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Startup Guide: Employment Contracts

Raymond Rodis 8 months ago

Hiring employees is one of the most important endeavors your startup will do.

Not all hires turn out right and you want to protect your start-up as much as possible while complying with the Labor Code.

These are some of the clauses that should definitely be there in your employment contract.

Non-Compete Clauses

One of the worst things that can happen is if you hire an employee that eventually leaves and starts or joins a competitor. The employee knows your trade secrets that can give the competitor an unfair advantage.

You can specify a period, of say two years, preventing the employee from joining the same industry and provide a cash penalty, of say Php 200,000, in damages if they breach said clause.

Non-Disclosure

Even if your employee doesn’t join a competitor, he/she has access to core code, financials, logistics, or processes that should absolutely be kept confidential. This should survive the termination of your employer-employee agreement. Be clear in defining what constitutes confidential information.

Non-Solicitation

Some employees do worse than taking away your confidential information. They will actually try to take away your clients, partners, or employers. By putting a non-solicitation clause, you can expressly state that they are prohibited from doing so.

No Moonlighting

This clause is optional, but it prevents employees from taking a sideline. It requires employees to put their full focus on the start-up, because startups are hard and need full dedication. Remember though that not all employees may agree to this especially if you do not provide a sizable cash or equity compensation.

Intellectual Property

Our Intellectual Property Code actually provides this but it’s always good to restate to remind the employee that any intellectual property rights such as copyright or patent generated in the regular assigned duties of the employee belong to the startup.

Vesting

If you want employees to work harder, you can incentivize them by promising them shares of stock. This shouldn’t be granted immediately but over the course of a certain number of years. Find more about vesting in the Startup Guide to Vesting Shares of Stock.

Probationary Period

Remember if you do not put a probationary period in your employment contract, that employee will actually be considered a regular employee from Day 1. Be explicit about both your probationary period (which cannot exceed 6 months) and the standards the employee must meet in order to be regularized.

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