Broadly speaking, an employer will own intellectual property created by its employees in the course of their employment.  However, intellectual property that is created by an employee, other than in the course of employment, is owned by the employee, not the employer.

So what does “in the course of employment” actually mean?  The most important single factor in deciding ownership of intellectual property created by employees is whether or not the employee had a duty to create intellectual property as part of their employment duties.

An employee who creates intellectual property in the normal course of their duties cannot claim to own that intellectual property.  However, if the employee is not employed to create intellectual property, but does so, then the employee will own the intellectual property.

Consideration needs to be given to all the circumstances:

  • How are the employee's duties described in any written employment contract?
  • Are there duty statements that record the duties of the employee's position?
  • Did the employer direct the employee's activities that led to the creation of the intellectual property?

As you can see there is a lot of “grey area” when it comes to IP ownership in the context of employment.  Accordingly, you should seek legal advice early and ideally before you start working on your venture. 

Conflict of Interest

Another important consideration is the employer’s conflict of interest policy, which will aim to limit its employees’ involvement with the competition and possibly any other venture (i.e. competitive or not). If the employees side startup is in the same space, this is highly likely to be problematic and result in a breach of the employment terms.

Other potential conflicts include serving as an advisor, director or consultant. For example, some employment agreements may require employees to seek prior approval before serving in such roles. Accordingly, you should review your employment agreement carefully before commencing any side venture to ensure that you will not trigger a breach of your terms of employment.  

Need Help?  Contact Us 

If you are a prospective founder who is currently employed and would like advice on the issues raised in this article then please reach out to Allied Legal.  If you want to know more about how we can help, give us a call on 03 8638 0888 or send us an email at hello@alliedlegal.com.au.

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