The High-touch Legal Services® Blog • For Startup Companies » Employment

There’s No Need to Give Employees a Probationary Period

Dana — Mon, 17 Oct 2011 01:44:57 +0000

The CEO of a client with a half-dozen employees recently asked, “We are about to start hiring again. I would like to add language regarding a 90 day probationary period. Is this a good idea?” My answer was “No.” Here’s why.

I had prepared a form of employment offer letter and an employee handbook for the client. Both of these documents state that employment is at-will – i.e., either party may terminate the employment relationship at any time for any (non-discriminatory) reason or for no reason. As a result, at-will employment, by itself, allows a company to terminate the employment of an individual whose performance is inadequate during the first 90 days. A probationary period is not necessary.

Even worse, if language describing the probationary period is not drafted correctly, or if procedures are not followed appropriately, (a) a probationary period can become a guaranteed-employment period or (b) successful completion of the probationary period can lead to an implied contract for employment thereafter.

In summary, there is nothing to gain, and potentially a substantial amount to lose, with a probationary period.

Photo credit: iStockphoto

Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

Non-compete Snares Conspiring Employer

Dana — Tue, 28 Jun 2011 03:08:57 +0000

California courts are known for not enforcing non-compete provisions except under narrowly-defined circumstances (see “California doesn’t *always* prohibit non-compete provisions”). In a case last year (Silguero v. Creteguard, Inc.), the Court of Appeal for the Second District held that an employer may not terminate an employee because of another company’s unenforceable non-compete agreement.

In 2003, Rosemary Silguero began working for Floor Seal Technology, Inc. (“FST”). In 2007, FST threatened Silguero with termination if she did not sign a confidentiality agreement that included an 18-month post-employment non-compete provision. Two months later, FST fired her.

Soon thereafter, Silguero started working for Creteguard. However, when FST asked Creteguard to respect the non-compete provision, Creteguard terminated her employment. In a letter, Creteguard’s CEO wrote that “although we believe that non-compete clauses are not legally enforceable here in California, [Creteguard] would like to keep the same respect and understanding with colleagues in the same industry.”

Silguero brought suit alleging wrongful termination in that, while at-will employment can be terminated for almost any reason, it cannot be terminated for a reason that is against public policy, and her non-compete clause was against public policy. The court held that Silguero’s position concerning California law is correct.

This case raises at least two important issues for California employers:

First, except in situations where California law expressly authorizes non-compete provisions, employees should not be forced to agree to such provisions. In forcing Silguero to to agree to such a provision only two months before terminating her employment, FST’s behavior was particularly egregious.
Second, an employer should not enforce another company’s non-compete provision unless the employer is sure that the provision is enforceable – and even then, the employer should tread carefully. In firing Silguero for violating a provision that it knew was unenforceable, Creteguard’s behavior was particularly imprudent.

Photo credit: iStockphoto

Employee Right to Wage Claim Hearing Trumps Arbitration Clause

Dana — Fri, 04 Mar 2011 00:58:48 +0000

A recent court decision held that an employee in California has the right to file a wage claim and to have a hearing on that claim before the Labor Commissioner, even if the employee has signed an arbitration agreement.

In California, employees who are not paid what they are owed can file wage claims (see Wage Claims – Nasty but [Sometimes] Necessary). Because the employee need not retain legal counsel, and because the Labor Commissioner may help the employee, a wage-claim hearing provides to the employee benefits and leverage that are not available in other venues, such as litigation or arbitration.

Some employers, in the interest of reducing their exposure, require that employees agree to arbitration of all employment-related clams. (See Arbitrating Employment Disputes: Pro and Con.) In Sonic-Calabasas A v. Moreno, the California Supreme Court decided that an employee has a right to a wage-claim hearing despite an arbitration provision. Specifically, the court held that:

A provision in an arbitration agreement that the employee enters into as a condition of employment requiring waiver of wage-claim hearings is contrary to public policy and unconscionable.
However, the appeal from such a hearing may be made, pursuant to a valid arbitration agreement, in front of an arbitrator rather than in court.

The significance of this case for employers: Pay employees what they are owed – you don’t want to be defending a legitimate wage claim.

http://danashultz.com/blog/2009/06/24/arbitrating-employment-disputes-pro-and-con/

Handbook Defeats Employee Claim of Attorney-Client Confidentiality

Dana — Thu, 27 Jan 2011 04:08:55 +0000

In “Inspection of Employee Text Messages – Be Careful“, I described provisions concerning company-provided technology that every employer should include in its employee handbook. A recent California Court of Appeal case, Holmes v. Petrovich Development Co., shows that such provisions are strong enough to defeat a claim of attorney-client confidentiality!

Gina Holmes brought suit against her former employer, alleging sexual harassment, wrongful termination and other causes of action. The employer presented as evidence e-mails between Holmes and her attorney – e-mails sent from her employer’s computer – that supported the employer’s case.

Holmes argued that the e-mails should not be admitted because they were confidential attorney-client communications. The court disagreed, ruling that admission of the e-mails into evidence was appropriate and stating (emphasis added):

This is so because Holmes used a computer of defendant company to send the e-mails even though (1) she had been told of the company’s policy that its computers were to be used only for company business and that employees were prohibited from using them to send or receive personal e-mail, (2) she had been warned that the company would monitor its computers for compliance with this company policy and thus might “inspect all files and messages . . . at any time,” and (3) she had been explicitly advised that employees using company computers to create or maintain personal information or messages “have no right of privacy with respect to that information or message.”

The factors cited by the court are quite similar to the suggestion in my earlier post that employee handbooks include the following:

Policies that are broad enough to cover all technology resources.
A policy stating that company-supplied technology is to be used only for company business purposes.
Notice to employees that they should have no expectation of privacy with respect to (a) use of company-supplied technology and (b) any information that is obtained or produced while performing their duties for the company, irrespective of where the information may be stored.

Bottom line:

If you are an employer, put the foregoing provisions in your employee handbook.
If you are an employee, don’t use employer-provided technology to send sensitive or confidential information.

Photo credit: iStockphoto

Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

Unpaid Interns: What You Need to Know

Dana — Thu, 13 Jan 2011 02:08:25 +0000

Many companies – especially startups – like the idea of using interns as free labor. This post discusses whether and how a California company can use unpaid interns.

Overview

If individuals are interns under California law (as discussed below), then they need not be paid, and they are not subject to other employment protections, because they are not employees. If, on the other hand, individuals are determined to be employees, then they must be paid at least minimum wage.

Details

California follows federal law in analyzing six factors, all of which must be satisfied for a position to be considered an internship rather than employment:

The training, even though it includes actual operation of the facilities of the business, is similar to that which would be given in a vocational school.
The training is for the benefit of the trainee or student.
The trainee or student does not displace regular employees, but works under close observation.
The business that provides the training derives no immediate advantage from the activities of the trainees or students and on occasion its operations may actually be impeded.
The trainee or student is not necessarily entitled to a job at the completion of the training period.
The employer and the trainee or student understand that the trainee or student is not entitled to wages for the time spent in training.

Companies should evaluate these factors carefully, because that is what the Division of Labor Standards Enforcement will do if this matter comes to its attention. If a company will using the individuals’ services as a way to save money, rather than as a bona fide training program, then the individuals should not be considered interns. Instead, they should be considered employees and should be paid at least minimum wage.

Photo credit: Josh Klute via stock.xchng

Accelerated Vesting may Mean Little if Your Employer is Acquired

Dana — Mon, 10 Jan 2011 19:45:37 +0000

This post is adapted from a question that I answered on Quora. Q. How can an acquirer make an employee with single-trigger vesting commit to a “lock-up” period to receive all his shares? Say you’re an engineer at a just-acquired startup with 0.5% of the old company, and your shares fully vested upon acquisition. The acquirer’s terms were that current employees get 50% of their payout up front, and 50% if they stay on board for 5 years. How is that possible, legally?

A. It is difficult to provide a definitive answer without looking at the relevant documents. However, I suspect that this situation is possible because 50/50 pertains to shares in the acquiring company rather than the acquired company.

In my experience, acquired companies will put some effort into converting employee equity interests directly into comparable interests in the acquiring company, but there is no guarantee this will happen.

So you may (I can’t be sure, not having reviewed the documents) have a choice: Keep your 0.5% fully-vested interest in the acquired company (which is likely to have little, if any, market value in the foreseeable future), or accept the 50/50 conversion to an equity interest in the acquiring company.

Does My New Employer Now Own My Software?

Dana — Wed, 22 Dec 2010 02:17:40 +0000

This post is adapted (with editing) from a Quora question that I answered. Q. I developed a software application on my own, then adapted it for my new employer, where it is used enterprise-wide. What are my ownership rights in this situation?

A. It would help to know whether you signed any type of proprietary information and inventions agreement with your employer. If you did, its terms (obviously) will be of great importance. You did not mention any such agreement, so I will assume, for the purposes of the discussion below, that there is no such agreement.

The most definitive thing I can say is that you own the copyright in the original application.

I expect that your employer owns the copyright in the improvements because, as the product of an employee working within the scope of his employment, they were a work made for hire. Please see “Why ‘Work Made for Hire’ is a Term Made for Confusion“.

I expect that your employer has some sort of fairly broad implied license with respect to using and modifying the original application’s source code, but it is impossible to know, for certain, the terms or limits of that license. Please see “If You Don’t Set the Terms of a Copyright License, a Court Will“.

Which Financial Information Must a Private Company Provide to Employees with Vested Stock Options?

Dana — Wed, 20 Oct 2010 20:47:33 +0000

This post is based on a Quora question that I answered (Q and A are somewhat edited). Q. Which financial information must a private company provide to employees with vested stock options?

A. In California, Corporations Code Sections 1500 and 1501 specifies records that must be kept by each corporation. Shareholders’ rights to inspect records are set forth in Sections 1600 and 1601.

I know of no comparable statutory provisions with respect to holders of vested options, however. Unless the stock option plan grants you such rights, the easiest way for you to gain such rights would be to exercise your option with respect to one share and, then, exercise your rights as a shareholder.

What Should We Put in an Employment Offer Letter?

Dana — Tue, 31 Aug 2010 19:34:58 +0000

From time to time, clients ask me to review their employment offer letters. Here is a summary of what I believe every offer letter should convey to the prospective employee from the business and legal perspectives.

From the business perspective, the letter should lay out the most important characteristics of the position being offered:

Position title
A description of the position’s responsibilities
Work location
The title of the manager to whom the position reports
Salary and, as applicable, other compensation, such as commissions or stock options / restricted stock (including a reference to any applicable governing documents)
A brief summary of benefits, noting that they are described in detail in the Employee Handbook
How the prospective employee should reply to accept or reject the offer
The date on which the offer expires

From the legal perspective, the following are critical:

A statement that employment is “at will“, i.e., that either party may terminate the relationship at any time for any reason or for no reason
An obligation to sign and return the enclosed Proprietary Information and Inventions Agreement (or whatever title the company uses for such an agreement)
A notice that employment will be subject to the company’s Employee Handbook as it may be changed from time to time (perhaps with a copy of the Handbook enclosed, if it is not too long)
Legal boilerplate about dispute resolution (see Arbitrating Employment Disputes: Pro and Con), amending the offer letter, and the like

See all posts about employment.

Photo credit: Evan Earwicker via stock.xchng

Small-company CEOs Can Be Accused of Sexual Harassment, Too

Dana — Mon, 16 Aug 2010 22:34:35 +0000

Rita Risser

I am especially pleased to welcome Rita Risser as a guest writer – not just because her post about sexual harassment is this blog’s first guest post, but because I have had the pleasure of knowing, and staying in touch with, Rita ever since we met at Boalt Hall.

As CEO of a small company, you may imagine that the recent resignation of HP’s CEO has no relevance to you and your organization. Think again.

Whenever employees or contractors are let go, they are more likely to bring claims for harassment, whistle-blowing and more. The worse the economy, the less likely they are to find other jobs and the more incentive they have to pursue alternative sources of income through lawsuits.

How can you protect yourself and your company?

Have strong policies against harassment, discrimination and corporate malfeasance. Policies may not prevent bad behavior, but courts consider them evidence of your good faith.
Your policies should include requirements and processes for employees to file internal complaints. In many cases, the courts will not allow employees to sue without first filing those complaints and giving you an opportunity to resolve the situation.
Have mandatory training for all managers and supervisors. Again, training may not stop bad actors, but the U. S. Supreme Court has held that training shows the employer’s good faith. That means a case could be thrown out, or even if it goes to trial you will not be liable for punitive damages.
Make sure the training is effective. Getting the cheapest, fastest online training that employees can run in the background while working is not the kind of training that will help you. In fact, it could hurt, by showing you don’t care. Fortunately, there are web-based alternatives that are engaging while still respecting your time.
Enforce your policies. Sometimes this is the hard part. You have a brilliant manager or engineer who has violated your policies. What do you do? Termination (or forced resignation) usually should not be the first step in enforcement. A written warning may be all that is required. But gross violations of company standards are grounds for immediate termination. And even relatively minor infractions may justify firing if they are committed by the people entrusted with enforcement.
If employees threaten to sue, or say they feel they have been harassed or otherwise treated unfairly, do not ignore them. Contact your HR or legal person immediately. Incidentally, having training even after a complaint has been filed has been held to protect a company from punitive damages.

The last thing most start-up founders want to think about is Human Resource policies and training. But having some well-drafted policies in place and a few hours of essential training will go a long way to protecting the company from costly lawsuits.

Rita Risser is Vice President of Fair Measures, Inc., which provides web workshops on preventing harassment and employee lawsuits.