Employment Agreements for Tech Companies: Key Provisions

Why Tech Employment Agreements Are Different

Technology companies face distinct employment challenges. The intellectual property their employees create is often the company's most valuable asset. Engineers have access to source code and system architecture. Product managers know the roadmap. Sales teams have deep customer relationships. And the talent market is intensely competitive.

These factors make certain employment agreement provisions especially critical for tech companies. A poorly drafted agreement can leave IP ownership uncertain, fail to protect trade secrets, or include unenforceable restrictions that create a false sense of security.

IP Assignment: The Most Critical Provision

Why It Matters for Tech

In tech companies, the core product is built by employees. If the company does not clearly own the code, designs, algorithms, and other work product its employees create, it may not own its business. This becomes acutely important during fundraising, where investors conduct thorough IP due diligence, and during acquisitions, where buyers need clean title to the company's intellectual property.

What to Cover

A tech company's IP assignment clause should address:

• All forms of IP — Source code, software, algorithms, architectures, documentation, designs, APIs, data models, and machine learning models
• Work created during employment — Using company equipment, during work hours, or related to the company's business
• Prior inventions — A schedule for employees to list pre-existing IP they want to exclude from the assignment
• State law compliance — Notices required by California, Delaware, Illinois, Washington, and other states that protect employee inventions created on personal time

Side Projects and Personal Work

Tech employees frequently work on personal projects, contribute to open source, or participate in hackathons. The agreement should address:

• Whether personal projects require disclosure or pre-approval
• Under what circumstances personal projects might be covered by the IP assignment
• Clear boundaries between company work and personal work

Open Source Contributions

The Challenge

Open source software is integral to modern tech development. But unrestricted open source contributions can create problems:

• Employees might inadvertently release proprietary code
• Open source licenses may impose obligations that conflict with the company's licensing strategy
• Contributions may create prior art that affects patent filings

What to Include

The agreement should address:

• Company open source policy — Reference a separate policy governing contributions to and use of open source software
• Approval requirements — Whether open source contributions during work require management or legal approval
• License compliance — Obligations around tracking and complying with open source licenses in company products
• Personal contributions — Whether employees can contribute to open source projects on their own time, using their own equipment

Confidentiality in Tech

Trade Secrets Worth Protecting

Tech companies generate a wide range of confidential information:

• Source code and system architecture
• Product roadmaps and feature plans
• Customer data and usage analytics
• Pricing algorithms and business models
• Security vulnerabilities and remediation plans
• Hiring plans and compensation data
• Partnership and licensing negotiations

Enhanced Protections

Beyond standard confidentiality provisions, tech agreements should address:

• Code repository access — Return or revocation of access upon termination
• Personal devices — Prohibition on storing company code or data on personal devices without authorization
• Cloud services — Prohibition on using personal cloud storage for company information
• Communication channels — Requirements for using company-approved messaging and email for business communications

Equity Compensation

Standard Tech Equity

Tech employees expect equity as part of their compensation package. Common equity provisions include:

• Stock options (ISOs or NSOs) — Most common for early to mid-stage startups
• RSUs — More common at later-stage companies and public companies
• Vesting — Standard 4-year vest with 1-year cliff
• Refresh grants — Annual equity grants for retention and to reward performance
• Early exercise — Some startups allow employees to exercise options before they vest, enabling them to file an 83(b) election for potential tax benefits

Competitive Considerations

In the competitive tech talent market, equity terms are a key differentiator:

• Extended post-termination exercise windows (beyond the standard 90 days)
• Accelerated vesting upon change of control
• Performance-based equity grants
• Equity refresh programs that keep total compensation competitive

Non-Compete Considerations for Tech

The California Factor

Many tech companies are headquartered in California, where non-compete agreements are virtually unenforceable. Even for companies outside California, hiring California-based remote employees means non-competes may not apply to those workers.

Practical Alternatives

Instead of non-competes, tech companies should focus on:

• Strong confidentiality agreements — Enforceable everywhere
• Non-solicitation clauses — Protect customer and employee relationships
• IP assignment — Ensure the company owns all work product
• Garden leave — Paid restriction period during the notice period

The DTSA and Computer Fraud Laws

Tech companies have additional legal tools beyond traditional non-competes:

• Defend Trade Secrets Act — Federal protection for trade secrets with civil remedies
• Computer Fraud and Abuse Act — Potential claims against employees who access systems without authorization
• State computer crime laws — Additional protections in many states

Remote Work in Tech

Remote work is standard in tech. The employment agreement should cover:

• Work location for tax and employment law purposes
• Equipment — Whether the company provides hardware and peripherals
• Security requirements — VPN usage, encrypted storage, device management
• Expense reimbursement — Internet, phone, and home office costs (required in some states)
• Time zone expectations — Core collaboration hours

On-Call and Incident Response

Many tech roles include on-call responsibilities for production systems. The agreement should address:

• On-call rotation schedules and frequency
• Response time requirements
• Compensation for on-call time (stipend, comp time, or included in salary)
• Impact on exempt/non-exempt classification

Best Practices for Tech Employment Agreements

1. Prioritize IP assignment — This is the foundation of your company's value
2. Address open source — Both contributions and usage
3. Use enforceable restrictions — Focus on confidentiality and non-solicitation rather than unenforceable non-competes
4. Offer competitive equity — Including reasonable exercise windows
5. Cover remote work — Equipment, security, expenses, and compliance
6. Include on-call provisions — For roles with production responsibilities
7. Implement a side project policy — Referenced in the employment agreement
8. Update regularly — Tech roles and compensation norms evolve rapidly

Tech employment agreements must balance protection of the company's intellectual property and competitive position with the flexibility and competitive terms needed to attract top engineering and product talent. Getting this balance right is a significant competitive advantage.