California law generally protects the rights of workers to freely work. Specifically, California Labor Code section 96 prohibits employers from punishing employees who engage in moonlighting in their free time (but not during hours of employment). Subsection K allows workers to make “[c]laims for loss of wages as the result of demotion, suspension, or discharge from employment for lawful conduct occurring during nonworking hours away from the employer’s premises.” 

This means that you may start or work on your own business as long as you do so during your free time, the work is not illegal, and you do so outside of your place of employment. If you are demoted, suspended, or fired, you may make a claim for loss wages against your employer. 

Exceptions to Labor Code Section 96

There are, however, circumstances under which your employer may fire you:

1. You engage in illegal activity.

2. Your moonlighting activities take place during work hours or when you are on the clock with your employer.

3. You use company resources or property, like computers, vehicles, office supplies, or money to support your moonlighting activity.

4. You are getting inadequate sleep or are distracted to the point that your job performance suffers.

5. You use confidential information, trade secrets, or other employer data to support your side activities.

6. The nature of your work is in direct conflict with your company, such as competing for your employer’s clients, working for a competitor, providing consultation to adversaries or competitors of your employer, or engaging in paid activity that would harm the goodwill or reputation of your employer.

If you build a business or your own invention (like and app or other software) while on the clock or using your employer’s resources, they may have an ownership claim on the app of software that you built with your hard work. 

Additionally, if you use your client’s confidential information like trade secrets (client lists, software, etc.), your employer may sue you for any profits you make from your invention. 

CONCLUSION: You may start your own business while employed, but follow the rules. Make sure that you do so on your own time, at a place outside of your employer’s premises, using your own resources (computers, etc.), and without using your employer’s confidential information.