Moonlighting a Side Project While Employed Full-time? Here are the Dos and Don’ts

Moonlighting is as much a part of startup life as demo days and pitch decks. It refers to the practice of working on an entrepreneurial project while being employed by another company. It helps founders and early employees manage personal financial risk by subsidizing their project, and it is the genus of many a startup. Stride is one such example, and there are many others.

While moonlighting has its advantages — and is indeed necessary in certain situations — there are important considerations that entrepreneurs should keep in mind when choosing to work on a side project while employed somewhere else. This article covers some of those considerations. But keep in mind that every situation is different, and it is best to consult an attorney about your particular circumstances.

Do: Read all agreements related to your employment — carefully!

Odds are your current employer made you sign several agreements before you were allowed to start working there. These agreements can include: your offer letter, an employment agreement, a confidentiality agreement, and an intellectual property agreement. These agreements are meant to protect the employer by requiring you to do — or to refrain from doing — certain things. You may also be bound by an employee handbook, which spells out additional policies that impose even more requirements and restrictions upon you.

The most important thing that you should do when considering to work on a side project while employed by another company is read every single document that relates to your employment before you start working on the side project. If you don’t have all of the documents, you can request a copy from your HR department. Make sure you understand your obligations to your employer because violating the terms of your employment can lead to both termination by your employer and unintended consequences for your startup. If you aren’t comfortable with the legalese in your employment agreements, make sure to ask an attorney to review and explain them to you.

Some of the more common terms in your employment agreements can include:

  • A requirement that you get written consent from your employer before getting involved with any outside activity — even on a part-time basis or as a consultant or advisor

  • A requirement to protect your employer’s confidential information and trade secret, and not use it for any outside purposes

  • Assignment to your employer of any intellectual property that you develop while employed there

  • A prohibition on working on any venture that competes with your employer

Do: Consider whether you should tell your employer about the side project

If your employment agreement requires you to get written approval from your employer to work on any outside venture, then you need to tell your employer and get their approval. If you don’t and your employer finds out, you could be fired for violating your employment agreement.

Even if your employment agreement doesn’t require written approval for working on outside ventures, you may want to bring up the side project with your employer in certain situations. If, for instance, you have agreed to assign to your employer any inventions that you develop while employed there, it may be helpful to get a written release and waiver from the employer to make it clear that the employer will not claim the intellectual property that you develop on the side.

The last thing any entrepreneur wants to do is spend months — or perhaps years — working on a product, only to be sued by her former employer just when the company starts to show some promise.

If you work out of California, the law will not recognize an agreement to assign to your employer an invention that you develop on your own time and using your own resources, so long as the invention is not “employer's business, or actual or demonstrably anticipated research or development of the employer.”

This means that even if you work on your side project on your own time, using only your own resources, your current employer may still have a claim to the intellectual property you develop.

In many cases, the question of whether the invention is substantially related to the employer’s business or anticipated research is not as clear cut as one would hope. If there are doubts about whether or not your project is related to your employer’s business or "anticipated research or development", it may be worthwhile to try to get a written release and waiver from your employer.

Telling your employer about a side project is not without its own risks:

  1. It may signal to the employer that you will prioritize your side project over your full-time job.

  2. It may also put your employer on notice about your side project whereas they may not have learned about it otherwise.

These are real concerns that you - and any of your co-founders - should seriously consider before saying anything to your employer. However, keep in mind that some employers are okay with — and actually encourage — side projects. With Stride, for example, the founders’ employer "encouraged the entrepreneurial spirit and allowed us to release Stride as a side project, and continue iterating from there.”

And, in many cases, it may be possible to convince your employer to sign a written release and waiver through equity and revenue-sharing arrangements.

Don't: Work on the side project on your employer’s time or using the employer’s resources and equipment

If you are located in California, you have certain protections when working on a side project. Assuming that your invention is not substantially related to your employer’s business or "anticipated research or development”, your employer cannot claim rights to any inventions you develop on your own time using your own resources. Even if you are outside of California, your employment agreement may have a similar loophole. It’s best to avoid working on side projects on your employer’s time or using the employer’s resources.

This means that you shouldn’t write code during work hours, even if you’ve completed all of your tasks for your employer. Create a separation between your employer and side project by focusing on your side project on nights and weekends only.

Similarly, you shouldn’t use your work laptop, work email, or manuals and documents that belong to your employer for any purpose other than for your job.

Don’t: Use your employer’s confidential information and/or trade secret to benefit your side project

Misappropriation of trade secrets is the subject of an ongoing legal fight between FitBit and Jawbone. If you’re not familiar with the dispute, Jawbone sued FitBit by alleging that FitBit stole its trade secrets. From Jawbone’s perspective, after several of Jawbone's key employees left to work for FitBit, FitBit designed and developed products that it would not have been able to develop without Jawbone’s trade secret, which the employees brought over. The case is still working its way through the court system and has yet to be resolved, but it highlights the sensitive nature of trade secrets.

If you have access to confidential information from your employer, you should never use it for any purpose other than for your employer. Confidential information can come in many forms and can include business plans, pricing, projections, customer lists, or any other information that is not publicly available.

This doesn’t mean that you have to throw out everything you have learned through your job. There is a legal difference between using your employer’s confidential information for your side project and using general knowledge, skills, and experience that you have gained through the course of your employment. The difference between what is “confidential information” and what is general knowledge acquired through employment can be very tricky, so if you have any questions about this issue, it is best to talk to an attorney.

Don’t: Compete with your employer

Competing with your employer can be very tricky. For one, your employment agreement may outright ban you from competing with your employer. Even if you are in a state that protects your right to compete with your employer, such as California, it is not a good idea to do so while you are still employed there. While a non-compete agreement in California would be unenforceable after you’ve quit your job, you still owe the duty of loyalty to your employer while they employ you. This duty of loyalty requires you to not do anything that would harm your employer, including competing with them. Doing so could be grounds for termination of your employment or even a civil lawsuit.

Do: Prioritize your obligations to your employer

Whether you tell your employer about your side project or not, they may eventually find out about it. From a practical standpoint, this can lead to a strained relationship with them. In the most extreme circumstances, this can lead to your termination if you don’t agree to stop working on the side project.

So, make sure you communicate to your employer that you will continue to prioritize your full-time job, and then actually follow through with that. Don’t let your performance at work suffer noticeably. This should not be an issue if you are using your nights and weekends to work on your side project.

Minimize risks to make your side project a success

Working on a side project can be exciting and extremely rewarding — both intellectually and financially. Many well-known startups began as side projects while the founders were employed elsewhere. But it also involves certain risks, which can be managed and minimized if you are thoughtful from the outset. To minimize the risks of starting a side project, make sure to read all agreements related to your employment and understand them.

Consider whether you should tell your employer about your side project, work on the side project using your own time and resources, avoid misusing your employer’s confidential information and trade secrets, refrain from competing with your employer, and prioritize your obligations to your employer. And, soon enough, you may find yourself as the next startup success story featured on Startup Grind.