Answers to Common Questions about Startup Employment Contracts

The Devil, heretofore “Company”….

If you’re like most people, before you signed your startup employment contract, you carefully reviewed it, hired a lawyer to review it, discussed it with your significant other, slept on it, and iterated on amendments with your employer. Of course you did. You’re normal.

But believe it or not, there are a reckless few among us who sign employment paperwork without even reading it.

I know — it’s crazy. Especially since a huge percentage of startups all pass out the exact same employment contracts[1] to their employees. Given that these companies all carefully review each new-hire’s circumstances, hire lawyers to draft individual terms, discuss it with their significant others, etc., etc., the chances that they all happen to independently pen identical contracts are staggeringly slim.

I mean, it’s crazy.

Luckily, however, it actually happens. What goes for one company goes for every other. So, for the reckless few of us who never read that same fine print, even across multiple jobs, what did we actually agree to? How and to what extent are our lives constrained? Which of our children did it say must be surrendered to the dark lord hail satan?

Well, I talked to Mariam Amin, a real life fucking lawyer, to find out.

NB: Employment law can vary dramatically across states. California law is assumed for the purposes here. The bright star on the horizon for much of this is California Labor Code Section 2870.

1. Can I work on side projects or start my own company under my contract?

Yes. Just make sure to draw a clear line between church (as it were) and state.

I recently spoke to an employee of Huge Tech Co who was having thoughts of quitting. When I asked why, she cited that she felt restricted from working on personal projects outside of work.

This is a common concern: I’ve heard the same question framed in a few different ways. Amin says working on personal projects is perfectly legal, as long as you separate your work-work from your personal-work. Drawing a clear line will prevent litigation should your company try to claim contract rights to your work or your revenues. Especially:

• Use a different computer
• Don’t use your work email for personal project coordination
• Don’t work on your project until about 6pm (“after working hours”) on weekdays.

If it weren’t possible, Amin says, we wouldn’t have Nest. They started at Apple. I’m pretty sure their employment terms were a bit stricter than yours.

2. Will the company try to claim rights to my personal projects?

Likely no.

The running joke is that it’s cheaper for a company to acquire something than to build it themselves. Well the same goes for litigation. Chasing a case is a time-sink and distraction that a fast-moving company cannot (usually) afford. If the company can afford it, well, then it can probably also afford you. Welcome back into the fold, you greedy bastard.

This is not to say that a company cannot litigate, only that it likely will not. If you’ve been careful and kept a clear boundary between your personal work and your day-job, then you should be protected from most claims against you.

What you really need to worry about, though, is will your company fire you for working on personal projects.

3. Will my company fire me if I am working on personal projects?

Yes. They shouldn’t, but they might. Sigh.

This is an unfortunate reality. Strictly speaking, a company cannot legally fire you for working on personal projects. Your employment with the company, however, is at-will, meaning they can terminate you whenever they want. Even if the true reason is they don’t like that you’re no longer machine-gunning pull requests after midnight, they can cite “lack of focus” or “performance decline” or any one of a million other more legal reasons.

Side note: Basic human nature says this should never, ever happen. If you are a founder thinking of firing someone for their ambitions, swallow your pride and talk to them about expectations.

4. If I get a new job or leave to start a company, can I ask my coworkers to join the new company?

No, not if your employment contract contains a non-solicitation clause.

This one surprised me. The situation goes like this: you’ve been working with peers at your company for a long time. You trust them and work well with them. An opportunity comes along at another company that you snatch up (or you start your own). The new company is hiring aggressively, and is as usual having difficulty finding the right talent. You see an opportunity to build a strong new team here composed of the stars from your old company. Maybe the new company will even grease your palms for your trouble.

Don’t start recruiting without caution. Not only is doing so bad form, but Amin states that it is not protected by California’s non-compete law. Non-solicitation of a company’s employees is enforceable for a reasonable amount of time. Your old company could fairly bring a case against you, and if you are the founder of the new company, it may even be able to take ownership without an acquisition.

Even though you can’t recruit directly, what you can do is talk about how great your new venture is. If a former colleague wants to join you, that’s up to them. In a court’s eyes, gushing about your new company is entirely different from solicitation. Although, Amin advises, it’s a good idea to play it safe by having your colleague wait a couple months after quitting and before joining the new company.

5. Should I litigate a breach of contract?

No.

This is another hard one to swallow. Whatever futuristic and forward-thinking tendencies the tech community outwardly projects, the fact is that on the inside it’s an old-timey small town. People talk; and a propensity for litigation is a black mark that is not easily erased.