It’s not always feasible to launch your startup with a large sales team. In fact, many wait until they reach a major revenue or business milestone before they work toward building their sales team. While you may feel overjoyed that business is booming, you will need to ensure your business is protected – before hiring someone to work for you.
Review the following ways to ensure your business is legally protected when building your sales team.
1. Establish the right workplace agreements
Employers and employees almost never engage in a business relationship envisioning the relationship will eventually sour; but, sometimes it happens. Whether you unknowingly hire a bad employee or a good employee who becomes disgruntled over time, without the proper workplace agreements in place, you’re exposing your business to potentially devastating consequences. Review the following workplace agreements before building your sales team.
Employee vs. Independent Contractor
Although this isn’t an agreement per-se this type of employment classification is important. For one, failing to properly document a new relationship can prove costly to your business. For example, if you hire someone to operate sales, but they create their own schedule and are not directly managed by you, they can be classified as an independent contractor – which means they are responsible for paying certain taxes, whereas an employee only pays their portion and the employer pays the rest. If an independent contractor agreement is established, but they are actually deemed an employee, your business could face costly payments that include back wages, back taxes and additional fines or fees. Such classifications also govern whether you can, or cannot, get them to sign, and later enforce a non-compete agreement.
Learn more about who might qualify as an independent contractor or employee in the previous blog post: What Do You Mean That My Independent Contractor is Now an Employee?
Non-Competition and Non-Solicitation
You’ve worked hard to build your business, so why not ensure it’s properly protected? Without a non-competition agreement established, an employee could work for your company, get to know your clients and employees and then hire them away to a business they founded to compete with you (they’d certainly have an advantage). A non-competition agreement is especially important to protect your business if you’ve provided an employee with access to confidential information, specialized training or company stock.
In addition to a non-competition agreement, a non-solicitation agreement is equally important to prevent employees who resign or is terminated, from soliciting your employees or your clients to join them either at a competitor or that former employee’s new startup.
Non-Disclosure / Confidentiality
A non-disclosure agreement and confidentiality agreement operate within the same scope. Having these agreements in place keep employees from leaking confidential information or insider information, therefore protecting information crucial to your business operation. Furthermore, because you are opening up and sharing your secrets with them, these agreements prevent them from using your secret-sauce against you in the future.
2. Comply with federal and state employment laws
Though we’ve discussed various workplace agreements that protect your business first and foremost, employees also have protected rights within the workplace. Employee rights can vary from state to state, but federal regulations and provisions protect employees equally across the country. The first of those being the Fair Labor Standards Act.
The Fair Labor Standards Act (FLSA)
Employers are required to keep track of FLSA records and comply with the laws regarding minimum wage, overtime, and record-keeping. Before you build your sales team, you should think about employee classification. Will your employees be exempt? Non-exempt? One of the major FLSA provisions is that non-exempt employees must be paid overtime, while exempt employees do not have to be paid overtime. Additionally, paying your employee salary instead of hourly wages does not automatically make your employee exempt and the title of your employee does not matter – it’s the nature of the work that determines their classification.
Ensuring your business complies with FLSA provisions is important because improper classification could lead to liability and financial loss if a suit is filed.
Austin Paid Sick Leave
If you live or work in Austin, you’ve likely heard the commotion regarding the Austin Paid Sick Leave Ordinance enacted by city council in February. If you own or operate your business within the Austin city limits, you can expect to have to comply to this new ordinance beginning October 1 – unless your business is currently considered a “microbusiness” with 5 or fewer employees. If this is the case, you won’t need to comply until October 2020.
While your business address may be located in Round Rock or Georgetown, it does not necessarily mean you’re off the hook. If you’re sending employees (not independent contractors) to perform or conduct business in Austin, you’ll be expected to be within compliance.
3. Protect your intellectual property before building your sales team
When you center your entire business on an innovative product or idea, you’ll want to ensure that idea is protected, otherwise, your business could crumble. When you’ve reached the point in your business to building your sales team, the products or services they’ll be responsible for selling should have the right protections – whether this means patents, trademarks, or copyright. It’s understandable why many entrepreneurs procrastinate obtaining the right protections for their property – whether to curb early costs or because of uncertainty in product success.
However, if you don’t protect your property early on, it will cost you much more to rigorously defend or protect it later. By that point, someone may have already copied and started selling a replica of your product, causing your business economic harm and quite possibly a negative reputation.
Building any team in your business is an exciting phase of growth, but it must be met with caution to protect your business, its assets, and yourself as a business owner. By having these legally-binding agreements in place, you can establish clear expectations within a business relationship, avoid misunderstandings, and ultimately protect the business you’ve worked hard to build.
If you need help identifying liabilities in your business or assistance drafting these agreements, contact me today.