Written February 1, 2021
You should have a written agreement with everyone who works for you to avoid disputes regarding service terms, IP ownership, equity shares, and other matters.
The classification of employee, contractor, or intern comes with significant tax and liability ramifications. While an agreement alone will not eliminate the risk of misclassification, it can help. Therefore, it is important to use forms appropriately. For example, using a standard employee confidentiality and inventions assignment agreement for an intern or an independent contractor could support a determination that the service provider was misclassified and should have been provided the benefits of an employee.
Offer Letters All employees, including founders and other executives, should sign some sort of employment agreement. Most start-ups use two-page offer letters – as long as all key terms are included. For more complex hires, these same form letters can be tailored to include more detailed terms.
Confidentiality and Inventions Assignment Agreements It is essential that every employee (including founders and other executives) sign a Confidential Information and Inventions Assignment Agreement (also known as a Proprietary Information and Inventions Assignment Agreements). One form of this agreement can be used for all employee hires in each state. Companies might need or want to modify the forms for employees in different states, based on those states’ laws and regulations. For example, some states require very specific language in order for an employer to have an effective assignment of IP rights. In addition, certain states allow broad post-employment restrictive covenants, such as non-competition and/or non-solicitation provisions, while others do not. Note, these regulations are based upon the state where the employee is working, not the state where the company is incorporated.
All contractors and consultants should sign independent contractor agreements. The agreement is different from, and often more complex than, the employee offer letter, and should include confidential information and invention assignment provisions similar to those used with employees. I recommend that companies have different forms of such agreements for different types of contractors (for example, technical versus non-technical consultants) in order to avoid complicated legal agreements for those consultants or advisors who will not play a role in creating intellectual property.
Whether paid or unpaid, interns should also sign a service agreement. If they are working on intellectual property, the agreement must include confidential information and inventions assignment provisions.
Startups often do not pay cash to founders and early executives and such arrangements generally violate state and federal minimum wage laws. The liability can be significant and can affect funding down the line.
Because D.I.Y. won’t C.Y.A.
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