Employment Law Issues for Startups, Entrepreneurs and Growing Businesses: Part Two

FORMING AND DOCUMENTING AN EMPLOYMENT RELATIONSHIP
At the outset of the employment relationship, startup business owners must determine the terms and conditions on which they will hire and employ individuals. Specifically, employers have to decide issues such as:

• „„Whether an individual being hired is an employee or retained as an independent contractor.
• „„Whether the employee will be employed on an at-will basis, or will enter into an employment contract for a fixed term.
• „„What types of screening methods will be used.
• „„How the employee will be compensated.
• „„What types of agreements they will ask employees to sign to protect employers’ intellectual property.

Startups without formal employment policies should make sure that any employee policy communication reaffirms the at-will relationship and disclaims the intent to form any contract that is inconsistent with an at-will relationship.

RISKS IN THE HIRING AND INTERVIEW PROCESS
Employers, including startups, face potential liability risks in the hiring process. Key areas of exposure include:

• „„Discrimination and retaliation claims based on an applicant’s membership in one or more protected classes under federal, state or local laws.
• „„Hiring an employee who may have stolen trade secrets or confidential information of a prior employer, or does not have the rights to use information being brought to the startup.
• „„Immigration audits and fines.
• „„Wage and hour violations, including the misclassification of employees and independent contractors.
• „„Conducting background checks, including those delving into criminal records and credit history, that may violate state law.
• „„Conducting social media searches of applicants during the hiring process.

WAGE AND HOUR ISSUES
Wage and hour issues can be especially difficult for startups. In the startup environment, most employees work long hours. They also do not necessarily operate within clearly delineated
roles or traditional job titles, often performing the functions of multiple jobs within a given day or week. Compensation may be primarily comprised of stock or equity grants, with little cash
flow available for base wages. Many startups never contemplate paying overtime to their employees, operating under the false assumption that the overtime laws are inapplicable to startups.
Nonetheless, startups remain vulnerable to potential wage and hour liability arising from employee claims and agency audits. Therefore, they should take time to consider wage and
hour compliance as part of their initial business planning and strategy. These concerns become increasingly important as the company’s workforce expands, or as the business positions itself for additional rounds of financing, a public offering or an acquisition. Key considerations include:

• „„Determining how payroll will be administered.
• „„Properly classifying workers as exempt or nonexempt.
• „„Complying with minimum wage and overtime laws.