Founders must be either employees or contractors. There is a misconception that company founders do not need to be paid and do not need to sign employment or contracting agreements. This is false. All founders are either employees or contractors, and need to be treated as such. This means signing an agreement and receiving some sort of compensation.
All employees must be paid at least minimum wage. Hand-in-hand with the misconception about founders is the misconception that founders can be paid with just options, shares or Restricted Stock Units. While this is possible if founders are contractors, it is not possible if they are employees. All employees, including most interns and founders, must be paid at least minimum wage.
Employment contracts are critical. If your company hires any employees, you need to have them sign a properly-drafted employment agreement. Without an agreement, the company’s potential liabilities in the event of termination of employment will increase exponentially.
Employee or Independent Contractor? There may be adverse tax or termination issues if you classify a worker improperly. Make sure that you understand the rationale for the classification you have made; make sure that you understand the potential negative repercussions if Canada Revenue Agency or the courts disagrees with the classification, and then make sure that a proper contract is put in place.
Employment contracts must be signed before the employee’s start date. In order to be enforceable, employment contracts must be signed on, or prior to, the employee’s start date. If they are signed even just one day after the start date, it can void the contract and lead to the large termination liabilities mentioned above (in #3).
If employment contracts are signed after an employee’s start date, the employee must receive some sort of valid consideration in exchange for signing. What if you do, in fact, have an employee who did not sign their contract before their start date? Or an employee who needs to sign a new agreement during the course of their employment? In order to make it binding upon them, you need to offer the employee something of value (e.g., a signing bonus, a salary increase, additional benefits or vacation). Beware of options, as they will not bind the employee to the contract if they have not vested or if they have no value at the time of termination.
Confidential Information and Intellectual Property Agreements (“IP Agreements”) are important. IP Agreements are important for ensuring that both employees and contractors maintain confidentiality over all company confidential information. They are also important for ensuring that the company owns and controls all intellectual property developed by employees and contractors. Just as with employment agreements, IP Agreements must be signed prior to start dates or in exchange for some sort of consideration.
It’s not just about the contracts. In addition to having proper contracts in place, be aware of the fact that employers have a number of other obligations under employment standards legislation, occupational health and safety legislation, human rights law, and possibly also privacy law, pay equity legislation and workplace safety and insurance legislation.
A little legal advice goes a long way. Start-ups often rely on template employment documents, on the assumption that if someone else used them previously, they must be fine. Don’t assume! The law is constantly changing and more often than not, the template that you intend to use has some problems with it. The difference between getting legal advice up-front or not, can mean the difference between paying a terminated employee a few months of salary as opposed to just a few weeks of salary.
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