Employment Agreement deep dive: IP assignment, offer letters, side hustles & more with Becki DeGraw | Wilson Sonsini Startup Legal Basics

Episode Summary

Executive Summary: The episode is a practical legal primer for startups, focused on employment agreements, IP assignment, at-will employment, state-specific non-competes, side projects, non-solicitation, and how to handle departures and disputes. Becky DeGras emphasizes that founders should get core documents signed on day one, tailor agreements to the employee’s location, avoid using company devices for side hustles, and over-disclose legal risks to investors.

Main Topics: Foundational startup legal documents: The hosts stress that oral or handshake agreements are unreliable for founders and employees. Proper written agreements reduce ambiguity about equity, roles, vesting, and ownership, especially when disputes arise. Employment agreements and IP assignment: At-will employment agreements should include confidentiality and intellectual property assignment provisions. Without them, employees may own the IP they create, including business ideas and code, not the company. State-specific rules on at-will work and non-competes: At-will rules vary by state, and California is highlighted as highly restrictive of non-competes. Including a non-compete in a California agreement can jeopardize the entire document, while other states may allow narrowly tailored restrictions. Side hustles, remote work, and ownership risk: If an employee develops a side project using employer time, equipment, or devices, the employer may claim ownership. The safest approach is to keep side projects fully separated from company tools, time, and information. Non-solicitation and employee departures: The discussion covers limits on recruiting coworkers and how solicitation can trigger demand letters or litigation. The best practice is to review the employee’s current agreement and, when possible, exit or launch a new company transparently and professionally. IP theft, confidentiality, and reputational consequences: The speakers emphasize that taking company databases, documents, or trade secrets can lead to civil and criminal exposure and severe reputation damage, even if the theft seems minor to the employee. Investor diligence and disclosure: Startups should disclose any threatened or pending employment/IP disputes early and fully. Investors dislike surprises, and undisclosed conflicts can damage fundraising and board relationships.

Key Arguments: Basic legal paperwork is essential because informal agreements become disputes over memory and interpretation. Every employee should sign an at-will employment agreement on day one so the company owns work product and IP created for the business. IP assignment covers not just patents and trademarks but also ideas, business plans, code, and other creative work. California generally rejects non-competes; including one can undermine otherwise valid confidentiality and IP terms. The state where the employee is located, not the company’s headquarters, governs which employment agreement terms are appropriate. Side projects are risky if they touch employer devices, hours, or systems; separation must be total to reduce ownership claims. Non-solicitation and recruiting former coworkers can be lawful or risky depending on state law and the facts, so founders should review their existing agreements first. If there is any threatened dispute or cease-and-desist risk, founders should disclose it to investors rather than hope it disappears. Transparency and empathy can prevent emotional escalation that often triggers lawsuits and demand letters.

Data Points: Employment agreement timing: Day one - DeGras says every employee should sign confidentiality and IP assignment agreements on the first day of work. Non-solicitation duration: 1 year - The discussion notes that California law used to treat non-solicitation restrictions as generally lasting one year after employment ends. Layoff severance example: 1 year severance - Jason references France as an example where layoffs over a certain threshold may require a year of severance. Early-stage founder effort: Hundreds to thousands of hours - Jason argues that if a startup is worth building, it is worth getting the legal basics right before investing massive time. Separation agreement consideration: Some consideration required - DeGras explains that separation agreements need additional consideration, such as extra vesting or cash, to be enforceable. Employer notice threshold: 100 employees - Jason’s example contrasts a generic hiring tweet with a mass email sent to 100 employees at a former employer.

Pivotal Quotes: "If you don't sign that agreement with your employees 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: Explaining why at-will employment agreements with IP assignment must be signed immediately. "California has taken the position that we don't like non-compete in that setting at all." — Becky DeGras: Describing why non-competes can invalidate confidentiality and IP provisions in California agreements. "If for nothing else, you don't want to get sued by your current employer when you walk away." — Jason: Warning founders and employees that leaving on bad terms can poison a new business before it starts.

Implications: Startups should standardize employment and IP paperwork, localize agreements by state, and keep side projects strictly separate from company resources. Early transparency with employers and investors can prevent costly disputes and fundraising problems.