Friday, March 29, 2013

Start ups need lawyers - Part II, more employment law questions...

Last week I addressed a few of the questions from a few start up HR folks that I know.  There were a few more they'd like addressed:

  • Moonlighting
  • FMLA/STD/LTD for small businesses, start ups

  • And here is where I mildly disappoint them - by telling them what they already know.  Moonlighting, the act of having a second career/job while still employed with your current employer, is not completely unique to the start up culture.  But it may be more prevalent in start ups that can't afford to pay its employees too much cash and opt for equity instead.  A guy's gotta eat, so he's going to get a paycheck somewhere even if he's really bought into building your start up.  There's not much you can do about it from a legal point of view.  Sure, make sure you've got your non-competes and confidentiality agreements in place, but otherwise in the land of the free you can't prohibit an employee from other gainful employment.  What's more important here is how you run your business.  Can you pay enough that your key employees don't feel that they have to work for a paycheck somewhere else?  Does the moonlighting of non-key employees even matter to you?  What can you do to increase satisfaction and meet the basic needs of your employees so that they don't look elsewhere for work?

    On the FMLA/STD/LTD for small business question, the answer is "it depends".  Which is why start ups hate lawyers.  Whether you're not planning on adding a lawyer until your 100th employee or until your revenues exceed $20mm annually, you should consult with an employment lawyer on FMLA compliance.  The FMLA (for those who don't know, it's the Family Medical Leave Act), governs a lot of employment interactions although it is most known for protecting the ability of employees to take time off work to care for themselves or a family member.  The extent to which it applies to your small business will depend on a number of factors such as how many employees you have.  You won't be able to find a clear answer on a blog - and if you do, don't trust it!  Another thing to consider is that the FMLA covers federal required leave.  But some states, like California, may require more or different employee protections.  This is one time where you want the individualized interaction with a specialist knowledgeable in the federal and applicable state requirements.  Sorry if that wasn't much help - the best I can do on a blog like this is to say if you need more detail give me a shout and I'll send you a referral who works in your state/area.  

    Thursday, March 14, 2013

    Start ups need lawyers too!

    Last week I came across this article from Fast Company about the importance of hiring a lawyer for start ups.  It's a very interesting read. Coincidentally, I also had conversations with several people who happen to work at start ups within the following few days - one of the perks of living in Austin.  This got me thinking about why more start ups don't have in house lawyers and how they address the issues that do arise.  So I went back to my 'start up' peeps and started asking questions.

    Most lawyers are risk adverse, and then there are those pesky professional rules that make it difficult to work for a start up with your compensation being primarily based on equity.  That means a start up has to be able to afford a competent attorney before they hire one.  Which will undoubtedly add to the total legal spend as they identify things that really should be reviewed by someone with expertise in that particular area of law.  Even a generalist like me will need to send out patent work, ERISA questions and securities work.  Hire someone with expertise in securities or litigation will save a lot of money when you file your I.P.O. or have to deal with heavy litigation, but you'll end up sending out more of the transactional, basic employment and more basic IP work as well.  So the cost of bringing in someone full time may be prohibitive for many start ups, even though they'd love to have someone on staff that they could ask quick questions of without having to worry about the billable hour.

    So what do they do instead?  A lot of times they "wing it".  They'll hire specialists to give them very generalized advice and try to apply to their specific situations over time.  Some hire 'outside GC' firms to do the major stuff for them for a flat fee each month.  And a lot of times they go without, which can lead them into trouble. Unfortunately, usually it is gamble that they have no choice but to make.    So here's my contribution to the start ups, take it with my disclaimer that anything I say is absolutely general statements and does not constitute specific legal advice to you, etc.  You should consult a lawyer for the specifics of your case and realize that the law may vary depending on your jurisdiction.

    With the disclaimer out of the way, let's get on with this. I spoke with a friend who handles the HR for an incubator and its related companies.  She has a few issues that come up repeatedly that cause her heartache:

    • Employee classification (contract vs employee) risks and benefits of either
    • Non-compete/Non-disclosure
    • Moonlighting
    • FMLA/STD/LTD for small businesses, startups
    This post we'll talk about the first two: Employee classifications and the Non-compete/Non-disclosure issues.

    Employee Classifications

    To keep things simple, we won't get into the different FLSA classifications and determining whether your employees are exempt or non-exempt.  That's a very fact specific exercise and one which you should really hire counsel to do with you at least every couple of years.

    The broader and often more relevant question for start ups is whether your worker should be an employee at all or can you engage him as a contractor.  The risk of misclassification carries some pretty expensive consequences. The worker may be entitled to back benefits and overtime pay.  This can add up over time, especially if employees routinely get stock options and contractors don't.  Once your start up hits the big time, those contractors may come looking for a payday.  On the other hand, if you classify someone as a contractor, you can usually pay a slightly hire wage because you aren't having to pay the payroll taxes, health benefits, and other carrying costs associated with having a full time employee.  This is especially beneficial if you're not sure if you'll have the need for that particular worker long term.

    Unfortunately, the cost benefits of having contractors vs employees isn't really an important factor that should be considered when making the legal determination of their status.  It basically comes down to the work being done.  How much control do you exercise over the employee?  What type of work are they doing for you?  How long do you expect them to be working for you?  Contractors are better suited to shorter term assignments (under 1 year), with specific outcomes/work product defined, and not too much control over how they accomplish the work product.  If you supply all the tools, determine working hours and working methods, are interested in the body being there as much as the work product produced and expect the work need to be ongoing, you're better off hiring the worker as an employee.  If not, you may wish to engage the worker as a contractor - just make sure you have the appropriate agreements in place and that you don't treat them like an employee.


    On this one, I'm going to do the typical lawyer thing and answer all related questions with "It depends".  The enforceability of non-compete agreements vary greatly by jurisdiction and even within a favorable jurisdiction like Texas, you have your work cut out for you.  The short, generalized answer is that all non-competes should be very narrowly tailored, focused on addressing real harm to your business and be accompanied by some sort of compensation.  The longer answer is that you should really consider who within your organization needs to be bound by a non-compete.  Would a non-disclosure or non-solicit be a better vehicle to protect your needs?  Does your receptionist pose a real risk to your business should she go to the dark side and work for a competitor?  Have you given sufficient consideration in exchange for the promise not to compete?  Are there any public policy or other reasons why an otherwise valid non-compete may be rejected by the courts?  Would you really spend the money trying to enforce a non-compete?  It's a pretty fact specific exercise that you should think about very carefully before adopting a one size fits all policy.

    A much easier question is the non-disclosure.  I firmly believe that all employees of all ranks and any vendor (including contractors) that has access to any of your information should have non-disclosure agreements signed on the first day before they're allowed to login to your computer systems.  For some high level, strategic positions, you may consider having candidates interviewing for the position sign non-disclosures as well - especially if the interview process will lead to possible disclosure of confidential information.

    Next post we'll go over some of the headaches associated with moonlighting and FMLA issues for start ups.  In the meantime, feel free to add your two cents about the start up world in the comments.

    Thursday, March 7, 2013

    Communication Styles: from autistic toddlers to CEOs, the style matters.

    I've been thinking a lot about communication styles lately, both professionally and personally.  I've mentioned it before, one of my children is on the autism spectrum.  For him communication is a constant struggle.  He has one word "go" that means several different things depending on how he says it.  Style means everything.  Like many autistic toddlers, he also has a lot of problems with transitions.  So changing my tone of voice or extremely exaggerating the look on my face when telling him what we're going to do next communicates so much more to him than the words do.  The style of communication can make a transition easier or cause him more anxiety.

    Going through this process of figuring out how communication styles impact my interactions with my son has got me thinking about how communication styles impact your professional career almost as much, just not quite so transparently.  During a conversation with a friend, we discussed a style we both tend to jump into at work.  When someone brings up an idea or a question, I often jump immediately into execution (a.k.a. "lawyer") mode and start issue spotting.  I bring up the 'what about's' and 'what if's'.  For the person bringing it up, it may sounds as if I'm judging or being negative - even though that was never the intent.  Simply taking a minute to get excited about the idea or putting off answering the question until I've given it some thought and then not bringing up the irrelevant 'what about's' that pop immediately into my head would go a long way with reassuring the other person of the value of their idea and the value of my contribution.

    You hear a lot from in house lawyers about never saying "no".  And it's true, if you say "no" too often you ruin your brand internally and become a road block instead of a partner.  But, what you don't hear very often, is how to communicate that the proposed solution won't work for whatever reason but your modification will.  If you jump too quickly to your modification, then it appears as though you're just being difficult.  If you go into too much detail about your path for getting at the modification, it appears that you're too academic in your thought process and don't understand how business really works.  There's a sweet spot in between the two that will garner you the respect of your business people while keeping you squarely in the giving solid legal advice column.  Many in house lawyers spend years looking for that sweet spot, only to find that it moves depending on the business person you're talking with.

    What's important is to be aware of the need to constantly evaluate how your audience is receiving your communication style as well as the substance and make adjustments as necessary to reduce the anxiety.  Like my communications with my son, it can be extremely challenging - but when you get it right, it's one of the most rewarding aspects of human interaction.