Episode Summary
Executive Summary: In this episode of This Week in Startups, host Jason Calacanis and startup lawyer Becky DeGras from Wilson Sonsini discuss the critical legal basics for startups, focusing on employment agreements, IP assignment, and non-solicitation. They emphasize the importance of written contracts to avoid disputes, protect intellectual property, and ensure compliance with state laws, especially in California. The conversation covers at-will employment, side hustles, and the consequences of IP theft, providing practical advice for founders and employees.
Main Topics: Importance of Written Employment Agreements (Priority: 5/5): Oral agreements are not legally binding and lead to disputes. Written contracts with IP assignment and confidentiality clauses are essential from day one. Intellectual Property (IP) Assignment (Priority: 5/5): Without an IP assignment agreement, employees own the IP they create, not the company. This is critical for protecting company assets and investor confidence. At-Will Employment and State Variations (Priority: 4/5): At-will employment allows termination without cause, but state laws vary. California prohibits non-competes, while New York allows them if reasonable. Employers must tailor agreements to the employee's location. Side Hustles and IP Ownership (Priority: 4/5): Side projects done on company time or equipment may be owned by the employer. Best practice is to use personal devices and time, and clear any side hustle with the employer to avoid conflicts. Non-Solicitation and Employee Departures (Priority: 3/5): Non-solicitation clauses prevent former employees from poaching colleagues for a period (e.g., one year in California). Unsolicited applications are fine, but proactive solicitation can lead to legal issues. Consequences of IP Theft (Priority: 4/5): Stealing IP (e.g., customer lists, code) can lead to civil and criminal liability, reputational damage, and investor distrust. Emotional and legal repercussions are severe. Transparency with Investors (Priority: 3/5): Founders must disclose any pending or threatened legal disputes during fundraising. Over-disclosure is recommended to maintain trust and avoid surprises.
Key Arguments: Oral agreements are not legally binding and lead to disputes; written contracts are essential. IP assignment agreements ensure the company owns employee-created IP, which is critical for investor due diligence. At-will employment allows termination without cause, but state laws vary; California prohibits non-competes. Side hustles should be done on personal time and equipment to avoid employer ownership claims. Non-solicitation clauses prevent former employees from actively recruiting colleagues, but unsolicited applications are allowed. IP theft (e.g., taking customer lists) is illegal and can destroy careers and companies. Transparency with investors about legal issues is crucial for maintaining trust and avoiding future problems.
Data Points: Duration of non-solicitation in California: 1 year - Non-solicitation clauses typically last one year after termination of employment in California. Number of co-founders of YouTube: 3 - YouTube had three co-founders; one left early and received half equity, while the other two received full equity. Years of experience of Jason Calacanis: 20+ - Jason mentions his over 20-year career in startups.
Pivotal Quotes: "If you don't sign that agreement with your employee on the very first day that they start and they create some IP for you, the default is they own that IP, not the company." — Becky DeGras: Emphasizing the critical importance of IP assignment agreements from day one. "I want you to show me what was actually signed between the two parties because that's what's going to carry the most weight." — Becky DeGras: Advising that written contracts are the strongest evidence in disputes. "If you steal from somebody, and it, like you're saying, the reputation damage is so great." — Jason Calacanis: Discussing the severe reputational consequences of IP theft.
Implications: Founders must prioritize written employment agreements with IP assignment and confidentiality clauses from day one. Understanding state-specific laws (e.g., non-competes in California vs. New York) is crucial. Side hustles should be kept separate from employer resources. Transparency with investors about legal issues is essential for trust and successful fundraising.
About This Week in Startups
Jason Calacanis covers startups, tech, markets, media, and all the hottest topics in business and technology. He also interviews the world’s greatest founders, operators, investors, and innovators.