D. Employee Suggestions And Inventions

Companies frequently receive valuable suggestions, comments, ideas, designs, and inventions from skillful employees. Many of these suggestions can lead to money-saving and money-making devices. In such situations, is the company obligated to pay the employee for the use of the idea? Who owns the device or invention created?

The following information discusses basic concepts.

Work-for-hire. Generally, work-for-hire is defined as work prepared by an employee within the scope of his or her employment, or work specifically ordered or commissioned by the employer, which the employee creates in reliance upon an express agreement. Thus, for example, when an employee is specifically engaged to do something (e.g., solve a problem, or develop a new product, process or machine), and he/she is provided with the means and opportunity to resolve the problem or achieve the result, and is paid for that work, then the employer is entitled to the fruits of the employee's labors.

Shop-right concept. If an employee is not hired to invent or solve a particular problem, is the employee entitled to claim any rights to his/her discoveries outside of the work-for-hire doctrine? Maybe, depending upon the particular facts involved. For example, under the shop-right concept, when an employee makes an invention or discovery that is outside the scope of his/her employment, but utilizes the employer's resources (e.g., equipment, labor, materials and/or facilities) in making the invention, that invention may be owned by the employee subject to a "shop-right" on the part of the employer. This "shop-right," in certain instances, gives the employer a non-exclusive, irrevocable license to use the invention indefinitely, without having to pay a royalty.

Valuable ideas as opposed to patentable inventions. In a hypothetical case, an employee develops a manufacturing process during non-working hours which he/she thinks will save the company money. The employee tells the boss and the idea is incorporated into the company's production process. Not compensated for the idea, the employee resigns and sues to recover a percentage of the money saved by the idea's use. The employee's case is not as strong as it appears. The reason is that ideas, plans, methods and procedures for business operations cannot normally be copyrighted. This is also true with respect to certain ideas for intellectual property. The law generally states that ideas belong to no one and are there for the taking.

TIP: An idea is presumed to be a work-for-hire and property of the employer if an employee offers it voluntarily without contracting to receive additional compensation. Thus, for example, the hypothetical employee above would have a stronger case if it could be proven that the idea was an original, unique creation not requested or developed while working on company time or on the employer's premises, and it was furnished because of a specific promise and/or under- standing that the employee would be promoted or compensated once it was implemented by the employer.

To avoid misunderstandings in this area, companies are advised to follow these guidelines:

1. Prepare written employment agreements with work-for-hire provisions. Smart employers request all job applicants to sign agreements containing such clauses.
2. Avoid offering compensation when you receive a voluntary suggestion. In one famous case, a homemaker mailed an unsolicited cheesecake recipe to a baking company. The recipe was used and became a popular money-maker. Although the woman sued the company for damages, she lost. The court ruled that no recovery was obtainable because the homemaker voluntarily gave her idea to the company.
3. Counsel Comment #43: The analogy of this case to your business practice should not go unnoticed. Make it clear to all employees with regard to voluntary suggestions that there is no obligation to pay anything if the idea is used, and that any payments made will be purely discretionary (e.g., not linked to any predetermined formula such as a percentage of specific company savings, revenue or profits generated from the idea).
4. Prepare an acknowledgment to document the employee's idea, invention or suggestion and which specifically disclaims any obligation for its use or compensation.
5. Counsel Comment #44: Most employees submit ideas with the expectation of being recognized for their desire to play a role in the company's success. They are typically more interested in a raise or future promotion than direct personal gain. Do not be afraid to draft an acknowledgment for your protection. In most situations, the employee will sign such a document as presented.

Include a statement in your company's handbook indicating that although the company welcomes employee suggestions and ideas for improvements, all ideas must be made in writing, will not automatically be compensated (even if savings are generated), but that all suggestions will be treated as voluntary information which may be rewarded at the sole discretion of the company.