My lead developer has decided to quit and give up equity from the original agreement. My question is; what paperwork does he need to sign? Do I amend the operating agreement myself afterwards and is there a template for resigning equity that I can use? Really appreciate any information as this is a big change for my company and I need to finish it today. Thank you.
Some people have suggested that you have him sign non-compete agreements. Such agreements have zero effect and are in fact illegal in california, unless you pay the person not to compete during the limited time period. It has to include compensation, and have a finite duration. You cannot stop someone from working (at least in California). Trying to get something for nothing is my definition of an asshole. If you ask them to do stuff you better compensate them. If they are walking away with no money, expect to be disparaged! If you don't want disparagement then set up a progress payment to keep them in line. That's what the big boys do. How do you think Weinstein escaped from imprisonment for so many years? He paid dearly along the way for his prior transgressions. He just didn't pay enough people.... California was founded by miners, and they were very sensitive to non-compete restrictions, and thus it is embedded in our law that you have the right to use your knowledge to make a product. The differences between Massachusetts law and California law is the primary reason Silicon Valley happened here. Boston has over 120 colleges, the big tech boom should have been there, but they allow employers to sue employees for learning secret techniques, because of the shoe industry's power in the formation of that state. Please note you are not entitled to copy source code from a previous employer (take note Anthony Levandowski). We are talking about using your skills, not the customer list of your former employer.
And don't get me started on the nonsense NDA forms people constantly insist on. I have yet to see a successful prosecution of an NDA in 25 years in SV. They are mostly a waste of time. If you can't trust showing something to someone, don't show it to them, because as my friend Paul is fond of saying, a secret is a piece of information you tell to one person at a time.
Thank you, Alf. Im in contact with a startup lawyer now from upcounsel, thanks! Good point about IP and I will have a separation agreement going forward.
The important part that you've (hopefully) already completed is the original partnership agreement that you and your ex-partner have signed at the beginning of your collaboration. I completely agree with Alf on signing off on a separation agreement, but that should be more of a formality - not something that materially alters your original agreement. It's always a good idea to have a lawyer involved, but I wouldn't spend too much on this unless you have the revenue to cover legal fees - or you feel the value of your IP is high enough that you'd error on the side of caution. Good luck with your business!
The question really is what agreement did he sign at the beginning? I think that is a good way to start and trace back. Alternatively, speak to a lawyer friend to help in putting you in the right direction.
Has he agreed to give up something that he's entitled to?
I ask because, while you may want him to sign something, he has no obligation to sign anything in most cases.
If he's giving something up, the agreement should be about that and nothing else.
That said, it would be a good idea to offer him a copy of the agreements that he signed while he was an employee. If you like, you can ask him to sign an acknowledgment that he's received those copies but he's under no obligation to do so.
1. You provide a very interesting history lesson. Thanks I learned something.
2. This issue is much more complicated than your understanding of it. Context and circumstances make a big difference, even in California.
3. In most if not all jurisdictions, courts treat non-competes differently based on the circumstances.
For instance, if you sell a business and sign a reasonable non-compete with its sale. In any jurisdiction I am familiar with, it's pretty enforceable.
But in most jurisdictions, courts look on at non-competes with disfavor. In my state, in recent years, court decisions have been gyrating quite a lot. If you haven't litigated a case recently you probably are not current with the law.
So if you are thinking about a non-compete. Don't dare think you know what you are doing. You really want to get advice from a lawyer in that jurisdiction who looks at the particular circumstances, and who has recently litigated such a case. And who can apply that particular law to your particular situation.
If you fail to do that, you are almost certain to make bad decisions.