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Managing Your Team: Employment Law Basics

Learn about employee vs. independent contractor classification, volunteering guidelines, and unpaid intern policies. Discover payment regulations and the importance of documentation in the employment relationship.

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Managing Your Team: Employment Law Basics

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  1. Managing Your Team: Employment Law Basics BU Startup Law Clinic Kayla O’Leary, Kristen Elia and Mac Daly April 4-5, 2019

  2. Defining the Employment RelationshipWhat’s the appropriate employment status?

  3. Employee; Independent Contractor; Volunteer; Intern • Critical classification • Not static • Employer’s responsibility to accurately define • Misclassification can carry costly consequences for Employer • Back taxes • Wages • Benefits • Civil and or criminal sanctions

  4. Employee or IC? Determined by nature of relationship, not by contract. • Courts and reviewing agencies (ex: IRS) often find employment agreements irrelevant if inconsistent with the actual nature of the employment relationship.

  5. Employee v. Independent Contractor • Massachusetts Wage Act: Not an independent contractor unless the individual meets ALL of three requirements: • (1) The individual is free from control and direction in connection with the performance of the service, both under their contract for the performance of the service and in fact; and • (2) The service is performed outside the usual course of business of the employer; and • (3) The individual is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service performed.

  6. Examples of Independent Contractors • Company hires IT professional to develop company’s website • Company hires accountant to prepare company tax filings • Company hires marketing consultant to develop company’s branding

  7. Volunteer • Volunteer performs a service without receiving compensation. • For-profit entities simply cannot have “volunteers” who work for free (or for “equity in lieu of payment”) • Permitted instances of volunteers: • Members of civic organizations who help at sheltered workshops; • Individuals soliciting contributions for benefit programs or civic campaigns; • Parents assisting at school libraries, cafeterias, or as crossing guards; • Individuals working at youth programs, such as summer camps and Scouts; • Working for religious, educational, or charitable organizations (generally).

  8. Unpaid Intern • Valid unpaid internship depends on whether the Employer or the Intern is the “primary beneficiary” of the relationship. • Factors that constitute a valid unpaid internship: • Intern and employer understand the internship is unpaid • Internship provides training similar to an educational environment, including clinical and other hands-on training • Internship is tied to the intern’s formal education program by integrated coursework or academic credit • Internship accommodates the intern’s academic commitments by corresponding to the academic calendar • Internship is limited in duration • Intern’s work complements, rather than displaces, the work of paid employees • Internship is conducted without entitlement to a paid job at the conclusion of the internship

  9. Payment and the Employment Relationship • All employees must be paid. • At least bi-monthly. • Equity is not legal substitute for employee cash compensation. • Massachusetts Wage Act • Minimum wage is currently $12.00. Will rise to $15.00 by 2030. • Minimum wage applicability to student group projects?

  10. Consequences of failure to compensate employees • Massachusetts Wage Act: treble Damages; attorney fees; court costs • Mandatory liability for wage violations • Three-year statute of limitations • Wage Act violations may be unattractive to prospective investors

  11. DocumentationWhat documents do you need to onboard someone?

  12. Documents you may need • Offer Letter • Proprietary Information and Inventions Agreement (PIIA) • Stock Purchase Agreement (SPA) • Employment Agreement

  13. Offer Letter • Offer Letter is a contract, often signed • Along with the PIIA this may be enough to cover the entirety of an employee relationship – especially non-executives • Can include basic terms; salary, job description, employee type (full/part) time, etc. • Less robust than a ”employment agreement” • May reference and link to other documents like PIIA or employee handbook

  14. Proprietary Information and Inventions Agreement - PIIA • Dual purpose • Establishes that anything invented within the employees duties belong to the company • Employee cannot release confidential information • Usually included with the offer letter, can be included with a more formal employment agreement • IP Assignments and NDA’s

  15. Stock Purchase Agreement (SPA) • Agreement covering equity compensation • Can be used with or without employment agreements • Common tool for young companies

  16. Employment Agreement • Not always needed – only if you want specifics for how the relationship works • Usually only created for executives • Clearly defines relationship between employee and employer • Can create “Contractual Employment” • Can include sections on; • Confidentiality and Works for hire– if there is no PIIA • Employee Policies • Termination • Non-Competes and Non-Solicitation • Arbitration Clause • Equity Compensation and Salary

  17. TerminationWhen and how is it OK to end your relationship with a worker?

  18. Termination • “At Will” employment • What does the agreement say? • Sample independent contractor agreement termination provision: TERM AND TERMINATION.  This Agreement commences on the Effective Date and will remain in effect until __________, or longer if mutually agreed by the parties in writing.  If Company breaches a material provision of this Agreement, Contractor may terminate this Agreement upon 30 days written notice, unless the breach is cured within that period.  Company may terminate this Agreement at any time, with or without cause, upon written notice.  If Company terminates without cause, it shall pay Contractor upon termination all unpaid amounts due for Services completed and accepted prior to termination.  Sections 2 through 5 (inclusive) of this Agreement, and any remedies for breach of this Agreement, shall survive any termination or expiration. 

  19. Common “Types” of Termination in Provision • By employer for cause • E.g. employee fails to meet expectations, commits a crime, violates a policy • By employer without cause • By employee for good reason (or “for cause”) • E.g. workplace harassment, reassignment/relocation, change in pay or failure to pay compensation on time • By employee without cause • Disability or death

  20. Post-termination Obligations for Employees • Non Competes • (IF enforceable) • Non-Solicitation • Confidentiality • Intellectual Property and company property generally

  21. Liability Risks of Terminating a Team Member • Former employee could sue • E.g. for discrimination or breach of contract • Pay your employees!

  22. Questions? • For more information please visit the Start Up Law Clinic’s website: https://sites.bu.edu/startuplaw/ • Resources page (where you can find this PowerPoint): https://sites.bu.edu/startuplaw/resources/ • Eligibility: BU and MIT students Thank you!

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