January 18, 2021

Volume XI, Number 18


January 18, 2021

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Startups and the Beginning of the Employment Relationship Who, What, When, Where, and Why?

WHO to Hire?

Startup companies can reduce or eliminate future problems with employees through careful hiring practices. Best practices include:

  • Use interviews, reference checks, and applications to find employees with the characteristics your company needs for success
  • When screening applications, exclude applicants with attendance, performance or commitment problems.
  • Interviews and employee selection procedures are governed by state and federal anti-discrimination laws such as Title VII of the Civil Rights Act of 1964 (Title VII) (applies to companies with 15 or more employees); accordingly, avoid asking questions that tend to reveal protected class characteristics such as race, national origin, age, disability, religion, gender, and in some jurisdictions sexual orientation.
  • Ask questions about skills or competencies necessary for the job, strengths and weaknesses, and past “gaps” in employment history
  • Do not ask an applicant’s age, date of birth, or any questions showing a preference for any age group (except you may ask if the applicant is over 18)
  • Do not ask about an applicant’s place of birth or family history (except you may ask if the applicant is authorized to work in the U.S.)

WHAT to Consider when Conducting Background Checks?

One question startups may ask is how they should conduct background checks. There are many benefits of background checks, such as screening out candidates who give incomplete or inaccurate information on their applications, or are not suitable for the job due to relevant criminal convictions. However, some background checks have been challenged as discriminatory under Title VII because they disproportionately screen out particular racial, ethnic, or gender groups. As a result of the EEOC’s aggressive litigation posture and the growing trend amongst many states to “ban the box” (prohibit pre-offer background checks), employers should consider the following:

  • Do not use background check policies that exclude people from employment based on any criminal record no matter how remote in time or what the crime.  Rather, think about the specific offenses that may impact the person’s ability to perform the job and ensure that policies are narrowly tailored to meet those ends.
  • Do not conduct background checks selectively; if a background check is conducted on any applicant for a specific position, then it should be done for all applicants who receive an offer for that position.
  • Regularly review the results of the background check process to analyze whether the background checks screen out a certain group of individuals.  If so, consult legal counsel.
  • Ensure compliance with all requirements of the Fair Credit Reporting Act.
  • Results of background checks and the information requested should be kept confidential, should only be used for the limited and intended purpose, and should only be distributed to the proper human resources manager or individual who maintains such records.

WHEN Do Startups Need I-9s?

A frequent question is “what is an I-9?”  The Employment Eligibility Verification Form I-9 is a federal form downloadable and is used to verify an employee’s identity and employment eligibility. But it must not be used to screen applicants. Even the principals of a startup, if they are employees, must complete a Form I-9. Key steps are:

  • Employer presents I-9 to the employee to complete Section 1 of the form on the first day of employment.  
  • Employer must complete Section 2 within three business days of the employee’s hire.  
  • When completing the form, the employee must select documents that prove identity and employment eligibility (from a list provided with the form), showing originals to the employer. 
  • Employer inspects the documentation and then completes Section 2, retaining the I-9 in a secure location available for inspection by the US Department of Labor or Immigration Customs and Enforcement.  
  • Failure to complete or only partially completing I-9s results in significant fines.   
  • Regardless of a company’s size, proper completion and retention of the Form I-9 is the law and failure to do so can be financially devastating to a company

WHERE Should Startups Recruit Employees and Should They Require Non-Disclosure and Confidentiality Agreements or Trade Secret and Non-Compete Acknowledgments?

Often startups, especially in the tech industry, are created due to some innovative technology or product; accordingly, startups should ensure their information is protected at the outset of an employment relationship. For this reason, startups should consider:

  • Require all employees to sign confidentiality and non-disclosure agreements prohibiting unauthorized disclosure of trade secrets, intellectual property or other confidential information
  • Have all employees sign a trade secret and confidential information acknowledgment in which employees agree not to use or disclose any proprietary information or trade secrets belonging to former or concurrent employers
  • Require employees to sign an acknowledgement that the startup did not request any confidential or proprietary information or trade secrets and that the startup will not defend or indemnify the employee from any lawsuit filed as a result of the employees’ violation of a confidentiality, non-compete agreement, or other restrictive covenant

WHY Should Start Ups Be Careful When Hiring Temp Employees?

Instead of going through the process of hiring an employee directly, startups may use a temp. If this is the case, startups should remember that a temporary agency employee can be deemed an employee of the company as well as the temporary agency.  Companies should consider the following facts that could cause a court to decide a temp is the company’s employee:

  • Authority to hire and fire can be found if the startup directs the temp agency to fire or discipline the temp, even if the temp agency is actually the one that carries out the termination.
  • Temps working “side by side” with the startup’s employees and performing the same tasks as the startup’s employees is also an indicator of control.
  • Temps performing tasks essential to the business of the startup like producing goods or services core to the business also weighs in favor of control.
  • Although the temp agency may handle dispersal of paychecks, official terminations, and employee discipline, this does not guarantee that the temp agency is the only employer.
© 2020 Poyner Spruill LLP. All rights reserved.National Law Review, Volume V, Number 228



About this Author

Employers today face expanding and complex employment legislation as well as a growing body of regulatory requirements that govern the employment relationship. Lawsuits brought by employees also are steadily rising, as are enforcement actions and audits by government agencies responsible for enforcing employment laws, such as the Equal Employment Opportunity Commission, the U.S. Department of Labor, Immigrations and Customs Enforcement and the Office of Federal Contract Compliance Programs.  

In this environment, employers need experienced legal counsel capable of providing sound...