Ally Law member Varnum, LLP has published an article advising United States startup businesses about issues they must address as they set up their employment policies and procedures. The article is also instructive for ongoing businesses in any country as it speaks to issues many employers may overlook or which may need to be re-examined in the face of ever-evolving employment laws.
It’s not uncommon to see startups offer potential employees stock options in lieu of wages for an initial period until the business gets off the ground. Unfortunately, this is absolutely illegal under U.S. law. Providing only equity in a business violates both U.S. state and federal minimum wage laws. In addition, under U.S. wage and hour laws it is critical to know whether your employee is exempt or non-exempt from overtime compensation. Non-exempt employees are entitled to a rate not less than time and one-half their regular rate of pay for every hour worked in excess of 40 hours in a given workweek. Other wage and hour regulations may apply in your state, province, and country. Startups in particular tend to confuse proper designation of their employees as independent contractors; the consequences for mischaracterizing a worker in the U.S. can range from a simple monetary penalty to criminal penalties of up to $1,000 per misclassified worker and one year in prison.
Another mistake many startups make is failure to protect their assets through the use of restrictive covenants such as non-disclosure agreements (NDAs), non-solicitation agreements, non-competition agreements, or confidentiality agreements. If your startup or ongoing business has proprietary information, it is essential that you use restrictive covenants appropriate under your jurisdiction’s laws. Crafting a restrictive covenant is a bit of an art form. An enforceable restrictive covenant should be narrowly tailored to protect a startup’s business interests while also being reasonable enough that it will be upheld in court.
If you are starting a business or if you have not had your employment policies and procedures reviewed by an attorney recently, make an appointment with the employment and labor law department of your Ally Law member firm for a review and discussion of necessary and appropriate policies and practices, For more information about Ally Law member firm services and outstanding lawyers, contact us at firstname.lastname@example.org.