Employment Law for Startups

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In this presentation, Neena Gupta of Gowlings highlights several key aspects of employment law for startup companies.

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Employment Law for Startups

  1. 1. Dreams, myths and nightmares: Employment law for startups P.A. Neena Gupta Partner Gowlings
  2. 2. Myth #1 “We’re only a small start up; the law doesn’t really apply to us.” • There is no exemption for “small companies” or “startups” • Owners are exempt from employment standards legislation • Officers are not – CEO, President, Treasurer • Different standards in different jurisdictions
  3. 3. Employment Standards • Basic (Ontario) rules you need to consider: • Minimum wage ($10.25 in hour) • Overtime (after 44 hours a week) • Hours of work • 8 hours a day • 40 hours a week • Some flexibility • Vacation – 2 weeks paid vacation • Statutory holidays – paid days off
  4. 4. Employment Standards • Some exemptions apply for: • Managers/Supervisors • IT professionals (usually at higher level) • Interns (should be through some kind of formal program sponsored by university, college, high school, not-for-profit organization • No exemptions because “we’re a start up working together”
  5. 5. Myth #2 “We don’t need any paperwork … Lawyers … tedious formalities ... Too expensive …. we’re just so excited to be working together … we’ll work it out when we make it big!”
  6. 6. Dreams may differ • People working on a team often have manifestly different expectations • “I’m going to get a share of this company when it goes public” • “I’m going to be a director” • “I’m going to get a bonus” • “I’m here for the long term” • “I’ll get paid when we get an investor”
  7. 7. Disappointed dreams can become nightmares! • “I’m not happy anymore. This idea is my baby. I’m taking it elsewhere.” • “The company doesn’t share my vision about the potential of this idea, so I’m going to go to XYZ Co, because their CEO is really open to this type of development.” • “I didn’t get the shares/bonus I deserve…Adios amigos ....”
  8. 8. Myth #3 “We’re an amazing team. We have such chemistry. We’ve known each other since high school. Nothing will ever separate us. Together we are going to take on the world!”
  9. 9. Things Change • • • • Personal ambitions change Health/Disability Marriage/Divorce/Children Personal rivalries/jealousies
  10. 10. Don’t believe me? • Apple computers – founders Steve Wozniak and Steve Jobs • Adidas shoes – brothers Adolf and Rudolf Dassler • Ambani brothers
  11. 11. Written agreements matter! • Employment agreements • Shareholders’ agreements • Intellectual property agreements
  12. 12. Employment Agreements • Business terms: • • • • • • • • Job title Role/job description Reporting structure Pay Vacation Bonus Commission Equity/share/phantom stock, etc.
  13. 13. Employment Agreements • “Divorce” terms • • • • How much compensation if employee is terminated How much notice of resignation? What happens to shares? What happens to equity or quasi-equity interest? • “Post-divorce” restrictions • • • • Confidentiality Non-competition Non-solicitation of employees Non-solicitation of customers
  14. 14. Intellectual Property Agreements • • • • • • Ownership of IP Transfer and assignment of IP Copyright Waiver of “moral rights” Vesting irrevocable powers of attorney Obligation to cooperate after individual departs company • Non-competition • Non-solicitation • Obligation to advise future employers/partners of IP agreements
  15. 15. Shareholders’ Agreements • • • • Different classes of shares Rights of shareholder (voting, non-voting) Rights of company to acquire shares (drag along) Rights of shareholder to force purchase of shares (tag along) • Valuation formula for shares • Restrictions on sale or disposition of shares • Planning for changes (death or divorce)
  16. 16. Myth #4 • “We were just talking.” “Danny and I had lots of chats in the early days about him earning equity if things worked out. I needed someone to help with marketing and think I might have mentioned 5 or 10%. It was all vague – pie in the sky. In the end, Danny was a dud and Johnny had to finish off everything he started. We fired Danny and gave him notice ... What do you mean he’s claiming 10% of the company? It wasn’t in writing … we didn’t agree on it …”
  17. 17. Oral Agreements Are Enforceable! • Oral agreements are enforceable • If reasonable for person to believe he was getting 10% if he joined company at lesser wage or to take job with startup instead of established rival, court will enforce verbal promises • Be careful what you promise
  18. 18. Myth #5 • “All accountants/lawyers are the same!” • Select your advisors carefully • Ensure that they have exposure to your industry • Good at working with startups • Good advice is often a bit more expensive – but you get what you pay for!
  19. 19. Thank You P.A. Neena Gupta 519-575-7501 neena.gupta@gowlings.com montréal ottawa toronto hamilton waterloo region calgary vancouver beijing moscow london

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