On March 6, 2019, Shipman & Goodwin attorney Dan Schwartz presented to the next group of startups chosen to participate in the Accelerator for Biosciences in Connecticut, or ABCT. ABCT is a Branford-based program spearheaded by Design Technologies LLC, which supports Connecticut’s aim of being a bioscience hub.
It’s an exciting time for new businesses in Connecticut like those chosen to participate in the program. But employment law issues are often an after-thought for startups; they shouldn’t be.
Dan spoke in more detail to the startups in his presentation — following are three things he discussed for startups and new business ventures:
- Startups should document the relationships with new employees. Offer letters or, in some instances, contracts should be set up so that new employees know the terms and conditions of their employment. Even more important, the documentation should detail all forms of compensation — whether salary, bonus, equity etc. And at-will disclaimers are crucial.
- Startups also need to consider protecting the intellectual property of the company from the outset. After all, if a new employee can just take the knowledge and set up shop across the street, how valuable is the company? Thus, having Non-Disclosure Agreements or other restrictive covenants in place when employees or consultants start is critical to making sure a company’s intellectual property is protected.
- Lastly, just because the business is a startup, doesn’t mean there’s an exception to paying employees their wages. Those businesses must comply with all the rules regarding weekly payment of wages. Failure to do so can result in significant legal exposure and, worse for some, an investigation from the federal or state department of labor. Startups should make sure they have the cash flow necessary to make payroll. If you can’t afford to pay your employees, don’t hire them.
Obviously, there are other questions startups should ask themselves too: Are you going to use a PEO? (or perhaps, What is a PEO?) Are you going to use independent contractors? If so, how is that relationship documented and is it proper? Are employees classified as exempt vs. non-exempt? Are the employees even authorized to work in the United States?
If all these questions give startups some concerns — they should. Employment law issues are an important part of building a company’s foundation. Ignore them, and the business that you build might be the proverbial house of cards.