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15 Key Employment Issues for Startups and Entrepreneurs (and how to overcome them)

purity muriuki




A startup employer is likely to experience countless employment-related issues or traps. State and federal laws guide every human resource department. These laws influence hiring, termination, and discipline amond others.

Tech startups are concerned with the creation of intellectual property by consultants and employees as they can led to lawsuits. Employment litigation is disruptive, expensive, and distracting. Thus, startups should put in place proper measures and sign agreements from the beginning oe very contract.

The following are the 15 labor and employment issues that you’re likely to encounter.

1.   Recruitment Process

Several state and federal laws govern the recruitment process. For instance, employers can’t deny an applicant a job opportunity because of their color, gender, race, disability, religion, and age. The HR practitioner is required by the law to stay away from questions that can trigger a discrimination claim against the employer. They include; which political party do you support? What is your religion? You come from which country?

2.   Workplace Discrimination and Harassment

Carefully draft anti-discrimination and anti-harassment policy from the onset of the business. You can seek the help of an experienced HR consultant or employment lawyer. The document should clearly state that the company is zero tolerant to bullying, harassment, violence, or discrimination at the workplace.

3.   Delayed Investigation on Discrimination and Sexual Harassment Complaints

To avoid any ligation, the startup should thoroughly investigate all discrimination and sexual harassment cases. It should tackle even complaints that appear meritless. Being sexually harassed at work is a very serious offence, and every employer should treat it as such. The Equal Employment Opportunity Commission provides helpful guidelines for conducting the investigations.

4.   Lack of Invention Assignment and Confidentiality Agreement

You may pay your employees to invent new work product or generate ideas that are useful to the startup. Further, your workforce can access the company’s valuable and confidential information. For that reason, you should draft the invention assignment and confidentiality agreement that protects the proprietary company information.

5.   Employment Contracts and Agreements

Your company should have some form of the employment agreement. The document should cover areas such as rights and responsibilities, termination, confidentiality, working hours, salary, and benefits, among others. Without this document, your business is likely to encounter several legal problems.

6.   Dispute Resolution

Workplace conflicts are inevitable. These are misunderstanding between your company and its employees, or among the employees. As stated earlier, avoid litigation, and for that reason, arbitration is a cheaper and quicker resolution mechanism. An arbitrator is more dispassionate as compared to most juries. Resolution can be handled privately, not like lawsuits that expose the company to public scrutiny. It’s faster, and each party pays for the arbitrator’s fees.

7.   Non-Solicitation and Non-Competition Provisions

Your company’s employment agreement should include non-solicitation provisions that prohibit your employees from hiring their colleague secretively. It should have non-competition regulations that bar your staff against working for your competitor up to a given period after exiting your firm. However, some restrictions that you may wish to impose on your workforce are not enforceable by the law.

8.   Classification of Employees

Both new and existing businesses face the issue of categorizing their workers as independent contractors or employees. You should know that class action lawsuits are being filed every day due to   this improper classification of workers. The penalties of such mistakes are hefty in addition to other damages. These categories have different terms of service, such as salaries, taxes, and medical benefits, among others.

9.   Wage and Hour Issues

Wage and hour mistakes is a common issue among startups. These mistakes have caused significant liability that could have been avoided from the onset. The Fair Labor Standards Act at the federal level formulates wage and hour laws. Some states have wage and hour regulations and statutes that contain more strict requirements. You can avoid issues by complying with the minimum wage standards and pay non-exempt employees their overtime dues, among others.

10.  Equity Compensation

You may want to offer your employees stock options to encourage long-term commitment or increase loyalty. While this is a popular and effective way, it has to be done in line with federal laws. For instance, offering them stock below the market value will attract tax consequences.

11.    Employment-Related Insurance

In some states, the law requires companies to provide insurance such as workers’ medical insurance or pay into a pool that supports compensation insurance, state disability insurance, and unemployment insurance. Such funds support insurance schemes where the business has employees and is administered by the state.

12.   Immigration Issues

The federal Immigration Reform and Control Act outlaws the hiring of employees that are not legally authorized in America. It also prohibits discriminating employees based on their citizenship and national origin.

13.   The Use of Social Media by Employees

You should be concerned about the use of social media platforms by your employees in and out of the office. Your startup should establish clear and consistent guidelines as well as educate them on how to use these platforms. On the other hand, you should avoid infringing upon their rights because this is protected by the law and can contribute to your labor and employment issues.

14.   Parental Leave and Paid Leave Law

States have been passing laws pertaining to parental or family leave. If you’re planning to have branches in different states, then you need to understand that several laws besides the Family Medical Leave Act governs adopting and fostering a child, giving birth, and caring for a member of the family.

15.   Equal Pay Law and Enforcement

The law applies to all employers irrespective of the size of its workforce. Employees are likely to recover their back pay and penalties if they successfully sue the company under this federal law. Some states have even more restrictive regulations than this.  


You need to monitor the legislative environment where your business is located, as well as stay informed on areas that are driving massive changes in the law. Your human resources management should adopt best practices to stay ahead of the curve. However, you can recruit an employment law adviser or HR consultant to avoid these employment issues.

I'm a passionate full-time blogger. I love writing about startups, how they can access key resources, avoid legal mistakes, respond to questions from angel investors as well as the reality check for startups. Continue reading my articles for more insight.

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