Employment Issues for Startup Businesses

Mollaei Law Profile Image

Mollaei Law

Encino, CA

Startups often attract staff by offering equity in their business without paying attention to legal employment issues. It is imperative to be mindful of federal and state laws when hiring new talent.

The biggest mistakes that startups and businesses often make is inappropriately classifying their workers as independent contractors instead of employees. The actual name or classification of an employee as "contractors" or "freelancers" or even "interns" may have serious legal consequences from an employment law standpoint. The determination of whether a worker is an employee or an independent contractor relies on a multi-factor test. Consult with a lawyer more about this.

The consequences for a startup or business for misclassifying an employee as an independent contractor, including minimum wage, overtime and payroll tax violations, can be remarkable if not disastrous.

The best way to avoid these legal risk is to clearly create an accurate job description. A concise but clear job description demonstrates the expectations of the worker, helps the employer establish the correct classification, and can be used as a gauge to analyze a worker's suitableness as worker.

Issue #1: Minimum Wage Laws

Providing stocks or options in a company may not always sufficiently compensate employees under minimum-wage laws. Wage and hour lawsuits are on the rise since 2000 and that is because of the lack of knowledge on the part of many entrepreneurs and business owners who are unaware on how to deal with minimum wage laws.

An important note to consider is that if you are paying your employees in stock instead of wages, you are breaking the law.

Issue #2: Overtime Laws

Also, if you are failing to pay your employees overtime for employees who are not exempt from overtime (this includes those who are not eligible for overtime and whose job duties fall into several exemptions including administrative and executive professionals), this becomes another pitfall for startups.

Issue #3: Restrictive Covenants

Trade secrets are the most crucial means to a startups business to protect. However, many startups fail to legally protect these important business resources through Non-Disclosure Confidentiality Agreements (NDAs) also known as Restrictive Covenants. A Confidentiality Agreement is an important document for companies that want to protect their confidential and proprietary information and trade secrets. Non-Disclosure Agreements are used by companies, businesses, or entrepreneurs who are looking to protect confidential information or trade secrets.

Confidentiality agreements protect documents or physical copies of any information, business practices and plans, marketing and sales strategies, or any other proprietary information that a business wants to protect.

It is essential that your Confidentiality Agreements are properly drafted with a business lawyer, are tailored and taken into account where the startup or business may hope to enforce these agreements. You should contact a business lawyer if you have any questions about this.

Startups and businesses should take the necessary steps to make sure their employment practices are legal at the beginning stage of their business before facing legal pitfalls. Contact a business lawyer if you have any questions.

Are you a business or an entrepreneur? We can help with your legal needs.

Mollaei Law is a business law firm serving businesses and entrepreneurs. We can help with all of your business needs including tailoring legal documents for your business, reviewing and drafting contracts, negotiating, business planning, setting up business entities, and helping with any of your business transactional forms.

Talk to a Lawyer

Need help? Start here.

How it Works

  1. Briefly tell us about your case
  2. Provide your contact information
  3. Choose attorneys to contact you
Get Professional Help

Talk to a Business Law attorney.

How It Works

  1. Briefly tell us about your case
  2. Provide your contact information
  3. Choose attorneys to contact you