DRAFT POST.
This is our curated Link List on employment issues at technology startups, including hiring, employment contracts, non-competes, compliance and firing.
Caveat: this may not be the right advice for you or your company. I don’t have any particular expertise in employment law.
Contents:
Hiring Engineers
Hiring good engineers is difficult, particularly for early-stage startups without product/market fit. Why You Can’t Hire. Naval Ravikant, 2011. These pre-traction startups should consider offering larger equity incentives to engineers.
VC Fred Wilson offers advice for building a methodical hiring roadmap and operating budget. MBA Mondays: Best Hiring Practices. Fred Wilson, 2012. Consider using JobVite to track your applicants. But don’t just wait for applicants. You need to proactively search for strong talent.
Hiring decisions are critical, so don’t be afraid to spend time on them. How to Hire. Sam Altman, 2013. Consider having prospects audition for a job instead of interview for it. That is, hire them for a two-day project as a contractor and see how it goes.
Consider both technical and personal skills when Hiring a VP Engineering for your Internet Startup. Chris Dixon, 2008. On the technical side, they should be comfortable with web-speed development, not overly process-oriented, a good system architect, familiar with open source options, and prefer simple solutions. On the personal side, avoid folks with dogmatic opinions on trivial issues, avoid ‘empire builders’, and seek out fun extroverted and intense people.
To hire great programmers, know what motivates programmers. Recruiting Programmers to Your Startup. Chris Dixon, 2011. Programmers generally want to work on interesting technical problems, have smart co-workers, and build products that lots of people will actually use.
Hiring Employee #1. Jason Cohen, 2011. Hire startup-minded people. Write a crazy job description. Do not use a recruiter. Resumes are (mostly) useless. Writing skills are required. Screen candidates with mini-essay questions. Always be hiring.
The Guerrilla Guide to Interviewing. Joel Spolsky](https://twitter.com/spolsky), 2006. A classic read.
Employee Retention
21 Ways to Minimize Employee Retention. Jon Haddad, 2014. “It’s important to be able to maximize turnover and confusion while minimizing employee retention.” ;-)
MBA Mondays: Retaining Your Employees. Fred Wilson, 2012. “I believe these six things (communicate, hire well, culture matters, career paths, assessment, and compensation) are the key to retention.”
How to Start a Startup: 10 Hiring & Culture. Alred Lin and Brian Chesky, 2014.
Don’t Fuck Up the Culture. Brian Chesky, 2014. “After we closed our Series C with Peter Thiel in 2012, we… asked him what was the single most important piece of advice he had for us. He replied, ‘Don’t fuck up the culture.’”
he Mechanics of Mafia. Blake Masters’ notes on Peter Thiel’s CS183 lecture (2012).
Employment Contracts
At Will. Most employment contracts are for “at will” employment, as opposed to employment for a particular length of time.
Non-Compete Agreements
Who Owns Employee Innovations? Eric Adler, 2014.
Non-compete agreements are governed by complicated state laws. The laws generally aim to encourage free movement of employees between companies, but prevent “unfair” competition resulting from an employee taking company secrets from a former employer to a competitor.
California generally prohibits non-compete agreements altogether.
Sale of a Business. Non-compete agreements signed in connection with the sale of a business are generally enforced fully. Company owners must be particularly careful in negotiating the scope and duration of non-compete clauses when they sell their business.
Invention Assignment Agreements
Who Owns Employee Innovations? Eric Adler, 2014. Companies must have their employees sign “invention assignment agreements” or else risk expensive litigation over who actually owns new technology.
Copyright to creative works must also be assigned to the company, preferably in a written “work for hire” agreement (often just a clause within an “invention assignment” agreement).
CA and WA State Laws on Employee Inventions
California and Washington State startups must follow special state laws on invention assignment agreements. California Labor Code § 2870 limits the types of inventions that an employee can be forced to turn over to her company. Washington State law is similar.
In CA and WA, regardless of what an employment contract says, employees will own their inventions if:
- the invention is made entirely on employee’s own time, and,
- the invention is made without using any of the company’s equipment or technology.
There are two exceptions. A contract assigning inventions to the company is enforceable (i.e., the company owns the technology) if:
- The invention relates to the company’s business or anticipated R&D, or
- the invention results from work performed by the employee “as an employee” of the company.
Finally, companies need to tell their new employees about the law. A copy of California Labor Code § 2870 should be attached to all employment agreements.
Employees vs. Independent Contractors
Since Independent contractors require far less paperwork, it’s tempting to treat everyone as an independent contractor. This is a bad idea. Independent contractor misclassification carries serious risks. Know the legal difference between employees and independent contractors. When it’s a close call, err on the side of caution: call them an employee. If you incorrectly classify an employee as an independent contractor, the Department of Labor will eventually notice and impose some stiff fines and penalties.
| Employee | Independent Contractor |
|---|---|
| company supervision | controls own destiny |
| works during company hours | chooses own hours |
| works at company office | works at own office |
| uses company tools and software | uses her own tools and software |
| works only for the company | works for many companies |
Independent contractors get a 1099 tax form; employees get a W-2.
State of CA Employment Determination Guide. (2014) “The basic test for determining whether a worker is an independent contractor or an employee is whether the principal [the company] has the right to direct and control the manner and means by which the work is performed. When the principal has the ‘right of control,’ the worker will be an employee even if the principal never actually exercises the control. If the principal does not have the right of direction and control, the worker will generally be an independent contractor.”
IRS: Independent Contractor or Employee?
Wage and Hour Division - Employee Misclassification as Independent Contractors. US Department of Labor. Fact sheet 13 is particularly helpful.
Employment Law Compliance
Many Federal and NY employment apply as soon as a company hires its first employee. Others kick in as the company hires additional employees. Here’s a quick summary of laws that apply to companies based on the number of employees.
| # | Law | Details |
|---|---|---|
| 4 | NY Human Rights Law | No discrimination based on age, race, gender, disability, marital status, sexual orientation, citizenship status, etc. New York State Human Rights Law, N.Y. Exec. Law §§ 290-301. |
| 15 | ADA | Forbids discrimination against the disabled. (Americans with Disabilities Act). |
| 15 | Title VII | Prohibits discrimination on the basis of race, color, religion, sex, and national origin. (Title VII of the Civil Rights Act of 1964). |
| 15 | PDA | Forbids discrimination on the basis of pregnancy, childbirth, or related medical conditions. (Pregnancy Discrimination Act). |
| 20 | ADEA | Forbids the discrimination against people over 40. (Age Discrimination in Employment Act). |
| 20 | COBRA | Employees who lose coverage under group health plans must be given a continuation option. (Federal) |
| 20 | NY COBRA | N.Y. Ins. Law §§ 3221(m), 4303(k), 4305(e) |
| 50 | FMLA | Mandates 12 weeks leave in any 12-month period for certain circumstances. (Family and Medical Leave Act). |
| 50 | Affirmative Action | Requires the development of Affirmative Action Plans for employers with $50,000 or more in federal contracts. |
| 50 | NY WARN | Requires certain notices before mass layoffs. N.Y. Labor Law §§ 860. |
| 100 | Federal WARN | Requires certain notices before mass layoffs. |
Firing
Document a legitimate non-discriminatory reason for filing anyone, regardless of whether they are “at will.” Talk to your lawyer. Consider making a separation payment to the employee in exchange for signing a release of any and all claims against the company.
References. It can be dangerous to provide a negative reference, even if it’s an honest description of the former employee’s work. Instead, just confirm the former employee’s dates of employment and say “we have a policy of not providing references.”
Firing Employees
Firing. Chris Dixon, 2012. Fire early. It’s terrible, but if you don’t fire the bad employees, you risk running out of money for your startup, and everyone loses their job.
Startup Mantra: Hire Fast, Fire Fast. Mark Suster, 2011. “I have never regretted firing anybody. Not once. I have on many occasions regretted not firing somebody quickly enough.” Mark reiterates this point in How to Deal with Pure Recruiting Mistakes., 2013.
MBA Mondays: Asking An Employee To Leave The Company. Fred Wilson, 2012.
Exit Interviews. Fred Wilson, 2013.
NY State WARN Act. NY companies with 50 or more employees need to provide 90 days notice of any mass layoffs.
Federal WARN Act. Companies with 100 or more employees need to provide notice of mass layoffs.
Firing Cofounders
Parting Ways With A Founding Team Member. Fred Wilson, 2010. “If I look back at our most successful investments over the last 25 years… almost every single one of them has seen a founder or critical founding team member shown the door as the company scaled. It’s almost inevitable.”
When to fire your co-founders. Venture Hacks, 2010. More about screening for good cofounders than firing bad ones.
Employee Handbooks
How to Create an Employee Handbook. YC Interview discussing employee handbooks, includes link to the Gusto Employee Handbook Guide. 2017.