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Starting a Tech Business: An Employment Law Perspective

However groundbreaking or disruptive your innovative tech idea is, employment law remains fairly constant and should be considered early if you are to avoid issues and remain compliant.  We frequently see businesses that have, in the spirit of moving and growing quickly, perhaps not necessarily built the best foundations and face difficulties down the line.  Whilst the thought of falling with a fellow founder or key contributor may be unthinkable at the outset, it happens – more frequently than one would think.  Facebook anyone…..?

In this quick overview will highlight some keys areas that any emerging tech business should consider if they want to limit risk.


Consider how and where you want your staff to be working!  


Remote working may work brilliantly for your business, giving you the option to source talent from multiple jurisdictions, but there will be tax, social security, and immigration implications to consider for any staff working overseas.  Ensuring that your contracts (employment and contractor) and policies reflect the reality of the way you work is key. Clearly define expectations for remote work, workplace attendance and productivity monitoring and think about how to keep engagement and team working at the forefront of people’s minds.

Consider data protection – data is king and a valuable asset that may be easier to control and contain in an office environment.  Whether you have a UK based hybrid working model (aka coffee shop working) or a staff of digital nomads (working from a coffee shop abroad), make sure your team understands the importance of keeping sensitive information out of sight and under digital lock and key.


Ensure you have properly drafted employment contracts and workplace policies


Get contracts in place BEFORE people start doing work.

It sounds obviously but business still start up on a handshake or on less than formal terms but it’s just not worth that risk – however amicable things are.  If you are engaging people as employees, you have a legal obligation to provide employment terms in writing before the individual’s start date. At the bare minimum an employment contract must contain the prescribed statutory information and should contain a lot more.  Consultancy agreements should similarly be comprehensive and also address the potential tax and employment status risks.  It is prudent for the inevitable fallout (call us cynical) to ensure that everyone is on the same page.  Whilst contract terms can be verbal or established through conduct the lack of clear agreed terms is almost certainly a fast track to dispute – not to mention a breach of your obligations as an employer.


Type of Worker (and therefore type of contract)

Consultant or employee? An employee will have specific employment rights whereas a consultant will not be entitled to the same level of protection.  Tax and social security status also differs. Determining worker status in the event of dispute (employment or tax) will depend on factors including, whether the worker works independently and if they are being hired for a specific project. The substance of the working relationship is what matters both from a potential litigation and tax investigation perspective, but it helps if clear terms are in place from the outset.


Tailored Terms

A template contract can provide a useful starting point, but there is no “one size fits all”.  Consider the seniority and skills of the individual and also the type of work they are performing. Specific considerations may need to be factored in, such as the length of notice, extent of post employment / engagement restrictions, pay, annual leave, benefits and more.


Intellectual Property (IP)    

It is crucial to have a well drafted clause that assigns any IP (created by an employee or contractor during their employment or engagement) to the company.  If someone has created IP in the absence of a formal contractual terms that state otherwise – it may be open to argument as to who the IP belongs to.


Restrictive Covenants / Post Employment Restrictions    

These are clauses that seek to prohibit employees from competing or soliciting/dealing with customers of the business for a specified period once their employment or engagement ends. Careful thought needs to be given to who needs to be restricted and for how long. Any clause that is unreasonable or goes further than reasonably necessary to protect the legitimate interests of the business may well not be worth the paper it is written on.


Your legal obligations

Employees’ rights, include : statutory pay (sick pay, maternity/paternity, redundancy etc); the right not to be unfairly dismissed for employees with 2 or more years’ service; the right to a written contract of employment; protection against discrimination and whistleblowing, holiday rights; rights in respect of maximum working time; and the right to a written reason for dismissal. Consultants have lesser protection but also have legal rights, for example protection from discrimination.


Provide employees with clear and unambiguous information on their benefits and incentives such as bonuses or share options


Attracting top talent in the competitive tech industry often involves offering attractive employee benefits, long term incentive plans, equity rights and other financial incentives such as bonuses or sales commission. Ensure documentation detailing how any such schemes will operate is clear and transparent. Ambiguous or poorly drafted scheme rules will almost certainly lead to extremely costly legal battles.


When considering bonus schemes consider what “discretionary actually means”. Key bonus considerations include how bonus will be calculated, whether the payment and/or assessment of a bonus will be entirely discretionary, or essentially an expectation with discretion only around the amount.  Consider the benefits of well thought out transparent reward terms contrasted with the risk of allegations of unfairness, lack of consistency and discriminatory treatment from disgruntled workers.


Employment Policies  – what do you really need?

Most companies have employment policies that govern the more generic workings of the employment relationship – such as how holiday operates, how performance is monitored, IT and diversity policies etc.   The bare minimum is a disciplinary procedure and a grievance procedure (legislation requires that employees can refer to these) and a health and safety policy (required if employing five or more employees).

There are additional policies that must be recommended (IT, diversity, data protection, holiday, sickness absence etc) that we would strongly recommend, especially for growing companies.


Consider employee exits at the start  

No one wants to think about relationships turning sour at the outset of setting up a business but giving this some thought at an early stage will stand the company in good stead when the worst happens.   Contracts should have carefully considered termination clauses including the ability to place employees on garden leave and provisions confirming what happens to bonus or incentive plan provisions during notice periods or after exit.

If it does come to the stage where the company wants to part ways with an employee it is essential to comply with contractual obligations and follow appropriate processes. In a nutshell – warn, document, communicate and treat employees consistently. Failing to follow the correct processes can give rise to the risk of unfair dismissal claims for employees with two or more years service.


Final message  

Navigating UK employment law is an integral part of establishing a successful and sustainable tech startup. By understanding worker rights, promoting equality and flexibility, structuring contact terms and benefits judiciously, and handling termination responsibly, tech startups can build a solid foundation for growth while fostering a positive work environment.

Seeking legal advice and staying informed about changes in employment law are essential practices for startups to thrive in this dynamic industry.   You know where to find us if this resonates……




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