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The allure of starting a new company is the chance to abandon the old ways of running one. Employing people with innovative ideas and a fierce commitment to the success of the company, many startups decide — wrongly — that they don’t need a formal employment infrastructure. For many new ventures, all those contracts, policies and manuals are symptomatic of the bureaucracy they are leaving behind. But the failure to implement proper employment policies creates enormous and unnecessary risks for some messy legal entanglements. In a nutshell, here are five basic employment issues that emerging companies too often overlook. PROTECT THE FRUITS OF YOUR LABOR The crown jewels of any technology company are its new products and ideas. It is essential to nail down from the beginning exactly who owns the rights to these. Employees should be required to sign agreements acknowledging that all products and ideas developed on the company’s time and with the company’s materials are considered “works for hire,” and assigning to the company all rights they might otherwise have to inventions created during employment. The company will then own the rights, titles and interests to products and ideas created by employees while they are working for the company. Such agreements also help ensure that the company owns the rights to any offshoots of its own products. A large body of corporate information is not subject to patent or copyright protection, but still needs to be shielded from misuse and misappropriation. Under the general category of trade secrets, this type of information includes business plans, sales strategies and customer lists. To prevent the misappropriation of trade secrets, employees and consultants should be required to sign nondisclosure agreements. Such agreements provide a basis for a breach-of-contract claim if confidential information is ever disclosed. Bear in mind that before information can be given trade secret status, the company must have actually taken steps to keep it secret. Such information must be designated as “confidential,” and employees must be warned not to disseminate it to unauthorized people. In addition to nondisclosure agreements, employers should consider requiring their workers to sign nonsolicitation agreements. These generally bar former employees from soliciting current employees and clients for a defined period of time. Permissible time limitations on nondisclosure and nonsolicitation agreements vary from state to state and must be geographically and temporally reasonable. Many states — including Virginia, Maryland and New York — will also enforce noncompete agreements. These prohibit former employees from providing competitive services or products for a specified period of time. States also vary on the permissible length of time for the prohibition, but most require that the restrictions be reasonably necessary to protect the former employer’s legitimate business interests. These agreements are generally reserved for “higher-up” employees who realistically could compromise a company’s success through competition. Of course, other companies are probably taking similar steps. Newly hired employees may have signed nondisclosure, nonsolicitation and/or noncompete agreements with their former employers, leaving a new employer vulnerable to a variety of legal claims brought by the old employer. These include misappropriation of trade secrets (where an employee has confidential information useful to a new employer) and tortious interference with contractual relations (where a worker breaches a noncompete agreement simply by joining the new employer). Therefore, companies should notify employees in writing that they are prohibited from disclosing the proprietary information of their former employers. New employees should also be required to state, in writing, that their new employment does not breach any contractual obligations to former employers. FACE THE FACT THAT YOU MAY NEED TO PAY OVERTIME It’s a lot easier to give all employees a weekly salary than to force them to keep track of each hour worked. But the law starts from the premise that every employee is entitled to 1.5 times his hourly rate for work in excess of 40 hours per week (or 8 hours a day in California). There are a few limited exemptions likely to be of interest to high-tech companies — for executive, administrative and professional employees. “Executives” are defined generally as those individuals whose primary duty consists of managing the enterprise and directing the work of two or more other employees. Duties indicative of executive status include managerial functions such as interviewing, selecting and training employees; evaluating employee performance; recommending promotions and terminations; and planning the work of others. “Administrative” employees are defined generally as those who perform office or nonmanual work directly related to management policies or general business operations and who exercise discretion and independent judgment. An administrator’s work includes advising management, planning, negotiating, representing the company, purchasing and promoting sales. “Professionals” are defined generally as those whose primary duty is either performing a “learned” or educational profession that requires the exercise of discretion and judgment, or performing work requiring invention, imagination or talent in a recognized field of artistic endeavor. Professionals include CPAs and engineers. The federal Department of Labor has issued regulations regarding overtime exemptions for computer-related occupations. (See 29 C.F.R. �541.303.) These regulations exempt computer systems analysts, programmers, software engineers and other similar workers as “professionals.” Those who qualify for this exemption must be highly skilled in computer systems analysis, programming or related work. If this type of employee is compensated on an hourly basis, he must be paid a minimum hourly wage of $27.63. Beware that the exemption does not cover trainees, entry-level employees, maintenance workers and repair workers. In addition to performing certain duties, an “exempt” employee must earn a set salary. An employee will be considered paid “on a salary basis” if he receives each pay period a predetermined amount that is not subject to reduction based on the quantity or quality of work performed or the number of days or hours worked. In other words, if the company makes it a policy to deduct pay from workers for part-day absences or tardiness, those workers are not exempt. An employee will also not be considered paid on a salary basis if pay is deducted for absences due to lack of available work or for the employer’s convenience. Likewise, an exempt employee cannot have his pay reduced for absences due to jury duty, attendance as a witness or temporary military leave during a week in which the employee performs any work for the employer. The lesson here is that an employer cannot just call people salaried employees without regard to the overtime requirements. DISCRIMINATION AND HARASSMENT OCCUR EVEN AT A “GREAT PLACE TO WORK” Technology companies often pride themselves on their “youthful innovation” and their “insane” work ethic. But success does not immunize an employer against discrimination claims. Title VII and the Americans with Disabilities Act cover employers with 15 or more workers, while the Age Discrimination in Employment Act covers those with 20 or more workers. Many smaller employers may be covered by state anti-discrimination laws. Virginia and California, for example, have laws that apply to employers with five or more workers. Recognize that camaraderie, informality and familiarity among co-workers can have a downside. While they promote a greater sense of equality and community among employees, they can also lead to more “hostile environment” harassment claims. Harassment can occur in such unremarkable situations as when an employee repeatedly asks a co-worker for a date even though he is repeatedly turned down. Or when a new hire doesn’t find funny the stream of off-color jokes at which everybody else laughs. Remember that harassment is not limited to sexual harassment. It is also illegal to harass somebody based on his race, religion, age, national origin, disability or, in some places, sexual orientation. Because of the threat of liability, companies must draft, adopt and publicize strict policies against discrimination and harassment. Employers should educate existing and new employees about these policies and set up a reporting procedure for those who have a complaint. It should be made abundantly clear that those who violate the policy will be disciplined. Equally important, managers and supervisors must be trained in how to handle such complaints. A policy is useless if it only works on paper. Especially in high-tech companies, e-mail has become the chief mode of communication between co-workers. It is also one of the newest conduits for harassment. In many recent cases, e-mail messages and downloaded Internet materials have been pulled off company computers and used to bolster legal claims. A written, publicized and enforced policy is essential to protect against employees who fail to grasp that the delete key does not really destroy a disparaging message. Remind employees that they have no legitimate expectation of privacy in e-mail communication over the employer’s system and that the system is provided for business use, not for viewing pornography and chatting with co-workers on company time. NOT EVERYONE WHO WANTS TO CAN WORK IN THIS COUNTRY Only U.S. citizens and foreign nationals who are authorized to work in the United States in compliance with the Immigration Reform and Control Act of 1986 should be hired by the company. As a condition of employment, each new worker should properly complete, sign and date the first section of the Immigration and Naturalization Service’s Form I-9. Rehired employees should also complete the form if there is no previous I-9 form on file, if their previous I-9 form is more than three years old or if their previous I-9 form is otherwise no longer valid. Because of labor shortages, many high-tech companies are bringing in workers from other countries. There are a number of avenues open to these employers. Foreign professionals can be sponsored for H-1B visas. The H-1B candidate must be a professional (generally holding the equivalent of a bachelor’s degree), and there must be an available professional position that generally relates to the candidate’s degree. The federal government limits the number of H-1B visas issued each year. These visas terminate after six years of employment. Employers can also sponsor foreign candidates for L-1 visas, which are designed to help multinationals transfer workers between company offices. To qualify for an L-1 visa, the candidate must have worked for at least one year overseas in an affiliate office of an American company. L-1 visas terminate after seven years for employees in managerial positions and after five years for those in technological positions. In addition, employers can sponsor foreign candidates for permanent residency status, otherwise known as a “green card.” The employer must have a full-time, permanent position available for the candidate and must file applications with the Labor Department and the INS. DOCUMENTATION IS NOT JUST FOR BUREAUCRATS Most of the difficulties discussed here can be ameliorated by drafting and implementing key employment documents that set forth the clear policies of the company. Proper documentation takes time at the beginning, but it saves a lot of trouble in the end. The employee handbook is the primary vehicle for establishing and publicizing the employer’s policies regarding discrimination, harassment, use of e-mail and the Internet, and complaint procedures. Visa sponsorship policies can also be laid out in the handbook. And the handbook usually includes an unambiguous statement that all employment is at will; the company’s policies regarding wages and compensation, family and medical leave, and other benefits; and any other provisions that the employer deems appropriate to set forth. Many young companies forgo formal, written performance evaluations. But when an employee is not promoted, demoted or fired, this lack of paperwork becomes problematic. If the employer has documented a legitimate business reason for an adverse employment decision, it will be better able to defeat a discrimination, retaliation or wrongful discharge claim. But if an employer cannot verify a fired employee’s poor performance ratings, that employer will be in a much weaker position if (and when) litigation ensues. It is inevitable in all kinds of business: Even the best companies can’t satisfy all their workers. Proper documentation — of the company’s policies and their consistent implementation — is the best defense against a disgruntled employee.

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