Hot Topics for Startup Employers
Employers today face constant hurdles in their day-to-day operations, and startups are no different. The liability for employment violations is not limited to large manufacturers or businesses; emerging businesses and companies in their infancy are likewise vulnerable and need to be aware of the laws so they can take appropriate action to ensure that they are protected. Startups should be aware of two issues in particular: 1) wage and hour requirements and 2) protecting intellectual property and company goodwill. Wage and Hour Regulations for Startups Employers of all sizes (including startups) need to be aware of the wage and hour requirements contained in the Fair Labor Standards Act (FLSA). The FLSA applies to employers whose annual sales total $500,000 or more, or who are engaged in interstate commerce. Practically speaking, this means that the FLSA applies to almost every employer. The FLSA governs overtime pay and minimum wages, which apply to employees who are “non-exempt.” Generally speaking, an employee is non-exempt (i.e., the employer is required to pay overtime and at least minimum wage) if he is not salaried, or, if the employee is salaried, the job does not have certain administrative or professional requirements (e.g., supervising two or more people, discretion in decision making, etc.). In contrast, employers are not required to pay overtime to exempt employees (those who are paid at least a certain salary and have certain job duties). Paying your non-exempt employees at least the federal minimum wage is easy. You likely already comply with this rule as long as you pay your employees at least $7.25 for each hour worked. But be sure to check your state’s laws as well. The FLSA is the floor, not the ceiling. Many states impose their own minimum wage that is in excess of $7.25 per hour (e.g., $12.00 in Washington). Overtime issues are more complicated. In its simplest terms, the FLSA requires that employers pay their non-exempt employees 1.5 times their regular rate for each hour they work over 40 in a given work week. But what is the “regular rate,” and what is a “work week?” A common misconception is that the regular rate is simply the standard hourly rate (e.g., $15.00 per hour) that an employer pays a given employee. It is not. The regular rate must include other forms of compensation, such as commissions and non-discretionary bonuses. Including this extra compensation will naturally affect the amount of overtime that an employee is entitled to receive. The workweek is likewise different than most assume, as it is not simply Monday through Friday. Rather, the workweek from which you determine an employee’s overtime is a seven-day period (e.g., Sunday at 12:00 a.m. to Saturday at 11:59 p.m.) over which an employee may work. As an employer, you should set out your workweek (whatever it may be) in your policies and, if at any time during the workweek (with some exceptions) a non-exempt employee works more than 40 hours, be aware that the employee is entitled to overtime compensation. Misclassifying an employee as exempt when he is non-exempt (and the subsequent failure to pay appropriate overtime) can result in severe legal problems in the form of back wages and attorneys’ fees, among other things. Classifying an employee as exempt is a fact-based inquiry based on an analysis of that employee’s salary and job duties. For guidance on whether you have properly classified your employees as exempt or non-exempt, contact one of our employment attorneys at Chambliss. Protecting Your Startup’s Intellectual Property and Company Goodwill The last thing a startup wants is to come up with a great new idea, only to have a disgruntled employee leave and take valuable intellectual property...
Read MoreLimiting Competition and Protecting Your Company: Non-Compete Agreements 101
What Is a Non-Compete Agreement? A non-compete agreement is a contract between an employee and his or her employer, and it restricts an employee from working with other employers in a similar field (i.e., “competing”) after departing the business. These agreements generally impose a time limitation on how long the ex-employee must avoid competing and typically restrict competition within a specified territory or region. Why Do I Need a Non-Compete Agreement? Non-competes can provide many benefits to startups, such as greater assurance that their confidential information, intellectual property, trade secrets, and other proprietary information will not immediately fall into the hands of a competitor; their customer relationships will be protected; and their training investment will not benefit another company. But not all non-competes are enforceable. When a non-compete gets challenged in court, most courts will look to see whether the limitations are reasonable given the circumstances of the employment. Some states, on the other hand, consider non-competes to be void unless they meet narrow exceptions. For example: Tennessee does not have any statute or regulation that generally governs non-competes in employment. But, it does have statutes and regulations that govern health care provider non-competes, and its courts have held that non-competes that attempt to restrict attorney competition are unenforceable. Georgia generally only allows non-competes to be used if: the employee is in sales, is a key employee or professional, the employee is involved in some form of management as covered by Georgia’s non-compete statutes, or if the employee regularly solicits customers for the employer. California is stricter than both Tennessee and Georgia, as non-competes are all but unenforceable except for extremely limited circumstances. Should Your Company Use a Non-Compete for a Particular Employee? Depending on your company’s needs, it may not be necessary for you to utilize a non-compete with each employee that you hire; rather, you may only want to do so with employees that have access to confidential information or are heavily involved in company sales. It really all depends on the circumstances of that individual’s prospective employment. Consider the following: Is the employee the “face of the company” to customers? Does the employee know the company’s trade secrets and confidential information, or is his or her work more general in nature? Have you provided the employee with unique or special training or knowledge? How much competition does your company have? If you decide that you want to utilize a non-compete in your company’s future hirings, here are some things the agreement should include: The reason for the agreement. The date the agreement will begin. Specific timeframes and distances from which employment with a competitor is barred. Particular identification of the type of conduct prohibited and a clear definition of competing companies. An explanation of what the employee receives in exchange for entering the agreement (this is known as “consideration”), which, in Tennessee, can be something as simple as continued employment with the company. What Should the Limitations Be? If you do decide to use a non-compete, you then need to consider what constitutes a reasonable limitation to impose on the employee after his or her employment ends. Example Limitations: One year and a 50-mile radius restriction. Two years and a 25-mile radius restriction. The breadth of the geographical and time limitations that you select will ultimately depend on the nature of the employee’s employment and the competition that your company faces. If your startup or business has questions about whether to utilize non-compete agreements, or whether your proposed restrictions are appropriate, our team is happy to help you navigate these decisions based on your unique situation....
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