Use an Employment Agreement Template to build a strong legal and HR foundation for your startup from day one. Failure to do so might result in your startup incurring thousands, or tens of thousands of dollars to correct those early mistakes or deficiencies. Venture Capital investors will not invest in a Startup until they have their legal, accounting, and HR house in order.
Here’s What Experts Are Saying
Startup sector experts and long-time investors such as Jason Calacanis and sector service professionals such as Becki DeGraw from Wilson Sonsini have covered this topic extensively.
An at-will employment agreement, which contains IP assignment and confidentiality provisions, should be signed by all employees before they start working for you.
A fair number of lawsuits arise simply because people’s emotions get heated. If you can avoid that and be reasonable, you’re likely going to end up in a better position from a dispute perspective.
In the fundraising process, the company will need to mention any lawsuits pending, threatened, or reasonable belief that any one of those is coming their way. A good framework is to over-disclose, including things you aren’t legally obligated to disclose.
Employment Agreement Template: Offer Letters, IP Assignment, At-Will
Offer letters are usually the first document you will put in front of a potential candidate. It lays out the basic terms so you are on the same page regarding the candidate’s salary, equity, and bonus. At the end of the day, it’s kind of like a term sheet to get you to the next step, but the offer letter isn’t necessary.
An at-will employment agreement is what you really need to care about. It means you can leave at any time and the employer can fire you at any time. No advance notice is required, but state-by-state employment laws vary. If you include a provision that is not acceptable according to a specific state’s employment law, you jeopardize the agreement’s enforceability. This is governed by where the employee is located, not where the company is located.
~This document will have your confidentiality provisions and most importantly your IP assignment provisions. It would be best if you had your employees sign this on the very first day that they start. If they create IP for you before signing it, the default is that they own that IP, not the company.
~Investors will ask for these.
~IP includes trademarks, patents, code, copywriting, and even ideas.
When it comes to co-founders or key employees, if they decide to leave the company or you fire them, you can give them an exit agreement with a reminder of the IP assignment agreement and confidentiality agreements they signed. Most companies don’t have the average employee sign exit agreements because it’s not enforceable unless you give them some sort of consideration, like letting them vest more shares or giving them a cash payment.
Side Hustles, Non-Solicitation
Let’s say you’re working from home, take a break during work hours, and decide to put together a business plan for a side hustle. Chances are that IP will belong to your employer.
If you want to do a side hustle, do it on your own time, on your own equipment, and make sure it has nothing to do with your current employer.
Investors are going to run from you if you’re being sued by your former employer when you leave to start a company. Leave on good terms, don’t burn bridges.
Usually, there’s a non-solicit agreement that prevents a former employee from poaching people from their former employer, at least for a period of time. However, if someone joins them after learning about the opportunity through a publicly available ad, not directly promoted to them, then the non-solicit agreement doesn’t apply.
~If two or more employees want to leave to start a company together, they should speak to their employer. They should make it clear that none of them solicited each other but that they want to work on this idea together. Very often, the employer will be supportive. The key is communication and good-faith behavior.
IP Theft
You could get sued both civilly and criminally if you take IP with you after leaving a company. The IP assignment is in perpetuity. The IP belongs to the company forever.
Customer lists are often taken by people who don’t realize that it is also IP and belongs to the company. Your LinkedIn is yours, though.
About The Author
James Spurway is an Angel Investor, Mentor, Advisor, Speaker, former Commercial Pilot, and Author specialising in raising debt and equity capital. He strives to model diversity, equity, and inclusion in the founders he agrees to invest and work with. He has paused his angel investing activity to focus on raising his first US$ 50M venture capital fund, which will invest in startups that can accelerate the achievement of net zero emissions. James spent the past 33 years living in Hong Kong, Vietnam, Germany, Switzerland, Monaco, the USA, Thailand, the Philippines, Singapore, and Australia, his country of birth. In that time, he started 10 businesses, exited from seven, shut down two, and kept one. He has invested in a total of 50 startups since 2001 and had six successful exits.
James SpurwayGenius is widely distributed. Opportunity is not. If you were #rejected by a top-ranked #accelerator, we can check your #pitchdeck, #model, and #capvalue to make you #investorready and help get you #funded. I'm a serial entrepreneur, startup mentor and fundraising advisor, angel investor, licenced twin-engine commercial pilot, author and speaker.