Most Common Labor and Employment Mistakes that Can Sink Your Startup

Most Common Labor and Employment Mistakes that Can Sink Your Startup

For Silicon Valley startup founders, mastering labor and employment law is not just a legal obligation—it’s a key to survival. A single misstep can trigger crippling fines, lawsuits, and lasting damage to your company’s reputation, all while diverting precious time and energy away from scaling your business. In this workshop, labor and employment attorney will guide you through the critical dos and don’ts that every entrepreneur should know to help avoid legal pitfalls, including California’s AB5 worker classification law, the perils of compensating employees with stock instead of cash, and the significant employment issues that arise during due diligence in financing rounds.

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The Dos to Consider:

1. Clear Employment Contracts and Policies
   Your employment contracts should be more than just legal necessities—they should be comprehensive, well-structured, and designed to protect your startup. Clear definitions of roles, responsibilities, compensation structures (whether in cash or stock), and intellectual property rights can be critical to avoiding disputes down the road.
2. Classify Workers Correctly: The AB5 Challenge
   California’s AB5 law has redefined how businesses classify workers as employees versus independent contractors, and getting this wrong can be disastrous. Misclassification can lead to audits, fines, and class action lawsuits, as Uber and Lyft experienced firsthand. Tracie will break down AB5’s requirements and explain how to properly classify workers to help avoid penalties. She will also offer insights into strategically using contractors while staying compliant with the law, minimizing risk for your startup.
3. Institute Strong Anti-Harassment and Anti-Discrimination Policies
   Having robust anti-harassment and anti-discrimination policies isn’t just about protecting your employees—it’s about protecting your business. Failure to create an inclusive, safe workplace can lead to costly lawsuits. Tracie will share best practices for developing and enforcing these policies to create a positive workplace culture that also helps shield your startup from legal exposure.

The Don’ts to Consider:

1. Don’t Overlook Wage and Hour Compliance
   Wage and hour compliance is one of the most common areas where startups slip up. Failing to pay overtime, improperly classifying salaried employees, or relying too heavily on stock instead of cash compensation can spark lawsuits and costly penalties. Tracie will explain why offering stock in lieu of wages can lead to significant regulatory problems and how to properly structure these agreements to comply with wage laws.
2. Don’t Ignore Non-Compete and Non-Solicitation Agreements
   Protecting your business from talent poaching and client loss is essential, but non-compete and non-solicitation agreements must comply with California law, which largely voids non-competes. Failing to address this can leave your startup exposed to losing key employees or clients to competitors. Tracie will help you navigate California’s restrictive stance on non-competes and offer alternative strategies to protect your business in a highly competitive market.
3. Don’t Wait Until Due Diligence to Address Compliance Gaps
   During a financing round, investors will scrutinize every corner of your business, including labor and employment practices. Non-compliance, misclassification of employees, or poorly structured compensation agreements can raise red flags and potentially derail funding. Tracie will stress the importance of developing a solid compliance framework early on to avoid these red flags and help to ensure smooth financing rounds.

The Perils of Arbitration vs. Court Action: Pros and Cons for Disputes

Many startups include arbitration clauses in their contracts for resolving disputes, but is arbitration always the best route? Tracie will weigh the pros and cons and offer examples on when arbitration may be beneficial versus when court action might be the better choice for dispute resolution.

Key Takeaway:
Labor and employment compliance is not just a legal formality—it can be crucial to your startup’s success and long-term survival. Addressing potential risks early on, from worker classification under AB5 to structuring compensation and preparing for investor due diligence, can help you avoid costly legal and financial disasters. Tracie Stender’s workshop will equip you with the strategies and tools to protect your startup from legal risks, so you can focus on what matters most—growing your business.

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