Employment Agreements: Defining the Relationship Between your Start-up and its Staff

By: Reed Boothby, JD Candidate 2023 | UCalgary Law
 
As start-up’s grow, there often comes a time when they must hire staff. Employment matters are occasionally given less attention than other business, such as raising capital or generating sales, for instance. Employment matters should not be overlooked, however, as the process of hiring and managing employees is an important aspect of a start-up’s success.
 
A written employment agreement defines various rights and obligations between the employer and employee for the purposes of reducing the risk of future dispute and liability. Without a written employment agreement, disputes between the employee and employer will be resolved by applying common law principles and looking for evidence of the parties’ intentions from pre-employment conduct and communications, which may lead to uncertain and potentially undesirable outcomes.
 
A written employment agreement can reduce risk by expressly establishing the relations between the employer and employee, including matters relating to (non-exhaustive):
 

• Employee’s position and job description: The agreement should set forth the employee’s job title (ex., Sales Associate, Software Developer, etc.), as well as a description of the employee’s duties and responsibilities. For start-up’s, the job description found in the agreement should be defined broadly.[1] The agreement should also state that the responsibilities of the employee may change from time-to-time.[2] This is because start-up’s often undergo rapid and unforeseen changes to their business as they grow, and the nature and scope of an employee’s role may change accordingly.

 

• Termination/Dismissal: When an employee is dismissed from their position, the company must pay that employee a monetary sum (sometimes called “notice” or “severance”).[3] An employment agreement can serve to limit the company’s costs when dismissing an employee by establishing the amount the employee is to receive in the event of dismissal. The amount of “notice” must be equal to or exceed the amount set forth by the applicable legislation (in Alberta, the Employment Standards Code).[4] If the “notice” amount is not established in the employment agreement, the requisite amount could be determined through court proceedings. In which case, a judge would make a determination on how much “notice” the employee is entitled to, which may be greater than the amount called for under the Employment Standards Code.[5]

 

• Intellectual Property: Many start-ups derive much of their value from intellectual property. In Canada, any invention which may be patentable is presumed to be the properly of the employee, regardless of whether such invention would in fact successfully receive patent protection.[6] One means to rebut this presumption, among others, is to set out in the employment agreement that all inventions, improvements or discoveries made by the employee during their employment is the property of the company.[7] Note that unlike inventions which are patentable, other forms of intellectual property, such as copyright, are presumed to be property of the employer, provided it was produced in the course of employment.

 

• Confidentiality/Non-Disclosure: During the course of their employment, an employee may obtain in-depth knowledge of the company’s proprietary or confidential information, such as customer lists, pricing policies, trade secrets and so on. A start-up can restrain an employee from disclosing such information by including a confidentiality provision in the employment agreement, or by entering into separate non-disclosure agreement with the employee. The purpose underlying both a confidentiality provision and a non-disclosure agreement is ultimately to stop the employee from publicly disclosing information which the company deems valuable.[8]

 

• Non-competition: A non-competition provision is designed to stop an employee from starting a competing business or becoming an employee of a business which is competitive to the start-up for a defined period of time. The impetus for a non-competition provision to prevent the employee from passing on valuable intellectual property and/or know-how to a competitor which the employee obtained as a result of their employment with the start-up.[9]

 

• Non-solicitation: A non-solicitation provision is designed to prevent an employee from personally benefiting from the employers clients, customers, employees, suppliers or other key persons after that employee leaves the company. For example, a non-solicitation provision may prevent an ex-employee from contacting the start-ups employees and suppliers for the purposes of launching a competing business in Alberta for a period of two years after they are no longer employed with the start-up.[10]

 
Employment matters are a crucial aspect to the viability of many start-ups. A start-up can limit future risks related to hiring and maintaining its staff by setting out important matters within an employment agreement, such as (among others): Job Description; Termination; Intellectual Property rights; Confidentiality; Non-competition; and Non-solicitation. For assistance drafting an employment agreement or for further information about the contents of this blog, please contact the BLG Business Venture Clinic.


[1] Bryce Tingle, Start-Up and Growth Companies in Canada, 3rd ed (Canada: LexisNexis, 2018) at page 126. [“Tingle’]
[2] Ibid.
[3] Tingle, at page 128.
[4] Employment Standards Code, RSA 2000, c E-9; See also Machiner v Hoj Industries Ltd., S.C.J. No. 41, [1992] 1 S.C.R. 986.
[5] Tingle, at page 130.
[6] Tingle, page 136; See also GD Searle & Co. v. Novopharm Ltd., [2007] F.C.J. No. 625, [2007] S.C.C.A No. 340 (S.C.C.).
[7] Tingle, page 136.
[8] Practical Law Canada Employment, “Employee Confidentiality and Non-disclosure Agreements” (2023), online: < https://ca.practicallaw.thomsonreuters.com/9-621-6711>.
[9] Practical Law Canada Employment, “Employee Non-Compete and Non-Solicit Agreements” (2023), online: <https://ca.practicallaw.thomsonreuters.com/3-619-0337>; See also Tingle, at page 131.
[10] Ibid; See also Tingle, at page 135.