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Don’t let your staff catch you out as you grow

As your start-up begins to grow and take on more staff, you’ll likely run into a few challenges. It’s much easier to keep everyone ‘on the same page’ when there’s only a handful of people in the business.

When your workforce balloons to 20, 100 or more staff, that’s when issues emerge. Due to numerous factors, including background, work history, education and personality, each of your staff members is likely to have different values, attitudes and expectations when it comes to the employment relationship. This can cause legal complications.

Here are the top 10 people issues that start-ups must consider as they scale:

1. Contracts

Having a clear and current contract in place for any staff member, whether they are a full time, casual or part time employee, or a contractor, is a relatively simple but vital step. It helps reduce misunderstandings and disputes about the nature of the arrangement.

It is also important that any contract covers an employee’s current role or position. If an employee is promoted, for example, this can mean the old written contract no longer applies. This can cause disputes if/when the employment comes to an end leading to claims for “reasonable” notice of termination.  The contract should also consider fundamental issues such as whether the relationship is exclusive, and a protection of key matters such as IP, confidential information and post-employment restraints.

2. Contractors vs employees

Start-ups typically focus on flexibility as a key element to their business. But how far does this flexibility go?

The characterisation of whether a person is, at law, truly an employee or an independent contractor is significant. It is relevant for tax, superannuation, employment entitlements and possible claims under the Fair Work Act 2009 (Cth) (FW Act) such as unfair dismissals or claims under the “sham contracting” provisions.  It also directly affects the duties that the person has towards a start-up, with a number of implied duties of fidelity and good faith, and other fiduciary duties, dependent upon an employment relationship.

3. Intellectual property

It is important to clearly establish that your business owns the IP in the products being developed for your business. That is relatively simple to secure, through some basic terms in a contract, or a clear policy or other document covering the topic that is made legally binding.

But what if your employees also develop some new IP or invention, with some work colleagues “after hours”, but using the business IT and premises? Who owns it?

If you cover these issues through employment contracts, policies, and/or Deeds, you have a good chance of asserting ownership. If you don’t take these precautions, your chances are low.

4. Confidential information and post-employment restraints

As your start-up scales you need to have an eye on the capacity to protect your confidential information, including by having enforceable post-employment restraints that are focussed on legitimate business needs and are able to adapt and be tailored as the business grows.

With the increasing use of forensics as a way of gathering evidence of theft of confidential information, there has been more activity from employers and Courts protecting the information. A clear contractual right to restrain an employee or protect confidential information is an important legal step and practical disincentive.

5. Policies and procedures – do we need them?

Start-ups are often unprepared when it comes to addressing employee conflict and poor behaviour.

An employee’s view of appropriateness and an employer’s will frequently differ. Having in place policies that identify behavioural expectations can assist in practically enforcing standards, and protecting the business from a “rogue” employee. At the very least, policies should deal with what constitutes harassment, discrimination and bullying.

An organisation with clear policies, a code of conduct, well trained staff and a grievance resolution procedure that is implemented, is able to prevent matters escalating out of the employer’s control.

6. What’s work got to do with it?

Conduct at work is one thing. But what about outside work?

It is well settled that an employer may discipline, and dismiss, an employee for conduct “out of hours” where there is sufficient connection with work. The use of social media is an example where the lines can be blurred between what is private and public.

There are a range of claims that can be made associated with the use of social media.  The most common involves offensive comments made about an employer or another employee.  An employees’ defence that they did not understand how Facebook worked, or were “just joking” have proven to be implausible.

7. WHS/OHS issues

As a business you are legally responsible for the safety of all of your employees and for other people who might be affected by safety hazards in your workplace or safety issues causes by the products that you design, manufacturer or supply.  The rules will differ slightly from state to state but the basic concepts are the same.

If somebody is hurt at – or because of – your business, the government safety agency in your state or territory will ask you:

  • What were your safety procedures and policies?
  • Had these been communicated to staff?
  • What steps did you take to assess and evaluate the risks in relation to the work that you do or the products that you provide?

 As your start-up grows, you need to have in place some basic systems and polices to address these issues. Failing to have systems in place simply because you didn’t have time to think about it, will not be an adequate explanation or excuse.  Fines and other penalties can apply where businesses breach these obligations.

8. Workers Compensation

Your employees have to be covered by workers compensation insurance, and in most jurisdictions you will also have to apply the same insurance coverage for contractors who work for your business.

If one of these employees or contractors gets injured and makes a claim there will be various obligations to assess and either accept or reject the claim promptly, and then manage the rehabilitation process for that worker.

Generally the workers compensation authority in each state, or an insurance broker, can help you identify what policies you need to have in place. 

9. Working remotely

Flexibility, and the capacity to work remotely, is increasingly seen by employers as a strategic business issue, critical to workplace effectiveness, employee engagement and long term business sustainability.

Most progressive workplaces now have policies that set some parameters for how flexible working arrangements can work.  Often separate agreements are reached, setting out mutual expectations. Matters covered can include planning a home office, safety considerations, work organisation, supervision, the provision of work equipment and work stations, system requirements, access to training and career progression and information security. These are all matters that are typically the subject of consideration with more formal remote working arrangements. Thought also needs to be given to an employee’s privacy out of hours and to separating their working and home lives.

10. “Sweat Equity”

It is a great idea to incentivise your employees by giving them some form of equity in the company, particularly if (like most start-ups) the company is short on cash but big on ideas.

But there are a range of legal requirements in terms of how shares or share options are provided to employees .  You need to step though these carefully.

In addition some start-ups make the mistake of thinking that they can bypass or ignore minimum employment conditions that are set by legislation, because they provided employees a generous equity benefit instead.  This is not the case. The FW Act and awards set minimum standards and conditions of employment (things like rates of pay, annual leave and sick leave, etc.) and these have to be satisfied at all times; it is not possible to bypass them or to satisfy them by providing equity.

About the authors

Nick Ellery and Jack de Flamingh are both Partners at Corrs Chambers Westgarth lawyers.

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Nick Ellery and Jack de Flamingh

Nick Ellery and Jack de Flamingh

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