If you’re running a startup, drafting employment offer letters is an essential part of building a team. A good startup employment offer letter should clearly outline the terms of employment, including job responsibilities, compensation, equity and other important details that are used to propose a position to a future employee. This agreement sets the conditions for potential employment.
As every relationship between a company and an employee is unique, it’s important to work with legal counsel to draft an offer letter for each potential employee. If you’re looking for legal counsel to help you draft an offer letter, feel free to reach out to us here.
Branded Welcome Copy
A branded opening paragraph in a startup employment offer letter serves several important purposes. First, it helps create a positive and engaging experience for the new employee. This can contribute to a sense of excitement and anticipation for the new role, as the employee gets a glimpse of what it will be like to work for the company.
Branded welcome copy can demonstrate that the company values and invests in its employees. It can showcase the organization’s dedication to creating a memorable and meaningful onboarding experience. This can contribute to attracting and retaining top talent in a competitive job market.
A personalized welcome message can also help new hires feel welcomed, valued and part of the team even before their first day. This sets a welcoming and inclusive tone.
Role and Responsibilities
The role and responsibilities section of a startup employment offer letter provides a detailed description of the job title and responsibilities. This section should cover the day-to-day work, any long-term goals, manager details, specific projects or initiatives that the employee will work on, as well as who they will report to and where they’ll be working.
By clearly defining the job title and responsibilities, you can ensure that the employees understand what is expected of them and avoid confusion later on. It is important to be specific enough to provide clarity, while also being broad enough to allow for flexibility as the company’s needs evolve. Additionally, this section should articulate whether the role is remote or in person, as well as the general working hours.
This section ensures that the employee knows that their employment with the startup has no specified end date and is “at-will” employment. This means that they can quit at any time and, similarly, the startup can terminate them any time, for any reason. Additionally, this section usually states that this job offer depends on the company checking your references, verifying that the employee is allowed to work in the U.S. and that the employee will help corroborate that.
Lastly, in addition to discussing employment status, some startups also include a probationary period. During this time (usually 30, 60, or 90 days), the employee’s performance is evaluated before they become a permanent employee. Both the employer and employee can assess whether the position is a good fit for both parties.
In addition to job responsibilities and employment status, the startup employment offer letter should include the start date. This helps both you and the new hire plan and ensure a smooth transition into their new role.
Including a start date in a startup employment offer letter provides clarity and sets expectations for both the employee and the employer. It helps establish a specific timeline for the employee’s onboarding process, including orientation, training and integration into the team. Additionally, a start date allows the startup to plan and allocate resources effectively, ensuring a smooth transition for the new employee and minimizing any disruptions to operations.
Compensation and Benefits
The compensation and benefits section of a startup employment offer letter should clearly outline what employees can expect in terms of salary and benefits. When discussing salary, specify whether it is an annual or hourly rate, and indicate whether the employee is an exempt or non-exempt employee. You can also mention any potential for bonuses or raises based on performance.
Benefits and perks are also important to mention. They can include things like health insurance, retirement plans and paid time off. Perks may include gym memberships or transit subsidies. If your company has distinct benefits or perks that differentiate you from other employers, make sure to mention them in the offer letter. Consider including a disclaimer clause to let future employees know that benefits and perks may change at any given point, with employer notice, to avoid potential remuneration disputes down the road.
Equity compensation is a common way for startups to attract and retain top talent. In addition to offering a traditional salary, equity compensation grants employees ownership in the company in the form of stock or stock options. This means that as the company grows and becomes more valuable, the employee’s ownership stake also increases in value.
When discussing equity compensation in your startup employment offer letter, be sure to explain:
- Type of Equity Award. The most common types of equity in a startup are Restricted Stock and Stock Options. Restricted stock (sometimes called Restricted Stock Award, or RSAs) is a grant of common stock in the company. The recipient owns the stock at the date of the grant, subject to the vesting schedule. On the other hand, stock options give employees the right to purchase company stock at a certain price (the exercise price) within a specified time period. It’s important to articulate which type of equity you’re offering. To learn more about restricted stock, click here. To learn more about stock options, click here.
- Number of Shares. Don’t make the mistake of including percentage ownership in the offer letter. Using percentages instead of exact share numbers is a risky move for both the company and the employee. It can cause confusion about the true value of the equity being offered and set false expectations. Instead, state the exact amount of shares. If you feel you must include percentages, be specific. See the example below. To learn more about the dangers of percentages in equity offers, click here.
- Vesting Schedule. A vesting schedule establishes the timeline by which an employee earns their equity over time. In the employment offer letter, the vesting schedule, including the commencement date, should be clearly spelled out.
Below is an example of a vesting clause:
We’re offering you a stock grant of 80,000 shares of the company’s common stock at a fair market value of $0.00001 / share. This equity award is equal to 1% of the outstanding shares in our company as of October 1, 2024. 1/4 of the shares shall be released from the Repurchase Option on the 12-month anniversary of the Vesting Commencement Date (as defined below), and an additional 1/48th of the shares shall be released from the Repurchase Option on the corresponding day of each month thereafter (and if there is no corresponding day, the last day of the month) until all shares are released from the Repurchase Option.
To learn more about vesting schedules, click here.
This section simply states that the employee will abide by the company’s policies. Some companies choose to reference the employee handbook in this section. The employee handbook details all company employment policies.
Outside Activities and Secondary Employment
Some offer letters require employees to commit their time to the company and forgo outside business activities that may be in conflict of interest with the employer. Examples of such activities include employment elsewhere, consulting opportunities or other business activity without the written consent of the Company.
Confidentiality, Invention and Assignment Agreement (CIIAA)
Every employee (and contractor for that matter) should sign agreements to ensure that the company’s confidential information is protected and that the company owns any intellectual property created while working for the company. This is commonly achieved through a Confidentiality, Invention and Assignment Agreement (CIIAA) that’s attached as an addendum to the offer letter.
The CIIAA typically includes clauses prohibiting employees from disclosing confidential information about the company and its clients, as well as any proprietary technologies or trade secrets. It will also include provisions ensuring that any inventions or intellectual property created by the employee while working for the company belong to the company rather than the employee.
The CIIAA often includes non-compete and non-solicitation clauses. The non-compete clause restricts an employee from engaging in a similar profession or trade in competition against the employer for a certain period of time and within a specified geographic region after leaving the company. This clause is designed to protect the company from potential threats posed by ex-employees who might use the knowledge and information gained during their tenure at the company to benefit a competitor.
Similarly, the non-solicitation clause prevents former employees from soliciting or enticing away the company’s employees, clients, or customers for their new business or employer. These clauses aim to maintain the company’s competitive advantage, prevent loss of resources and safeguard the company’s relationships with its customers, clients and remaining staff. It is important to note that the enforceability of such clauses varies depending on local laws and regulations. They must be reasonable in scope, duration and geography to be legally enforceable.
By requiring employees to sign a CIIAA as a condition of employment, startups can protect their valuable intellectual property and ensure that confidential information remains private. This is especially important in the early stages of a startup when trade secrets and proprietary technologies are still being developed and refined.
To learn more about the CIIIA, click here.
Legal and Compliance Information
Including a clause on legal and compliance information in startup employment offer letters is crucial to ensure transparency and adherence to legal obligations. It helps inform employees about their rights, responsibilities and any legal requirements related to their employment. This section may cover aspects such as employment eligibility verification, background checks, drug testing, non-compete agreements, or other legal obligations specific to the industry or jurisdiction. By providing this information upfront, employers demonstrate their commitment to compliance, set clear expectations and mitigate potential legal risks.
Signature and Acceptance
Including a section on signature and acceptance in startup employment offer letters is important as it formalizes the agreement between the employer and the employee. This section typically requires the employee to sign the offer letter, indicating their acceptance of the terms and conditions outlined. It serves as a legal record and evidence of mutual agreement. By obtaining the employee’s signature, startups can ensure clarity and avoid any misunderstandings or disputes regarding the terms of employment. It provides a clear point of reference for both parties, and establishes a foundation of trust and accountability from the beginning of the employment relationship.
In conclusion, a well-crafted startup employment offer letter is a critical component of building a successful team. By clearly outlining the terms of employment, including job responsibilities, compensation, equity and other important details, startups can attract and retain top talent and establish a foundation of trust and accountability. While every employment relationship is unique, including the key points discussed in this article can set the stage for a positive and productive employment relationship. As always, it’s important to work with legal counsel to ensure that your startup employment offer letter is compliant with relevant laws and regulations.