Employees and Start-up Companies

Employees and Start-up Companies

Introduction:
Finding the best employees is fundamental to start-up companies. Bryce Tingle has noted in his book Start-up and Growth Companies in Canada - A Guide to Business and Legal Practice that "a new company's success is primarily a function of future managerial decisions, unlike more established companies where most income is derived from existing businesses." [1] Employees in a start-up company will see significant change in the nature and character of their work as the company progresses. [2] For example, a small food-preparation start-up might begin with two founders. They may have limited tech knowledge and may bring on an individual with coding knowledge. That individual may later be required for more of a business development practice as they become more familiar with the running of the business. A constant movement of various people in the firm as responsibilities change will have an effect on how an employment agreement is written.
 
Some general considerations of employment with start-up companies:
1. Keeping the description of job duties of an employee in a contract of employment as general as possible can help avoid issues down the road with respect to changes in job duties as hinted above. It can be mentioned that due to the corporation's expected growth, responsibilities of an employee will change from time to time. [3] Unanticipated changes in employment responsibilities can constitute constructive dismissal, and because changes are reasonably foreseeable in a growth company, a contract clearly providing for an employer's power to change an employee's position from time to time is important. [4]
 
2. The goal for a start-up should always be "no surprises". [5] To avoid issues down the road including an "integration clause" stating that the documents represent the entire agreement regarding the employment relationship, and terms cannot be modified except in writing executed by both parties is important. [6]
 
3. As in any contract, consideration is required. Canadian courts have viewed arrangements where an employee signs their formal employment agreement on their first day of work as unenforceable. This can happen where that person was first sent an informal "offer letter", or general job description, and later formally signed at work. [7] Rather, an employment agreement entered into as a condition of a prospective employee being offered employment is enforceable. The consideration is the employment. [8]
 
4. On a general level, Canadian courts are strongly sided towards employees rather than companies. This might be more intuitive in the sense of big multi-national corporations "taking advantage of the little guy". However, for a start-up, being sued by an employee can be heavily detrimental, if not crippling to, a company's survival. It is vital to ensure that employee agreements are well-written and thought out. The BLG Business Venture Clinic can be a useful service for early start-ups considering and contemplating the drafting of employee agreements, and various clauses within such as rights of first refusal, piggyback rights, shotgun provisions and others.
 
Nielsen Beatty is a member of the BLG Business Venture Clinic and is a second-year law student at the Faculty of Law, University of Calgary.

REFERENCES:
[1] Bryce Tingle, Start-up and Growth Companies in Canada: A Guide to Legal and Business Practice, Third Edition, LexisNexis Canada Inc. (2018) at 126.
[2] Ibid at 127.
[3] Ibid.
[4] Ferdinandusz v. Global Driver Services Inc. [1998] O.J. No. 4225, 5 C.C.E.L. (3d) 248 (Ont. Gen. Div.).
[5] Tingle, Start-up and Growth Companies in Canada at 127.
[6] Ibid.
[7] Ibid at 128.
[8] Buaron v. Acuityads Inc., [2015] O.J. No. 5045 (Ont. S.C.J.).