On September 15th 2023, Governor Kathy Hochul signed into law an amendment to the New York Labor Law. The amendment adds a new Section 203-f to the Labor Law, which addresses the assignment of inventions made by employees. Under this law, employment agreements can no longer include provisions that assign, or provide that an employee offer to assign, any of their rights in an invention if the employee developed the invention on their own time and without the use of their employer’s resources and trade secrets. The new law exempts certain inventions, namely those that: (1) at the time the invention was conceived, related to the employer’s business or its anticipated research and development; or (2) result from work performed by the employee for the employer. On its face, SB 5640 does not appear to apply retroactively. Instead, the language suggests that invention-assignment provisions in employment agreements executed on or after September 15, 2023, are unenforceable unless they comport with the new law.
The new law leaves a number of open questions. Employers may wonder, what constitutes an “invention”? The statute does not define the term and courts have not yet addressed its scope and extent. Commentators are already split as to whether an “invention” is limited to patentable ideas, or whether an “invention” includes a broad scope of intellectual property rights such as trademarks or copyrightable works. Conceivably, courts may also be split, and the issue could prove to be a battleground during litigation. Another open issue is that SB 5640 does not create an express private right of action. At the very least, the law will be enforced by the New York Department of Labor. But courts may interpret the new law as permitting a private right of action as well. Given that invention agreements are also often accompanied by non-disclosure covenants, employers may face additional challenges enforcing such covenants that are coupled with a non-compliant assignment provision.
What Does this Mean for Employers?
Employers should keep several things in mind as they consider this new law. In a post-COVID world, a quantified measurement of an employee’s own time may be difficult to determine. Hybrid and remote work have blurred the lines between working hours and personal time. Courts in jurisdictions with similar laws, like California, have looked at evidence from both parties to determine an accurate timeline of an invention’s conception. Accordingly, it is important for employers to keep detailed records, log network activity, and set clear guideposts for what constitutes working time. Employers should mandate that all company work be performed on company issued devices, and establish a policy that all employee work product contained on company devices is considered company property. Employers and employees should also understand that even inventions made during an employee’s own time are assignable if it relates to the employer’s business at the time of conception or is the result of work performed by the employee specifically for the employer.
Employers should acknowledge the effects of SB 5640 and how it may impact their hiring process, as well as creativity and innovation in the workplace. Employers who require assignments during the interview process, prior to even hiring an individual, should consider the impact of this new law on those procedures. Employers should also set expectations with prospective employees about what inventions or other matters might be subject to assignment. Employers should further give thought to how the new law will affect their team’s brainstorming practices and elevation of ideas.
Despite some open questions, the new law clearly will require changes to some assignment provisions in employment agreements. Employers in New York or with New York offices should consider reviewing their current employment agreements that include invention or IP assignment provisions and update or create policies that require employees to disclose all inventions made or conceived by an employee prior to their employment.