‘Golden Rules’ for Emerging Ventures – Employment

Employment

The legal aspects of employment are important when developing a venture that aims to attract investment and deliver an ambitious business plan. This outline highlights some of the key issues that should be dealt with.

The following employment-related documentation is likely to be of importance for any emerging or developing venture.

Directors’ service agreements

The terms on which the directors are employed (and pursuant to which their employment can be terminated) will be of great importance for start-ups seeking funding. Furthermore, it will generally be important to ensure that directors who leave the Company are contractually restricted for a limited period of time following termination of their employment from damaging the interests of the business, for instance by using or disclosing confidential information or poaching clients or staff.

Prospective investors will therefore wish to see well-drafted directors’ service agreements including the following key provisions:

  • Term/notice

  • Scope of director’s duties

  • Remuneration and benefits

  • Termination provisions (including garden leave and whether the director can be paid in lieu of notice)

  • Restrictive covenants

  • Outside interests

Other employees’ terms and conditions

Service agreements of a similar nature to those outlined for directors will also be important for senior employees who have an influential role in the business.

All employees should, as a legal requirement, have particulars of employment setting out information such as remuneration, hours of work, holiday entitlement, notice, place of work and job title.

Policies and procedures

Depending on the number of employees taken on at the outset, start-ups should consider whether it is appropriate to prepare an employee handbook, setting out the standard policies and procedures which the Company is to adopt. This may cover a wide variety of employment-related issues from maternity or paternity leave/pay and disciplinary and grievance procedures to internet/email policy.

Certain policies contained in the handbook (for example, in relation to maternity leave/pay or redundancy pay) may simply reflect the statutory legal position, unless the Company wishes to offer these at an enhanced level. However, employees are still likely to find it useful to have access to such policies.

If a handbook is produced, the Company will need to consider the extent to which its contents are to have contractual effect alongside each individual employee’s terms and conditions.

If only a small number of employees are taken on at the outset, the Company may prefer to wait until the business grows before producing an employee handbook, as it can be a time-consuming (and potentially costly) process.

Consultants

Start-ups will often engage individuals on a consultancy basis rather than recruiting employees at an early stage. Such consultants may have a key role in the business and it is important to ensure that they have signed agreements including provisions in respect of the following:

  • Term/notice

  • Scope of the services to be provided

  • Fee structure

  • Tax indemnity to cover any PAYE/National Insurance liabilities for the Company if the Consultant is considered by the Inland Revenue to be an employee

  • Termination provisions

  • A provision assigning all intellectual property created by the Consultant to the Company

  • Confidential information

The provision relating to intellectual property is likely to be particularly important for start-ups. In contrast to employees, intellectual property created by consultants does not automatically belong to the Company, even if it is created in the course of the services being provided. Prospective investors will therefore be concerned, particularly in relation to an IP or IT-focused business, if there is a risk that the Company might not actually own certain key intellectual property rights.