The new economy barters, trades, and produces one integral asset more than any other: intellectual property. This term, once reserved for music- and film-industry types, is reshaping the work environment for computer engineers, marketing associates, and event planners alike. Today, nothing is more valuable than an individual’s ideas. And companies are taking steps to capture and preserve any and all innovation born within them.
As a result, employees should know that anything heard, seen, or built at the office may be proprietary information. Your work is not necessarily your own.
Many companies today require employees to sign over any ideas hatched or created while working for them. At the same time, employers are sharing and extending ownership of their companies to more and more workers. Stock options are transforming rookie employees into valued contributors and partial owners of powerhouse companies across the country. The message is mixed: You own the company, but the company owns what you produce.
Expect to sign jargon-heavy contracts and agreements that spell out the following principles: First, your company owns proprietary information that you must keep confidential. Second, as a contributor to this evolving body of information and knowledge, you will be compensated in the event that your company succeeds.
The Fine Print: NDAs, NCAs and PIAIAs
The nondisclosure agreement (NDA) essentially says you won’t discuss information learned in the interview or on the job for a given period of time. The use of NDAs is widespread; chances are good you’ll be handed one during the interview process. Interview information is usually harmless, but if your role is significant, you may receive new information valuable to competitors or to the press. Breaking an NDA can result in everything from immediate termination to legal action, if the breach is significant enough to warrant it.
The NDA’s cousin, the noncompete agreement (NCA), bars an employee from accepting a job with a competitor for a set period of time after leaving the company. Generally, you can amend the specific time limits outlined in these documents by simply crossing out a line and adding one of your own. It’s important, however, to communicate your reasoning and objectives to an employer before taking liberties with a red pen.
After receiving a job offer, you may be asked to sign a proprietary information and inventions agreement (PIAIA). A weighty document with significant creative consequences, the PIAIA states that any innovation devised on company time will be considered property of that company alone. The PIAIA places limits on the ownership of ideas devised while working for a specific company, and it limits what employees can say about a company’s ideas to outsiders.
“The PIAIA is used in any situation where new proprietary technology is created,” says Curtis Smolar, an attorney specializing in licensing and intellectual-property issues with Britton Silberman & Cervantez LLP. “It’s primarily used to keep employees from saying, ‘Hey, neat idea!’ and running off to start their own companies with the information.”
The PIAIA generally does not apply when a water-cooler discussion sparks a wholly new innovation that has nothing to do with the parent company or its products. Two years ago, for example, Wired reported that the founders of Hotmail engaged in early discussions about the Web-based email company while working for Apple Computer. Apple did not act against the employees because Hotmail wasn’t related to Apple’s core business. Regardless, Smolar recommends that employees protect themselves and their ideas wherever possible.
“Never use a work computer or company resources for any outside project, and always be aware that work email is not private,” he says. “To be on the safe side, assume that everything you do at work is owned by the company.”
This intellectual property consideration mostly affects computer programmers whose solutions and innovations may represent a huge boon to a prospective employer — and that employer’s competition.
“People sign away their rights all the time, then realize that their work or the application of their ideas was worth more than they bargained for,” Smolar says. “These questions are essential: What are you being asked to contribute? Does it relate to a core idea that you may have for your own product? And, if so, are you handing over your innovation by working for this company? Do you need the money that’s being offered? Can you hold out for more?”
Negotiating Your Contract
In the new world of work, companies sprinkle new recruits with stock options like fairy dust. While they dazzle with magical promise, stock options do not necessarily pay off. Many companies don’t make it as far as an IPO. Those that do are subject to the whims of Wall Street, where valuation can skyrocket and plunge within a matter of days.
Many companies use stock options as a kind of funny money to attract employees whose skills might find them better-paying jobs elsewhere. Before a hefty options package sweeps you off your feet, research salaries in your field and calculate your net cash worth. Then determine the real potential gains and losses associated with those enchanted options.
“The people who become rich in an IPO are not the employees; they are the founders,” Smolar says. “Job seekers need to make their employment decisions based on actual market value, and on their individual tolerance for risk.
“Some companies say things like, ‘We can offer to pay you half or three-fourths of your fair market value, but we’re going to make up for it in your options package.’ Well, 10% of nothing is still nothing. If you can afford to accept a lower wage, then you can take a higher risk — but be aware that it’s a risk. After all, dotcom companies can and do fail.”
If stock options appear in your compensation package, you should understand the following terminology before signing on the dotted line:
Golden handcuffs: The amount of money you’ll receive if you actually stay with a company for your entire vesting schedule.
Vesting schedule: The time that elapses before your vest of stock options mature. Generally, a vesting schedule lasts between one and four years. Vesting schedules are designed to encourage employees to stick around to run the company in the case of a merger, acquisition, or buyout.
Strike price: The amount of money you have to pay to exercise your stock options. Generally, the strike price is significantly lower than the market value of the stock, and can be as low as 25 cents to $2 a share, depending on the time of your hire.
II. Documents and Jargon of the New Economy