Don’t give up anything you don’t have to. You’re starting off wrong. Your employer has cut you back, and may very well do it again (that’s the way these things go). You’re doing something for them that they don’t want to be doing (“Software development will largely stop when I leave, if not completely“). Neither of these justify you conceding points, especially at the start of negotiations.

• “When I work for them, I am employed by them and will not publicise or disclose my own business details” This is generally-good ethics, and depending on where you live and work, may be required under law (e.g., in the USA, the “duty of loyalty”).

• “I will not, outside of work, pursue their clients offering services” Don’t offer this to them, and don’t be quick to agree if they suggest it. If your employer will effectively be exiting “your” business when you leave, they shouldn’t see you as a competitor.

• “They will not own any right to anything I produce whilst I am not employed by them” I assume you mean “… produce on my own time whilst …” (because sometimes this just isn’t the case).

In addition to what you’ve listed yourself, you should clarify your rights to what’s in your head. In some jurisdictions, lawyers had successfully advanced the “doctrine of eventual disclosure” as an effectively-perpetual extension of non-disclosure and non-compete agreements that you may have already signed. Your new contract should, at a minimum, explicitly supersede and replace any previous NDA/NCA in its entirety, and clearly specify how long you will not solicit your employer’s existing customers.

More than that, since your employer seems to be terminating a line of business, you should consider positioning yourself to them (and thus to their clients) as the safety net for their clients. You’re not your employer’s competitor, you’re a white knight rescuing their customers from abandonment and allowing your employer to gracefully exit a business they don’t want without destroying relationships with their clients.

I think you’re on the right track with your considerations. Everything you have described is transparent and ethical.

I would consider the following:

• Have a defined intellectual property agreement in place with your current employer. What you’re suggesting is a reasonable interpretation and aligns with most legal practice. Having an IP agreement documented though will help prevent future misunderstandings and headaches.

• Identify what is required in order to document when and where work is performed. An obvious example is that you won’t use your employer’s resources in order to perform your consulting work for your clients. You’ll likely need your own computing equipment and software for your consulting work, but you may also need to generate a log book indicating what hours were worked and for which projects. ie.
  8AM – 12PM “revised DB diagrams for client ABC”
  1PM – 5PM “refactored data access layer for employer”

• Likewise, have a defined agreement regarding existing clients, any cool-off periods, and / or similar anti-poaching considerations. You’ll want something concrete to indicate when a former client of theirs can employee you.

• Setup terms regarding the scope of your part-time work and expectations. “Other duties as assigned” can become a very onerous job requirements when you’re working to build up your own clientele base. It’s very easy for them to turn around and say “No, no, we expected you to go out and drum up business for us.”

• You’ll also want to negotiate the hours and times you are working as a part-time employee. Having defined windows of employment with them makes it easier to delineate when your work is theirs and when your work is yours.

• Have a conversation with your boss and your boss’ boss. They likely regret having to cut you back to part time and should be understanding that you need to build up a consulting base. Having open and honest conversations with them will make it easier for them to understand what your second job is and how that may impact your work for them. This is a case where honesty and openness will be your best policies.

• Consider how you want to work with your client base if and when your employer is able to move you back to full-time employment. You’ll want to think this through as it’s likely your future clients that know of your employer will be asking about this.

• Discuss with your attorney how you will transition from part-time to contracting with your former employer. At some point, your consulting business will be self-sustaining but your former employer may still need your services for the various internal projects that you mentioned.

What about contracting for your present employer? Would they be willing to strike you off their employee roster and pay you as a contractor instead? Then they are just like your other clients and you (and they) have the same contractual obligations with all of them.

I’m not sure if that’s really getting at the reasons you posted here, but that’s my 0.02.