When you're starting up a company, we understand how it can be tempting to get friends and colleagues to join and start working on solving big, knotty problems immediately. But, just as the Founders Agreement is intended to prevent misunderstandings between the founders, the Employment Agreement can serve the same purpose with employees.

It really gets back to the main purpose of working with a lawyer when you're an early stage company: the fundamental task is to exactly detail and clarify agreements between people and between companies. When you begin to hire people, clarification of that relationship is critical to avoid any subsequent problems.

As an example, one company we know used employment agreements that specified all employees 100% vested on stock in the event of any change in management. Since "change in management" wasn't clearly defined, a slick employee contested that they should be fully vested because of the addition of a new VP. And won.

There are two primary types of employment contracts to consider, one for fulltime employees and another for contract or part-time or work-for-hire service providers.

A fulltime Employment Agreement should clearly state the expectations of the employee and the terms of their employment, including:

• salary and method of payment
• business hours
• sick/vacation policy
• appropriate dress/decorum
• conflict-of-interest avoidance
• ownership of inventions
• representation by employee that they can legally use any intellectual property they bring from a previous position

A part-time agreement primarily only differs in terms of the benefits offered the employee, but a work-for-hire agreement can differ quite a bit as it tends to spend more space detailing the deliverables and guarantees of quality.

Sample Work-For-Hire Agreement

Regardless of whether you are contracting with a freelance designer to spruce up your Web site or offering a position to a top executive, formalizing the terms of their employment is a very important step that shouldn't be deferred.

Next up: stock option plans and how to structure them.

please continue reading...