Legal Agreements for Start-Up Companies

If you are hiring employees, you should have a written employment agreement with each of your employees. If you don’t, you risk the following:

• A significant severance claim. In an employment agreement, it is typical for an employer to ask an employee to agree to accept severance only as provided by the Employment Standards Act, which is one week for every year of service to the company (after year one), to a maximum of eight weeks. Without an employment agreement, the employee is entitled to demand common law severance, and the old rule of thumb for common law severance was one month for every year of service. While the equation is now more complicated than that – a court will look at length of service, age of employee, character of employment, and the job market, among other things – the benchmark for common law severance remains significantly higher than the severance entitlement under the Employment Standards Act. An employee with ten years of service could still realistically expect ten months severance under the common law.
• Loss of intellectual property. You may think that whatever your employees invent or design or make while they work for you is automatically the property of your company. However, the law does not presume that an employer owns the intellectual property developed by its employees. To retain ownership rights over intellectual property generated by an employee, employers must have a written agreement from the employee that intellectual property developed while working at the company is the company’s property. Without such an agreement, if your company develops intellectual property, it may have difficulty selling it later or face unfair competition from a former employee.
• Solicitation of your employees and clients by ex-employees. A non-solicitation clause in an employment agreement creates a contractual obligation of an employee not to solicit your employees or clients for a given period of time after that employee leaves the company. This can help prevent not only the loss of those clients and employees, but also prevent unfair competition by former employees.
• Disclosure of your confidential information and trade secrets. A confidentiality clause in an employment agreement not only helps set expectations with employees, but also gives you a remedy if an employee leaks important company information.