Legal Mistakes You Should Avoid in Your Start-up



The legal and business challenges you might face when launching a new startup are considerable. It has been well documented that startups and entrepreneurs make a lot of mistakes. These are some of the most common and problematic legal errors often committed by growing and small Mistakes like these are made when a company is first starting, at the beginning of its growth, and when dealing with its

Mistake #1: Not Making the Deal Clear With Co-Founders

You should establish the details of how your business relationship will work with your co-founders before starting your company. If this is not done, it may result in significant legal issues in the future (a great example of this is the Facebook lawsuit involving Zuckerberg and Winklevoss). You can think of a founder agreement as something like a prenuptial contract. Here are the key terms you need to include in your founder agreement Who will own the equity if the founders are split equally? Are each founder’s percentage ownership in the business subject to vesting if he or she continues to participate To what extent do the founders have responsibilities and roles? What happens if one founder leaves the company? How do the remaining founders or the company deal with buying back that founder’s Is it possible to buy the company, and if so, at what price? When will each founder commit to the business? In what ways will commitments from outside be constrained? Who are the founders entitled to receive salaries (if any)? Would you mind telling me how to change this? Describe how major business decisions will be made and how decisions will be made on a day-to-day basis? Can a founding member of your company be fired from the business (by majority vote, unanimous vote, or are certain decisions made by the CEO alone?) Under what circumstances can an employee of your business be removed? What assets or cash does each founder contribute to or invest in the business? (i.e., this is usually the decision of the Board of Directors)? What is the process for deciding whether to sell the business? Can a founder violate the terms of their agreement if they are not living up to expectations? Where is the business headed? What is its vision and mission? It is often made the same mistake with employees by emailing them or telling them they are going to get 5% of the company without vesting schedules, defining role definitions, or deciding what happens if they leave.

Mistake #2: Not Starting the Business as a Corporation or LLC

The very first decision a founder must make is in what legal form to structure their Since most founders start businesses without consulting lawyers, they incur higher taxes and face significant responsibilities that could have been avoided if they had structured the business as a corporation or limited liability company (“LLC”). In general, startup businesses can choose from the following types of forms to start their business The proprietorship is for one person only. An independent contractor generally does not require legal paperwork, filings or fees, except for those required by state and local permitting agencies. The disadvantages, however, of operating in this way are as follows (2) a sole proprietorship only has one owner if additional capital is required from other investors, a partnership or other entity form should be used (1) A sole proprietorship generally provides no protection for the founder from creditors (i.e., creditors can directly sue the founder), in contrast to corporations and LLCs, where, generally speaking, the founders are protected from creditors and other third parties. Our recommendation is not to start a sole proprietorship. This is a general partnership. If there are multiple founders, there is sometimes a general partnership chosen as the legal form of business entity. It is ideal for the founders to execute a partnership agreement to “set the rules” between However, if the founders fail to enter into a partnership agreement, most (if not all) states have existing laws that will step in and set the rules for the Also, a partnership’s income is generally taxed on a pro rata basis (i.e., to the partners according to their ownership stake in the company). Additionally, each partner is generally liable for the debts of the company, so that each partner’s assets are exposed to the business’ obligations to the fullest extent possible. In addition, we would not recommend forming a general partnership for a startup. Companies organized under the C Corporations Act. Corporations are formed under state law (usually in the state where the first operation of the business will take place, or, commonly, in Delaware, which has a well-developed corporate law system.). C corporations are the most common type of venture capital-backed company. Corporations under the S Corporation Act. The formation of these companies is regulated by state law, as with C corporations. If a closely held company (not more than 100 stockholders) elects to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code, the company is an S corporation. A through election results in the S corporation becoming a pass-through entity for tax purposes (meaning the S corporation itself does not pay income tax. Profits and losses are shared among stockholders of the corporation rather than passed through). Limited liability companies. As hybrid form of a corporation and a limited partnership, these are governed by state law and have some tax advantages. Limited liability protections are offered to the owners, adhering to the corporate form, but they also provide flow-through taxation to the members (as with an S corporation). The best way to avoid starting an LLC (which generally cannot invest in pass-through entities) if you plan to bring in venture capital investors is to avoid doing so at the beginning of the company’s existence. Partners in a limited company. In addition to being formed under state law, many of these companies hold investments in real estate and are also popular investment vehicles for private equity, venture capital,

Incorporated entities, limited liability companies, and limited partnership agreements are formed by filing papers with the appropriate state agency.

A Delaware-based C corporation (formed by a branch of the state) is by far the most popular choice for technology startups. In the event that a sole proprietorship or a partnership needs to convert into a C or S corporation, an LLC, or another legal entity, be aware of the fact that conversion can be challenging and can result in a lengthy process depending on how the company was formed.

Mistake #3: Choosing a Company Name That Has Trademark Issues, Domain Name Problems, or Other Issues

Research is essential prior to deciding on a company name to help ensure that there will not be trademark infringement or domain name issues and to ensure that the name you choose is in fact available. When you use a trademark in a way that is likely to confuse customers about the source of the goods or services, you may be committing trademark infringement. The following steps can help you avoid name conflicts Conduct a Google search on the name to find out what other companies may have the same name or a similar one. You can find information on the U.S. by searching online. This is the site of the Patent and Trademark Office where you can register your proposed name on the federal level. Find out whether anyone is using a name that sounds similar to the company name by searching Secretary of State corporate records in the states where the company will do business. To find out if your preferred name is available, go to or another domain registrar. This may indicate, therefore, that there is potential for prior use as the “.com” domain name is already taken. You should choose a name that stands out and is may wish to consider asking your IP lawyer to conduct a professional trademark search for you. Make sure you do not choose a name that is too limiting that you will have to alter it later as the company grows or changes. Identify five names you like and test their marketability with prospective employers, It is important that you consider the international implications of the name you choose (for example, you don’t want to pick a name that has humiliating or unflattering The name should not be spelled in an unusual way. Even with this in mind, odd names can cause problems and confusion down the road (although some companies, like Google or Yahoo, have had success with unusual names, but that is

Mistake #4: Not Complying With Securities Laws When Issuing Stock to Angels, Family, or Friends

The sale of stock, limited partnership interests, or LLC interests to founding members and later investors will be subject to federal and state securities laws if the company has been organized as a corporation, limited partnership, or LLC. A majority of securities laws require such sales to comply with specific disclosure, filing, and form requirements, unless they are exempt from these requirements. If the startup company fails to comply with applicable securities laws, significant financial penalties can be imposed, including a requirement that it repurchase all shares sold to investors in the unlawful offering at the original issuance price – even if the company has lost most or all of the money it raised. In addition to fines and other penalties (civil and criminal), those who fail to comply with securities laws may incur criminal or civil penalties. Founders should engage knowledgeable lawyers to document the sale of shares in compliance with applicable laws in order to avoid such damaging (potentially fatal) consequences.

Mistake #5: Not Adequately Taking Into Account Important Tax Considerations

In the early stages of their businesses, entrepreneurs need to pay attention to a variety of tax-related issues. Startup founders can find themselves or their startups in the position of being liable for unintended taxes, fines, or penalties if they do not plan ahead. The following are a few important tax issues you should To obtain a Tax ID, follow these steps. Generally, you will need to obtain a tax ID for your company from the Internal Revenue Service. It is also known as an Employer Identification Number (EIN), and is similar to a Social Security Number, but it is specifically for companies and organizations. You will be asked for your EIN if you want to open a bank account for your company. On the IRS website, you can apply for an EIN online (the process is quick and easy, and an EIN is issued instantly). It is likely to be necessary to obtain a state tax ID in some states as well (for instance, California, New York, and Texas require a state ID, which can also be acquired Select the legal entity you want. If you need to choose a flow-through tax entity, for example an LLC or S corporation (see the explanation of entity types in mistake #2 above), there may be valid reasons. If the entity qualifies for flow-through status, it lets shareholders’ business losses flow through to their individual tax returns, which enables them to offset those losses against any gains the incorporated business may have made in the same Since most venture capitalists and institutional investors are tax-exempt, they prefer (and in some cases, even require) that the entities they invest in be C corporations (generally due to their tax-exempt status, which precludes them from receiving active trade or business income). The Section 83(b) of the Internal Revenue Code. It is important for founders and staff to consider whether IRC Section 83(b) elections can be used to mitigate potential tax issues. If someone receives stock or options that are due to vest, then they can elect to have themselves minimized from paying ordinary income tax on the income they receive as part of the Section 83(b) election. Stock from a small business qualified for tax credit. In certain circumstances, stock holders in qualified small businesses corporations may receive a reduced rate of tax on gains from the sale of “qualified small business stock,” in accordance with IRC Section 1202 of the Internal Revenue Code. Investing in a mutual fund offers considerable tax savings. Pertaining to the exemption is key to these savings. Incentives under the Tax Code. There are various tax incentives depending on the nature of the business, such as tax credits for renewable energy and tax credits for investments. It is also known as stock options. It is becoming increasingly popular to offer employees stock options when the company cannot pay high salaries as a way of motivating, retaining, and attracting the best employees. When a company has a stock options plan, it is able to grant stock options to employees, officers, directors, advisors, and consultants, which allows these people to buy company stock when the options are exercised. According to Section 409A of the Internal Revenue Code, the primary tax issue for business when granting stock options is the need to determine the fair market value of the company’s stock to determine the exercise price of the option. The most common method of determining a property’s value is to hire an expert valuation expert. It may be necessary for the business to pay prices and taxes for the sale or lease of goods and services, which are commonly referred to as “sales tax” or in some situations as “use tax.” The sales tax is determined by multiplying the purchase price by Rates of sales tax vary by state (California has the highest sales tax). There are some states in which cities and counties can levied sales taxes in addition to the state must be collected in full by the seller when the item is being sold. It is the seller’s responsibility to file tax returns and remit sales tax to a state and city/county that imposes In most states, cities, and counties, sales tax applies to different categories of goods and services, and there are many categories of goods and services that are not subject to sales tax. The payroll tax is a tax on wages. Starting a business requires companies to pay payroll taxes to both the state and the federal government. Employee payroll taxes are usually calculated as a percentage of the compensation provided to them by the employer. Employee taxes are taken out of (withheld from) employee pay, are collected by employers, and paid by employers on behalf of employees and companies. The United States In addition to federal income taxes withheld by employees, the tax includes amounts paid for Social Security and Medicare (called FICA taxes), where the employer deducts the employee’s share (one half of the cost) from the paycheck and A comparison of employees and employers. Issues related to independent contractors. The correct determination of whether a person providing services to a company is an employee or an independent contractor is essential for tax and other purposes. Independent contractors are at risk of being incorrectly classified by employers. In order to avoid paying Social Security, Medicare, and unemployment taxes, and to avoid providing health insurance coverage to their employees, startups prefer to use independent contractors instead. state governments are paying more attention to misclassification issues. Companies like Uber that treat workers as independent contractors are under increased scrutiny (the California Assembly Bill 5 passed last year and will take effect on January 2020 requires many formerly independent contractor workers to become It is possible that the IRS or the state may claim that the worker should have been classified as an employee if the employer has significant control over the worker. The company must give each of its employees an IRS Form W-2, which details the employee’s salary and benefits for the year, and independent contractors a Form 1099 by February 1. Ensure that all income and deductible expenses are properly documented. In order to maintain accurate records of business income and deductible expenses, every business must keep accurate records. Many businesses use electronic software programs such as QuickBooks in place of a physical checkbook for this purpose.

Mistake #6: Not Having the Right Legal Counsel

Many startups seek out inexperienced attorneys in an attempt to save on expenses, as well as lawyers who offer steep fee discounts or are relatives or friends of the business owners. This prevents them from obtaining the advice of a lawyer, who has experienced legal issues, who may be able to help them avoid many legal entanglements. It’s also a good idea for founders to interview several lawyers or law firms and find out if some, if not all, of them have expertise in The following steps should be taken by founders when locating competent legal counsel You might want to check with friends and business acquaintances Referral services provided by the state bar might be worth considering. Check out the websites of local incubators and accelerators where members of the advisory board serve. Presenters from startup counsel and other relevant subject matter experts will appear at programs. Legal websites should be reviewed Business law, finance law, securities law, and employment law, Intellectual property law, real estate law, tax law, franchise law, cyber law, and data privacy law, as well as laws and regulations pertaining to data security, cybercrime, and privacy

Mistake #7: Not Maintaining Proper Corporate and HR Documentation

A majority of companies do a poor job of maintaining proper HR/corporate documents. If the company is involved in a financing activity, an acquisition activity, or is engaged in claims or litigation with an employee or regulatory agency, this can lead to problems. A compendium of the types of documentation the business should consider carefully is presented below The resolutions and minutes of shareholders and directors relating to stock certificates and stock option plans Signed contracts (including any documentation about loans to or from founders or employees of the company) Stock and option records, which include, among other things, stock option plans Developed and executed stock options and stock purchase A proof of payment for stock sales, share grants, and option grants (as well as any other securities or financial instruments the company sells or issues) The 83(b) election forms (plus a copy of the IRS form filing receipt) Forms and paperwork relating to option exercises The state and federal filings are required. The job applications and resumes are required. The employee offer letter is required. The agreement between an employer and an employee. Form W 4 is the Employees Withholding Allowance Certificate from the IRS. All employees are required to complete Form I-9 with regards to their eligibility to work in the U.S. An anti-harassment and discrimination policy (and, if employees confirm compliance with the policy, their acknowledgements and A termination notice and any separation and severance agreements for terminating Record-keeping for the Patent and Trademark Office. Confidentiality and assignment of inventions Among the benefits plans are employee personnel files that contain performance reviews and notes of important meetings.

Mistake #8: Not Determining Which Permits, Licenses, or Registrations You Will Need for Your Business

You may need one or more of the following permits, licenses, or qualifications based on the nature of your business Regulatory permits for certain businesses (aviation, agriculture, alcohol, etc.) Sales tax licenses or permits Home-based business permits City and county business permits or licenses Zoning permits Health department permits (such as for restaurants) Federal and state employer identification cards

Mistake #9: Not Carefully Considering Intellectual Property Issues

In case you have developed a unique product, technology, or service, you may want to consider taking the appropriate steps to ensure that the intellectual property you developed is preserved. As a founder and as an investor, the company has a stake in making sure its intellectual property is protected and that third parties’ intellectual property rights are not infringed on. In terms of patents, here are some common measures startup companies take to protect their ideas. The best protection you can get for your new product is a patent. A patent protects the creator of that product from being made, used, or sold by others. In order to be patentable, you must (2) A patent is only granted for the actual concrete implementation of an idea, formula, or the like It must be a new or novel invention (1) An invention must not have been published previously in a printed publication or patented (2) A useful purpose must be related to the invention. It is the United States that obtains patents. A patent application can take several years and can be complicated. You can get a patent by applying to the Patent and Trademark Office. For the purpose of filing a patent application, you normally need the services of a patent lawyer. Rights to copy. These rights apply to original works of authorship, such as books, articles, music, movies, software, and art. A copyright gives the owner the right to make copies of the work as well as to prepare derivative works (such as sequels or revisions) based on that Those are trademarks. The protection of a trademark is related to its symbolic value, which is created by the owner of the trademark in order to identify or distinguish his goods IBM, American Express, and Coca-Cola are among the companies that own well-known trademarks. By using the trademark in the regular course of business, you can obtain rights to the mark. Federal registration offers some advantages, but you do not need to register the mark in order to get rights to it. Applicants for U.S. trademarks file applications with the agency. Service marks are a trademark registered with the United States Patent and Trademark Office. A service mark is similar to a trademark and is used to identify a service. The trade secrets of your business. It is a type of intellectual property that has no general public knowledge, confers economic benefits on its owner due to the fact that it is not publicly known, and is subject to efforts by the owner to keep it secret. The trade secret right allows the owner of the right to take action against people who find a way to misuse the secret, such as through theft. There are all sorts of trade secrets, from customer lists to computer programs to the Coca-Cola formula. We have confidentiality agreements. In the United States, such agreements are often referred to as non-disclosure agreements. Generally, a non-disclosure agreement allows for the holder of non-public or confidential information (for example, the owner of a secret product or business idea), to share that information with a counterparty who will be prohibited from disclosing that information to anyone else. It’s common to find exceptions to the confidentiality obligations imposed by an NDA, which are generally built into the agreement (such as when the information is made available to the counterparty through wholly separate means without any violation of any obligation owed to the holder of the An employee confidentiality agreement and an invention assignment agreement. A contract such as this should be required for all employees. In addition to this, it serves several other As a part of the contract, the employee is obliged to maintain confidentiality of the business’ proprietary information, both while employed and after leaving the company. Secondly, it ensures that any inventions, ideas, products, or services the employee develops during the course of employment and that are associated with the business are owned by the company, rather than the employee (see It is also possible for a founder to have intellectual property issues when he or she starts a new company while working for another company. An entrepreneur or investor should be aware of the risk of claims by a prior employer that the intellectual property contributed by the founder has been misappropriated.

Mistake #10: Not Coming Up With a Great Contract

It is recommended that most companies use standard contract forms when dealing with clients or customers. Each contract can be crafted to be more favorably for one or the other party. A key point is getting your form into the hands of the other side and hoping that it appears reasonable enough that the other party will not attempt to negotiate. A few points to keep in mind Sample contracts of companies in the industry can be found online. A new wheel does not have to be invented. If you need drafting, then you should hire a business lawyer who has good experience (and good forms to begin with) to finish the job. Don’t make the contract so long that the other party will throw up their hands when they read it. Make the form look like a standard preprinted contract by choosing the proper font size and typeface. You should ensure the contract clearly states basic terms, such as a description of the deliverable(s), the price, when payment is due, which penalties may be owed if payment isn’t timely, and how it may be amended (most commonly only in writing between Reducing or eliminating representations and warranties about your product or service will protect you from liability. You can include limitations on your liability if the product or service doesn’t work or fails to meet the buyer’s You shouldn’t be liable for any damage caused by unforeseen events if a force majeure clause is incorporated into your contract. Do not leave the dispute resolution clause blank. This will allow the parties to choose the law and forum for any litigation. The arbitration we prefer is confidential, binding, in front of one arbitrator in the city or county where you are located as well as under the streamlined arbitration rules of a commercial arbitration administrator (e.g.

Mistake# 11: Not Having a Good Terms of Use Agreement and Privacy Policy for Your Website

Your terms of use are the terms and conditions that follow when someone uses your website. Your privacy policy is a legal statement that outlines what you do with the personal data collected from your site’s visitors and customers and how that information may be used, sold, or released. The following will be covered in a good terms of use agreement To reduce the exposure of the site owner, these measures should be tailored to the specific circumstances of the business. This site collects what kind of information. Information collected by the site and how it is used. site handles children under the age of 13 • How the personal information may be shared or sold to third parties This article describes how third-party services like Facebook and Twitter can provide access to the site. What cookies are used on the site and how the owner protects the data collected. Details of the steps taken to protect the privacy and security of the information collected are given. It is not wise to blindly copy the privacy policies of other sites. We should consider how changes to privacy policies may be implemented. The limits imposed on site users as well as the way the site can be used. Disclaimers about There are clauses that limit the liability of the owner of the site, its officers, officers, directors, and affiliates. Class actions will not be permitted because all disputes are resolved by binding arbitration that is confidential. Users of the site should represent and guarantee their accuracy, and they should indemnify If products are sold, the customer has the right to a refund and a return. property, copyrights, and data security are some of the elements covered by a good privacy policy.

Mistake #12: Not Using a Good Form of Employment Agreement or Offer Letter When Hiring Employees

There are many instances in which oral agreements are misunderstood. When planning to hire a prospective employee, use a well-drafted offer letter, which the employee should review earlier so that it is carefully considered before being signed. It makes sense for senior executives to have a more detailed employment agreement. In a good offer letter or employment agreement, the following key items will be addressed It is unclear whether an arbitration agreement can be mandatory with respect to certain claims under California and other state laws. A statement that the terms of any vesting and any shares to be granted are to be set out in a separate stock purchase agreement or stock option agreement to be signed by the supervisor who will supervise the employee are documented in a separate stock purchase agreement or stock option agreement to be signed by the supervisor A description of the employee’s job title, responsibilities, and role. The frequency of the job offer. The date the employee will start the job. The length of time the employee will have to accept the offer. Salaries, benefits, including a vacation policy and relocation services, as well as any bonus opportunities

Mistake #13: Not Requiring All Employees to Sign a Confidentiality and Invention Assignment Agreement

In return for pay, companies want employees to come up with ideas, develop products, and make inventions that will benefit the company. It is not uncommon for employees to have access to a substantial amount of their company’s confidential information, which can be very valuable, especially for It is important to protect proprietary company information through the use of confidentiality and invention assignment agreements. A confidentiality agreement can provide a method of protecting your ideas, work product, and inventions when they are created for company business, but the idea, work product, and inventions themselves will belong to the company. In a good employee confidentiality and invention assignment agreement, you should include the following key provisions It is strictly prohibited that any company’s confidential information is used or disclosed by the employee for his or her personal benefit or use or that of others, without the permission of the company. Employees must promptly disclose to their employers any inventions, ideas, discoveries, and other work products related to the company’s business that they make during their tenure as an employee. It is the company’s right to own inventions, ideas, discoveries, and work products, which the employee must assign to it. In the course of his or her employment with the company, the employee will not breach any of the agreements or duties he or she has with any third parties, nor will the employee disclose to the company or use any of the company’s confidential information. Any and all confidential information and company property must be returned by an employee upon termination of employment. It is prohibited for the employee to compete with the employer and to perform services for any competitor of the employer. Upon termination, the employee will continue to be bound by the confidentiality and invention assignment provisions of the agreement. It is not a guarantee that your employment will continue. In order to attract venture capital and other investors, startups should ensure that all employees sign these sort As part of an S&A transaction in which the company is being sold, the buyer’s due diligence team will also look for copies of these documents In the Form & Agreements section of, you can find a sample form of employee confidentiality and invention assignment agreement. The company will also need to have all of its consultants sign a confidentiality agreement and an assignment of inventions.

Mistake #14: Asking Interview Questions That Are Prohibited by Law

There are federal laws and state laws prohibiting employers from considering protected categories in their hiring decisions The following demographic factors may be relevant gender, race, age, color, religion, disability, etc. Even if you do not make any decisions based on those questions, asking the wrong questions could result in a charge of discrimination against your company. The following are examples of the types of questions you should avoid Do you know how old you are? Are you a member of a certain Can we make sure we are aware of any medical conditions you have? Are you currently employed in, or have you ever been employed by, a company that requires background checks? Do you have any disabilities that would prevent you from performing this Has there been anything recently that you have been ill with or had surgeries for? Would you mind sharing your marital status with me? Are you expecting a child or have you had a child in the past? Are you planning to work for a long time? What kind of drinks or cigarettes do you consume? Are you a member of any political party? How do you feel about your first language being English? Upon leaving the military, what was the type of discharge you received? How did you get to where you are? Are you using drugs? Where do you live? These are some obvious questions that come to mind. It may be less obvious to avoid the following questions, but they are nonetheless problematic Do you know what your maiden name was? What is the situation with your home? Do you own it or rent it? How did your family get to where they are now? Could you please provide me with the name of a relative who should be notified in case of an that he asked for a relative’s name.

Mistake #15: Not Taking the Proper Steps Prior to Firing an Employee

An employee who is terminated, even if it is “at will,” may be at legal risk if not properly documented and handled. Terminations are prohibited because of color, race, ancestry, gender, age, disability, marital status, religious preference, sexual orientation, absenteeism for jury duty or military service, etc., or because of sexual harassment, discrimination, or other allegations against the employee. To help you out in terminating an employee, here are some tips Employers should have a handbook or policy/procedure that states the company strives to be lawful. Regarding disciplinary measures, the handbook or policy should specify such steps. There will be no support for termination unless violations of company policies are clearly evident. Developing an employee reference policy to explain how a departing employee can obtain references and what supervisors should and should not say about departing employees could be beneficial. You should investigate situations when issues arise to gain a full understanding of the situation. Make sure you document the communication involved with coaching or advising the employee who had poor performance or violated company policy. A warning may be more appropriate than outright firing, unless there is significant misconduct. Review the offer letter or employment agreement to ensure no further steps or notices need to be taken. You may need the services of an employment law lawyer to ensure that the termination will not violate the Start with a progressive discipline approach, if the termination does not result from serious misconduct. Conduct an exit interview with another company employee who can serve as a witness, and terminate in a dignified manner, in private, and document the conversation. Briefly, accurately, respectfully, and truthfully inform the employee that their employment has ended. If appropriate, make sure that all legal requirements are met, such as keeping an employee’s last paycheck and accrued but unpaid personal time recording (this is vital in California and In the event that you decide to offer your employees a severance package, make sure they receive a complete and total release from the company. employee should sign the release, and it should cover all known and unknown claims the employee may have (except for those that cannot be waived as a matter of law), and cover all consideration that is reasonable. Specifically, if an employee lives in California, is 40 years old or older, or is under 40 years of age, special rules apply, and certain nondisclosure provisions may be prohibited under California law. In addition to terminating the employee’s access to your computer network, voicemail, and email, you should also terminate the employee’s access to your voicemail, as well. Ask the employee to return company laptops, phones, keys, security fobs, and other items. Make sure the employee has all the information he or she needs to obtain unemployment compensation and COBRA coverage. If a confidentiality agreement, or invention assignment agreement, exists, the employee should understand that he or she has continuing obligations under the Give the terminated employee a few moments to pack up his or her personal items privately and discreetly, but don’t force him or her to leave the workplace. If you are concerned about violence or other security threats, there is no need to send security guards to accompany the employee. Ensure that all email correspondence and other documents regarding the employee are preserved in case of a lawsuit. Identify how the former employee’s workload will be handled by the others on the team. Also, you may have to run a debriefing with the team. However, be sure to protect the privacy of the departing It is never easy to terminate an employee, so the employer needs to make sure that it takes the appropriate legal steps before terminating the employee.


If you are able to avoid these legal pitfalls and missteps from the start, you have a better chance of succeeding than those who fail to anticipate and address them right from the start. By obtaining expert advice and planning now, you can avoid major problems in the future.


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