Contract negotiation · Employment law

How to formalize employment for your first employee?

Matthew Eshed Engineering and Operations Projects Leader

June 27th, 2016

I am the first employee / staff for a lab in San Francisco, and given the quick-changing nature of companies at this stage, I am trying to figure out what is the best type of employment contract for us. The expectation is that the work will start part-time, to allow freedom for freelance and project gigs to pay the bills, and as the need and funding grows, the hourly commitment will grow.

Does it make sense to use a temporary employment contract, renegotiated monthly for the first few months? What success or failures have you had with contracts at this early stage? Any other feedback regarding the appropriate amount of formality at this fluid early stage? 

Lisa Pomerantz Business and Employment Attorney, Arbitrator, Mediator and Trainer

June 27th, 2016

Your contract should confirm the current arrangement, and provide for mechanisms for the arrangement to evolve based on the parties needs and agreements. There should also be ways for the parties to make graceful exits if it does not work out. I strongly recommend including mediation and arbitration provisions to allow for cost-effective resolution of any disputes.

Joseph J. Vecchiolla

June 27th, 2016

Matthew,

Others have touched on a number of issues. First, if you are the employee, it is your employers responsibility to present whatever the contract or employment terms shall be. I agree with Irwin that employment law is a specialty (at both the state and federal level) and sound legal counsel is well worth the investment. There are many issues to cover, relative to compensation, residual benefit (if any), confidentiality, non compete and so on. In my view, these matters can seem daunting, but a good attorney will likely be invaluable.

Matthew Eshed Engineering and Operations Projects Leader

June 27th, 2016

Thank you all for the insightful responses. It's not entirely clear if it's an employee-employer, founder-cofounder, or contractor relationship, but I want to dive in asap so we can get it to the point of more clarity. It seems like the best course of action at this stage is to start with an independent contractor agreement, then once work is in motion and we have secured some funding, enlist legal assistance to help us scale in a way that protects all parties involved. 

jack abbott Chairman and Partner at BlueBox and CEO Oak Creek Trail, LLC

June 27th, 2016

Easiest option when just a few employees is a contract HR service. Sent from my iPhone

Irwin Stein Very experienced (40 years) corporate,securities and real estate attorney.

June 27th, 2016

Joe: The gentleman who asked the question is himself an employee. He does not say he is an owner so I assumed that he was not spending his own money. I probably employed over 100 people over the years; most were great; some were not.  Courtrooms are full of disgruntled employees seeking redress for all kinds of slights, real and imagined.   An owner who puts blood, sweat and tears into a business should want to be protected even if the need never arises.  That is what good lawyers advise.  I always strive to act like one.  Hope for the best; plan for teh worst.

Joe Albano, PhD Using the business of entrepreneurialism to turn ideas into products and products into sustainable businesses.

June 27th, 2016

Irwin - I understand your position and even agree with you. I am, however, saddened by the realization that one of the framing realities of bringing the first employee into an organization is "every employee can be a problem". It explains a lot.

Irwin Stein Very experienced (40 years) corporate,securities and real estate attorney.

June 27th, 2016

You should contact an experienced attorney and have them draft it for you.You have specific needs and concerns. You probably want an independent contractor for a while with the option of making that person a full time employee, but that is rarely enforceable. Employees have rights, especially in California, and every employee can be a problem if for no other reason than not everyone sees the world as you see it.  Hire an experienced employment attorney.

Mike Moyer

June 28th, 2016

Hi Matt,

If you're going to pay the guy full compensation you probably don't need an employment contract. Just pay him for the work he does and stop paying him when he leaves.

If you're not going to pay him, you should cut him into the equity plan. The Slicing Pie model is the equity plan you and every other bootstrapped startup on the planet should use. It will not only tell you how much equity to give him (and you), but also it will help you determine the right buyout price if he leaves.

Slicing Pie will easily accommodate this: "The expectation is that the work will start part-time, to allow freedom for freelance and project gigs to pay the bills, and as the need and funding grows, the hourly commitment will grow."

In the early days, with so much uncertainty, you need to implement a dynamic equity program that will self-adjust as things change. Slicing Pie is the answer. Send me an email through SlicingPie.com and I'll send you more details on how it works.

Joe Albano, PhD Using the business of entrepreneurialism to turn ideas into products and products into sustainable businesses.

June 27th, 2016

Really depends on what you want to accomplish here. A payroll service will keep things like taxes and workers comp correctly. If there are any kind of benefits you are concerned about, the next step up might be an HR service. As for a "contract", you might just document your agreement in an email - including how you agree to resolve disputes. Remember that the default resolution mechanism for a contract is a lawsuit which would likely put the business out of business and leave you with a lovely judgement, suitable for framing. 

Ema Chuku Designer. Product Developer. Founder @ NuPad

June 27th, 2016

An employee with a monthly renegotiation activities is not an employee. I would classified that as independent contractor.. As an employer that's already a burden of work if I have to renegotiate every month with an employee. Rather, a period of time like 3 months, 6-months, is more ideal..

That said, you both are best with independent contractor-relationship until both parties are comfortable.