15 Oct 2015 19:01 IST

Why start-ups should not ignore employment agreements

What would you do if one of your trusted employees decided to walk out with company secrets?

Online businesses spend their initial years finding a reason for their existence. Often, they need to find a market for what they want to do, whether it’s helping people find homes, or delivering groceries. At this time, there’s little thought given to any kind of compliance.

It’s no surprise then, that employment agreements are seen as ‘trivial’. But they are among the more important legal requirements. Why? You may end up paying fines for most non-compliance, but what if your employees leave because, in the absence of an agreement, they realise that you were not going to meet their expectations?

Where it starts

There are too many uncertainties in a start-up to even assess the need for an employment agreement — there are no terms when you don’t know if your operation is going to fold even before you go to market; or have features for your product; or even raise funding to build it in the first place. So you just carry on without it. It so happens that the first few employees of most start-ups would not have signed anything, and in most cases, that’s how it remains until they leave.

Now, you may argue that even founders don’t have agreements between themselves — the problem Eduardo Saverin faced with Facebook, for example, could have been completely avoided if there were a founders’ agreement in place. But employers should have a greater responsibility toward their employees than to themselves (although there’s really no reason both can’t happen, as you could have them both for under ₹10,000).

Worst case scenario

Start-ups tend to eschew formalities. They believe their employees are in it for more than just a pay cheque. Many ‘employees’ are, in fact, told to first prove their worth and only later does the discussion steer towards pay and equity. Unfair as this is, as a founder, you may think you are at least protected. But what if one of them becomes disgruntled and decides to share your secrets with competition? Do you have a non-disclosure agreement in place to ensure that your secret stays safe? If an early employee, upon whom you entrusted plenty of responsibilities, wishes to just walk out, how will you handle the consequences, considering there is no contract between you and him? Worse still, what if he also takes with him what he worked on?

What it should include

It is to avoid the above-mentioned problems that a comprehensive employment agreement needs to be prepared. And don’t worry, it won’t be a regular expenditure. You only need to buy or prepare the template once and ensure you have everything covered.

The most important clause for early stage start-ups is non-disclosure and non-compete agreements. But that’s just from the employer’s perspective. An employee should know his salary (including the break-up), probationary period, job title and description, how the contract can be ended, and the number of holidays he can take per year.

Putting this in place will ensure that your employees have a clear idea of what they can expect from their place of work and reduce the consequence of conflict.