By Lynne C. Hermle, Michael D. Weil, and Richard D. Harroch
Employers can fall into a myriad of employment-related traps. Numerous state and federal laws impact the hiring process and apply a wide variety of employment-related protections, including to discipline and termination issues.
For many startup and emerging companies developing technology, the issues associated with the creation of intellectual property by employees and consultants are crucial. Employment litigation is expensive, disruptive, and distracting, and emerging companies should implement appropriate steps and agreements from the outset.
This article discusses 13 key employment and labor law issues for startup and emerging companies.
1. Know what hiring questions you may not ask
Federal and state laws prohibit employers from making hiring decisions based on protected categories: gender, race, age, color, religion, disability, and others. Asking the wrong questions could lead to a discrimination claim against the company, even if decisions are not made on that basis. Here are examples of the types of questions to stay away from:
- How old are you?
- What is your religion?
- Do you have any medical conditions we should be aware of?
- Have you ever been arrested?
- Do you have any disabilities that would hinder you in performing the job?
- Have you had any recent illnesses or operations?
- Are you married?
- Do you have children or plan to have children?
- How long do you plan to work until you retire?
- Do you drink or smoke?
- What is your political affiliation?
- Is English your first language?
- What type of discharge did you receive from the military?
- What country are you from?
- Where do you live?
- Do you take drugs?
Some of these may be obvious. But these questions may also be prohibited:
- What is your maiden name?
- Do you own or rent your home?
- Where is your family from?
- What was the date/type of termination of your last employment?
- Can you give me the name of a relative to be notified in case of emergency? (The problem is asking for the name of a relative. But you can ask “In case of an emergency, whom can we notify?”)
See the California Department of Fair Employment & Housing Fact Sheet—Employment Inquiries: What Can Employers Ask Applicants and Employees.
2. Ask each candidate to fill out an employment application
An employment application can serve several useful purposes. First, it provides key information that will enable the employer to determine whether an initial or further interview makes sense. Second, it serves as a representation and warranty from the candidate as to the truthfulness of the information provided (which may be useful later on if problems arise). And, the information provided can facilitate reference checking. There are plenty of examples on the web of Employment Applications, including a comprehensive one at AllBusiness.com. In any case, be sure you don’t have any of the prohibited inquiries (including arrest questions) on the application.
3. Perform a comprehensive reference check before you hire the employee
Many employers conduct a limited and incomplete reference check as part of the hiring process, often leading to issues with the candidate’s inability to perform their required duties or to get along with others. A comprehensive reference check includes:
- Verification of job titles and dates of employment
- Verification of educational degrees and dates of attendance at schools
- Verification of starting and ending salary
- Verification of job role and responsibilities
- Inquiry as to why the applicant left the prior employer
- Conversations with prior supervisors as to the applicant’s strengths and weaknesses
- Inquiry as to the applicant’s ability to get along well with other employees and customers
- Inquiry as to the applicant’s ability to take on the new role
- Inquiry as to punctuality or absenteeism issues
- Reference checks with other people not listed by the applicant as a reference
The purpose of these checks is to make sure that the applicant will fit into the company’s culture and to ensure that the applicant has been truthful in their resume and employment application. However, the process is carefully regulated by the federal government (through the Fair Credit Reporting Act) and the laws of many states; failure to follow the highly technical process can lead to class action lawsuits. Consider consulting legal counsel and, for general information, see the EEOC’s Background Check: What Employers Need to Know.
4. Use a good form of offer letter or employment agreement
Oral agreements often lead to misunderstandings. If you plan to hire a prospective employee, use a carefully drafted offer letter, which the employee is encouraged to review carefully before signing. For senior executives, a more detailed employment agreement often makes sense. A good offer letter or employment agreement will address the following key items:
- The job title and role of the employee
- Whether the job is full time or part time
- When the job will commence
- The salary, benefits, and any potential bonuses
- Whether the position is “at will” employment, meaning either party is free to terminate the relationship at any time without penalty (although employers may not terminate employees for legally prohibited reasons, such as for age discrimination or retaliation from sexual harassment allegations, etc.)
- Confirmation that the “at will” agreement may not be changed unless signed by an authorized officer of the company
- Confirmation that the employee will need to sign a separate Confidentiality and Inventions Assignment Agreement (described below)
- If the company chooses, a statement that any disputes between the parties will be resolved solely and exclusively by confidential binding arbitration (also discussed below)
- Any stock options to be granted to the employee and the terms of any vesting (details usually laid out in a separate Stock Option Agreement)
- To whom the employee will report
- Language stating that the offer letter constitutes the entire agreement and understanding of the parties with respect to the employment relationship, and that there are no other agreements or benefits expected (unless additional provisions are laid out in a handbook, which should be referenced if so)
Companies should ensure that the employee and the Company sign the letter, the Confidentiality and Invention Assignment Agreement, any Stock Option Agreement, and any first day paperwork (such as the IRS W-4 Form for withholding and the I-9 form mandated by law).