Start-Ups

October 5, 2025

Five Costly Legal Mistakes California Startups Should Avoid With Their Employees

Some of the most common legal mistakes that California tech startups and other small employers make with their employees are also the easiest to avoid:

Terminating an employee without consulting an attorney about the circumstances of that termination. Just because you believe that you have valid reasons for terminating an employee, who also happened to be “at will”, doesn’t mean that the same employee won’t be able to make it look like he was fired for an unlawful reason. Suppose you fire someone for poor performance, but that employee happened to complain about sexual harassment, or he filed a workers compensation claim just a few weeks or even a few days earlier. Will you be able to show, given this suspect timing, that the true reason for termination was in fact his performance, and it wasn’t retaliation? Or suppose you lay off a minority employee due to your changing needs or budget issues, but then just a couple of weeks later you get a new (and unexpected) round of funding and you post the same position back on Linkedin and end up hiring a white employee. Will that laid off employee come back and claim racial discrimination? These are just a few random examples of how a seemingly just termination can look less than entirely lawful. Consulting a reputable employment lawyer about your termination decisions before making that decision can make a difference between having a clean break-up with the employee in question v dealing with the stress, the expense, and the hassle of litigation. Remember – what matters is not what actually happened from your perspective, but what the employee can prove happened or most likely happened given all the surrounding circumstances.
Misclassifying an employee as exempt v hourly. To be salaried and exempt from overtime pay in California, your employee has to satisfy very specific requirements. In the context of tech start-ups, the most common exemption is an executive / managerial exemption. However, just because you label someone at your company as a manager, doesn’t mean that that employee is correctly classified as exempt, unless over half of his job duties actually involve managerial work. This type of misclassification can be particularly costly, if that employee frequently works more than 8 hours per day without being paid overtime, which is very common in start-ups, and who will later be able to claim that he worked hundreds of fifteen-hour days for which he wasn’t paid correctly.

January 26, 2021

“Just Cause” Termination And Your Rights To Stock Options

by Arkady Itkin

January 16, 2019

Start-Ups: A Critical Issue In Investor Rights Agreements

by Arkady Itkin

One important issue that you should pay a particularly close attention to when entering into an investor rights agreement with the people who are looking to invest into your start-up is the section in that agreement that talks about the degree of involvement that investors will have the right to in the day to day operations of your company. Ideally, you want your investors to have as little control as possible over your operations, and to have their rights limited to reasonable access to your company’s financials. For instance you can agree that you will deliver your profit and loss statements, balance sheets and other common financial documents to the investors every fiscal quarter.

You should pay attention to any language in the agreement that in so many words suggests that your investors have the right to walk into your office and tell you how to do your job, who to hire, how to develop and market your product, how to design your website, etc. After all, no CEO enjoys this type of “oversight” that will likely stifle his ability to move his company in the desired direction as soon as possible.

Of course, if your investors are not simply passive third parties but your parent company, or a company that is in the same industry as you are, they will likely want to have significantly more involvement in the key aspects of your operations, such as product development, sales strategy, advertising, etc… In this case, the terms of this broader involvement should be carefully analyzed and negotiated to avoid future disputes over who is in charge of what and why. The more specifically you outline what your investors can and cannot do, the lower the chances will be of any dispute with them that can lead to all kinds of problems, including interruption in funding and lawsuits.