Considerations for Entrepreneurs Adding Employees to their Business

Written by Kyle Murdy
JD Candidate 2025 | UCalgary Law

As a start-up company grows in size, it will invariably need to add employees to support this growth. When hiring employees, managers are often thinking about the work the employee will be doing, their fit within the company, and the impact of this employee on the company's budget. Conversely, the employee will often be most concerned with their compensation, benefits, as well as their job description. Needless to say these are all valuable considerations; however, both companies and employees often neglect to consider some important provisions should the working relationship cease to exist. Below are a few of these, and some notes to consider.

Termination:

One of the key factors in the long-term success of start-up companies is their ability to limit their costs when terminating an employee who has not worked out. Consequently, it is important for this to be considered prior to the beginning of the working relationship. The first thing to note is that an employment agreement should detail that an employee may be terminated at the discretion of the company. Notice periods are another point of interest, as these are prescribed both by statute (Employment Standards Code) and by the common law. The common law should be on the forefront of entrepreneurs minds, as awards are much higher than minimums prescribed by law. As such, explicit provisions in the employment agreement will aid in removing discretion from the courts. It must be noted however, that it is not possible to contract out of the minimum provisions provided by statutes.

Non-Competition Provisions:

In the context of start-up companies, non-competition provisions function to prevent former employees from working for competitors. Due to restrictions, these are often unenforceable in Canada due to the common law protection of an individual's ability to make a living. As a result, the best course of action is to explain the rationale behind the non-compete clause, as well as to narrow the scope of the provision - both geographically and temporally - to aid in the court finding it to be acceptable.

Intellectual Property Ownership:

At law, there is a presumption that a patentable invention will be the property of the employee, unless it can be rebutted by the company demonstrating that:

a) there is a contractual provisions stating otherwise;
b) the employee has a duty to the company due to their seniority - provided the invention relates to the business of the company; and
c) the employee was employed specifically for the purpose of inventing.

For things that are subject to copyright law rather than patents such as software, creations are presumed to belong to the employer as long as they were produced during the course of employment. As a result of these two presumptions, it is wise for start-up employment contracts to provide that employees will assign any patents they may secure while employed, along with broadening the scope of ‘the course of employment’ to allow for the allocation of copyrightable material to the company.