Understanding Founder Employment Agreements in Startups

In technology and life sciences startups, founders typically don’t have traditional “employment agreements” like other employees might. These agreements usually include benefits like severance pay and other job protections, which aren’t generally offered to founders.

Since startups need to conserve cash and founders often hold significant equity, investors are usually not in favor of offering founders severance rights.

However, it is crucial for founders to sign an employment offer letter that outlines the basic terms of their employment. This letter should clarify that they are “at-will” employees. This means founders can leave the company whenever they choose, although their ability to keep their shares or exercise options will be governed by the vesting terms agreed upon.

Similarly, the company can terminate their employment at any time, for any reason or no reason at all.

Founders should also sign an agreement that covers several key areas:
– they must keep company information confidential,
– assign any intellectual property they develop to the company, and,
– agree not to compete with the company for a designated period after they leave.

These agreements help protect the company’s interests and ensure that intellectual property and sensitive information remain secure.

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