Is employee agreement necessary for a new startup?​

Startups may function without any formal written agreement, but there are risks in the long run.
Mansi kathuria
March 16, 2021

Startups may function without any formal written agreement, but there are risks in the long run. Over time, differences may arise while running the business or any other account and at that time one ever regrets of not having executed written Agreements spelling out the terms and conditions. Therefore, employee agreement is one of the formal agreement between the employer and employee.

Most employees work without an agreement as they are appointed on an hourly or wage basis, and they are low salaried employees. But when you hire any person on some good position or any professional, you probably need to prepare an employment contract and get it duly signed by your employee. Cases when it is beneficial to have a contract are –

1. When the employee is a professional, and it is difficult to replace

2. When the employee possesses confidential information

3. When you want to avoid competition

Employee agreement outlines the terms and conditions of employment of the concerned employee and his key performance areas. It is quite often seen that companies use standard form employment letters/ agreement irrespective of the nature of work and the position at which an employee is inducted, this often results in ambiguity and vagueness especially at the time when the employee is to be removed or a dispute arises with the employee. It should be avoided. One may have an agreed template with certain standard conditions which will remain same for every letter of employment/ agreements, however, while drafting and negotiating terms of employment with the prospective candidate, careful thought must again be given to each term and condition and the same must be captured with modifications to suit the particular requirement.

They should clearly state the following:

  • Terms and condition of employment example — compensation, role responsibilities, working hours and grounds for termination
  • Reporting structure
  • Expectations
  • Required commitments
  • Share vesting
  • Company policies (e.g., vacation days, paid time off the structure, dress code)
  • Place of work
  • Process of the settlement of dues
  • Term of employment and termination provisions including the age of retirement
  • Manner of dealing with proprietary and confidential information and data protection (this is quite critical in the startup possess essential intellectual and proprietary information)

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