What’s wrong with the IT contracts

3 minute read

Hello dear reader,

Recently I found that my current employment contract contains a quite huge problem - it claims everything that is intersects to the company business will belong to the company. And this is the standard situation in California and in the USA, this is wrong, outdated and I will explain why.


Ok, let me set up the environment to properly explain what’s happening. First of all - most of the IT guys are working with the standard At-Will contract, which terms are describing the ownership of the intellectual property made during the employment time. Usually the general understanding of these terms: “if I will work on my side projects in my free time with my own resources - I will be good”. But that’s a general mistake, because the contract is much more complicated.

As far you know - State Of The Art was created to be the official face for open source projects and of course I followed those simple rules, until my company started to change the entity type. They asked us to sign the new contract, which was quite the same, but contained a catch-phrase “including during my off-duty hours” right in the IP Ownership section. That phrase broke my understanding of the terms and triggered me to look deeply into the contract. After consultations with an attorney - I found that this is actually true.


According to the contract and existing CA law - even if you work on your project during your off-duty hours and it intersects with the company business - you screwed. Even if you have no idea what’s the company business besides your current job (you just a developer working on not a related project) - that doesn’t mean that your side-project will be in safe.

The CA exception just complicates the things and to describe the rules it will be better to show this diagram of the applied rules:

Contract terms override schema

In this schema you can see 3 stages, where step-by-step applied the most important terms combining them to the completed stack of what’s good and what’s bad.

  1. First stage - is your contract. Usually it’s as strict as possible, meaning “everything you do belongs to the company”.
  2. Second stage - is the first part of USA CA exception “Labor Code section 2870”. It shows you good good news, so here the employee usually stops to read and skips the next one:
  3. Third stage - second part of the exception, that returns you from heaven to earth. That’s the final result of the contract terms.

If you touched any red block of the third stage - you’re at potential risk of being sued.


Since the current IT companies (IT-gigants) are making money out of anything that relates to IT - such a contract brings the huge risks for the guys, who want to polish their own projects without asking permission for each step. Of course that doesn’t mean the company will chase you for small homemade things, but if the question will be about the real money - for the company could choose this way, just because it’s quite simple for them.

I don’t think it’s fair and even tried to negotiate with the company to change the contract to the proper terms (instead of the “business” it should be related just to the tasks you executing), but it could take a while to change the top-managers mindset. Such changes could even bring benefit for the companies, for example:

  • Employees have less fear for their future, and so their mind is not restricted by the contract - they can think more about interesting things and feel better - means work and innovate better, that will speed-up the progress.
  • New and (most important) highly qualified employees will come to the company for such an innovative proposal - that will give the company an important advantage even in a field dominated by tech giants, which will improve the value of the company in every way.

Overall it could make sense - but for sure the first step is to make sure everyone knows about this unfairness, that it is killing the opportunity for the startups, even if you follow all the standard precautions.

Hopefully soon the future will be much more bright for everyone, including the IT guys.

Thank you