Personnel Practices: Employment Considerations For Startups

PERSONNEL PRACTICES: EMPLOYMENT CONSIDERATIONS FOR STARTUPS

As emerging businesses, startups are rightly focused on succeeding in highly competitive marketplaces. Due to their day-to-day operational pressures, many startups mistakenly overlook critical employment decisions, potentially resulting in costly and serious consequences. To ensure legal compliance and in an effort to build workplace culture, it is essential for startups to consider and address employment law issues before they arise. The following are best practice tips for startups when hiring and managing employees.

Consider Entering into Contracts to Protect Your Business

Invariably, well-drafted contracts are vital to the continued growth of emerging businesses. These agreements provide startups with the opportunity to proactively address foreseeable problems, mitigate risk, and promote efficient dispute resolution. In addition to industry specific contracts, startups may consider entering into employment-related contracts with certain employees, including contracts providing for a term of employment and/or confidentiality, non-compete, and non-solicitation agreements. Although such agreements affect the default employment-at-will relationship under Rhode Island law, they may also offer certain protections for the employer. In addition, startups should also ensure that all relevant intellectual property created by employees in the scope of their employment is assigned in writing to the company.

Understand the Difference between Independent Contractors and Employees

Many startups are hesitant to hire employees due to limited cash flow and the benefits of remaining nimble with respect to overhead and other employee-related commitments. Using independent contractors instead of hiring employees has accordingly become widespread, often in an effort to avoid of wage and hour law obligations. However, irrespective of any agreement between an individual and company, federal and state laws impact whether a worker is considered an employee or independent contractor. Although the determination is multi-factored, the classification generally turns on the degree of control a business asserts over a worker and his or her services. An employer’s failure to appropriately classify a worker as an employee as opposed to an independent contractor may violate wage and hour laws, potentially resulting in costly litigation and regulatory fines.

Know and Monitor Wage and Hour Requirements

Startups, like other employers, must pay close attention to which employees qualify as exempt vs. nonexempt from overtime pay under the rules and regulations promulgated by the U.S Department of Labor (DOL). Most specifically, startups should know that simply paying an employee on a salaried (instead of hourly) basis does not alone determine overtime eligibility. The analysis is substantially more nuanced—but presently uncertain due to recent rule changes and the new presidential administration. For example, the DOL recently declared certain “white collar” employees earning less than $47,476 eligible for overtime wages as of December 1, 2016, but a federal judge in Texas blocked the change one week prior to its implementation. Though sometimes onerous to startups without legal support, failing to monitor wage and hour requirements can result in inadvertent and costly violations that threaten the financial viability of an emerging business.

Implement Workplace Policies and Procedures

While some startups famously prefer a lack of structure, workplace policies and procedures remain a best practice to ensure legal compliance. Absent these foundational documents, startups are vulnerable to litigation and risk violating state and federal laws and regulations. A well-drafted employee handbook carefully articulates a company’s expectations and can help avoid employment-related litigation. Comprehensive workplace policies should address subjects not limited to: “at-will” employment, standards of conduct, harassment and discrimination, leave from work, employee benefits, and termination, as well as areas of growing importance such as internet and technology use and privacy. Moreover, the constantly evolving employment arena requires that employers regularly audit workplace policies to maintain continued legal compliance.

Kristen M. Whittle, Esq., Partner, Barton Gilman LLP

1. Alexander Chiulli, Esq., Associate, Barton Gilman LLP

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