I was speaking to a group of women entrepreneurs last week for Women in LAVA, a great group chaired by my partner Emily Yukich. The topic was Hiring for Startups and I was presenting the legal side of how to hire and onboard to limit risk. My theme was: An Ounce of Prevention is Worth a Pound of Cure.
To that end, there are three things that every California employer should have, regardless of whether you have five employees or five thousand: (1) an employee handbook that sets forth your policies and expectations; (2) a confidentiality agreement that clearly defines and allows you to protect the key aspects of your business; and (3) an arbitration agreement.
Common mistakes include: Preparing these documents without regard to the particularities of the business (such as defining) “confidential information” in a way that is nonsensical for their company), or having the three documents contradict instead of cross-reference each other. Another common mistake is to fail to update these document periodically, as the business grows and as the applicable law changes. The policies a business needs change with different thresholds of employees, especially small businesses when they hit 25 and 50 employees.
And finally, there tends to be a lot of confusion over when a business should enter into an employment agreement with employees. Put simply, most agreements define employment for a particular term, and typically provide the employee with some comfort level as to pay and benefits during a defined period of time. An employment agreement may be necessary for a key executive, but is more than most businesses need for the vast majority of their workforce. Rather, what most employers need is an offer letter which provides employers with more flexibility and explains the concept of employment at-will (i.e., employment for no particular amount of time, no guarantees, and that can end with or without notice or cause). The offer letter should reference the policies in the handbook, the confidentiality agreement, and the arbitration agreement, and should not set forth any terms or concepts that contradict those documents. While you can have an employment agreement providing for employment at-will, I find that many such agreements contain contradictory terms (such as employment for a particular time period or termination for cause), and typically do not recommend it.
Taking some time to set up these documents at the onset is the best way to protect your business as it grows. It is a much better option than spending your time, energy and money fixing issues in response to an employee complaint, or worse yet a lawsuit, agency charge or attorney demand letter. Remember, an ounce of prevention is worth a pound of cure.