When you hire employees, it’s important for you to protect your company. One of the ways to do this is by having your employees execute confidentiality and inventions agreements or CIAAs. This is also called a propriety information and inventions assignment agreement. This is a document that protects your company’s confidential information and ensures that the company owns any work created by an employee during his or her employment.
There are two parts to the CIAA, the confidentiality part, which protects your company’s confidential information, and the inventions assignment part, which ensures that the company owns all work created by the employee.
The confidentiality part of the CIAA, as the name suggests, protects your company’s confidential information. Even if you refer to employee confidentiality obligations in your policies, handbook, employment agreement or offer letter, an employee confidentiality agreement should be prepared as a separate and distinct document. The reasons for having a separate agreement include: 1) protecting your confidential information as a trade secret; 2) reminding your employees of their confidentiality obligations; and 3) providing your investors a confidentiality agreement or CIAA as a standalone document in order to keep your employment agreements confidential.
Protection of Information as a Trade Secret
Under California law, a trade secret is information that derives potential or actual economic value from not being publicly known or known to anyone who can obtain economic value from its disclosure or use; and reasonable efforts are made to maintain its secrecy. Having your employees sign a separate confidentiality agreement is evidence that your company is taking reasonable efforts to maintain the secrecy of your trade secrets.
Reminder of Confidentiality Obligations
A CIAA also reminds your employees of their confidentiality obligations and provides evidence that they’ve read and understood the terms of the confidentiality agreement. In order to protect your information as a trade secret, your employees must be aware of their obligations to maintain the secrecy of your company’s confidential information.
If you are looking for investment capital, your investors may insist on employee confidentiality agreements. This is particularly if you’re running a tech company because they want to know that the company’s confidential information and intellectual property are protected.
When you have a standalone CIAA or confidentiality agreement, you can provide your investors with such agreements rather than disclosing other documents that contain an employee’s confidentiality obligations, such as an employment agreement.
Inventions Assignment Agreement
Along with confidentiality agreements, companies use inventions assignment agreements to protect their company’s confidential information. An inventions assignment agreement ensures that the work that is created by an employee is owned by your company.
This is particularly important when it comes to the company’s founders. When founders first create a company, it’s unlikely that they have signed any agreements with the company. An inventions assignment agreement ensures that all work created by the founders on behalf of the company is owned by the company rather than the founder’s individually. When a founder becomes hired as an employee, it is crucial that they execute an inventions assignment agreement. If you are looking for investors, they will want to know that the company owns the work, rather than the founders individually.
Under federal and state law, the employer generally owns the work created by the employee on behalf of the employer. The work for hire doctrine under federal copyright law provides that the employer is the author of any work that is prepared by an employee within the scope of his or her employment. This can only be changed if the employee and the employer execute a written agreement stating otherwise.
Under California law, an employee only owns the compensation owed to him or her. The employer owns everything else that is acquired by the employee during and even after the employment relationship ends. This means even things in an employee’s memory is protected!
Even though federal and state law presumes that the employer owns all of an employee’s work product, an inventions assignment agreement will ensure that ownership is assigned to the employer if the work-for-hire characterization is insufficient.
Finally, a CIAA provides protection for inventions even after employment is terminated. Simply because an employee is no longer employed at your company doesn’t mean that everything learned from his or her employment will be automatically erased from his or her memory. A CIAA allows a company to protect information related to the company for a period of time after employment is terminated.
For example, a former employee may learn valuable information about the company’s business during his or her employment and create a competing company using what he or she has learned a day or two after his or her employment is terminated. A properly drafted inventions assignment agreement can prevent an employee from doing this.
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This article is provided for informational purposes only and should not be construed as legal advice. Read our disclaimer here.