For almost every startup hire, the employment contract is a short at-will offer letter plus a Confidential Information and Invention Assignment Agreement (CIIAA). A long-form employment agreement, with a defined “cause,” severance and change-of-control terms, is for executives who negotiate those protections, usually starting with your first outside C-level hire.
Key takeaways
- Use an at-will offer letter for employees. Save employment agreements for executives.
- State equity as a number of shares, “subject to board approval.”
- Don’t include a probation period, and leave out the non-compete.
- Have every hire confirm they won’t use a former employer’s confidential information and have disclosed any agreement that restricts them.
- Every employee signs a CIIAA as a condition of employment.
Offer letter or employment agreement?
| Offer letter | Employment agreement | |
| Who gets one | Almost every employee | Executives and senior hires who negotiate |
| Length | 2 to 3 pages | Usually 8 to 15 pages |
| Term | At will | At will, with severance if terminated without cause or for good reason |
| Key terms | Role, start date, pay, equity, benefits | All of those, plus definitions of cause and good reason, severance, change-of-control terms |
| Negotiation | Rarely negotiated | Usually negotiated, often with the executive’s own lawyer |
What goes in a startup offer letter?
- Role: title, manager, work location (remote or office) and full or part time.
- Start date.
- Pay: salary or hourly rate, pay schedule, and whether the role is exempt or non-exempt from overtime. For non-exempt hires, state the hourly rate and that hours must be recorded and overtime approved in advance. Point bonuses or commissions to a written plan rather than describing them in the letter.
- Benefits: a short summary, and that the company can change them.
- Equity: see below.
- At-will employment: either side can end the relationship at any time, for any lawful reason, and only a written agreement signed by the CEO can change that. Avoid language implying a fixed term, like a promised review at one year or “a long future together.”
- Conditions: signing the CIIAA, proof of eligibility to work in the US, and any reference or background check.
- Policies: the employee follows company policies and the handbook.
- Outside work: competing or conflicting work needs the company’s approval.
- Prior employers: the hire won’t bring or use a former employer’s confidential information, and has disclosed any agreement that restricts their work.
- Expiration: a date the offer lapses, and signature lines.
A short, friendly welcome at the top is fine. Keep the legal terms plain.
The prior-employer clause protects the company if a former employer later claims the hire took trade secrets or breached a restrictive covenant. Sample language:
“You agree not to bring to the Company, or use in your work, any confidential information, documents or property that belongs to a former employer or anyone else. You have told us about every agreement with a former employer that limits what you can do here, and you confirm that working for the Company won’t breach any of them.”
If the hire has signed a non-compete or non-solicit, read it before the offer goes out. See Can I hire someone who signed a non-compete with their last employer?
Why not include a probation period?
A “probationary period” followed by “permanent” employment suggests the employee can’t be fired without a reason once it ends, which undercuts at-will employment. You can still check in on a new hire at 30 or 90 days. Just don’t write a probation period into the offer letter.
How should the offer describe equity?
Give a share count, the type of award, and that the grant is subject to board approval under your equity plan. The price is set by the board on the grant date, not in the offer letter. Sample language:
“Subject to approval by the Company’s Board of Directors, you will be granted an option to purchase 80,000 shares of the Company’s common stock under the Company’s Equity Incentive Plan, at an exercise price equal to the fair market value of the common stock on the date of grant. The option will vest over four years: 25% on the first anniversary of your start date and the rest in equal monthly installments over the following 36 months, subject to your continued service. As of [date], the Company has [8,000,000] shares outstanding and [10,000,000] shares on a fully diluted basis.”
Very early hires sometimes get restricted stock instead, which they buy at fair market value. See Why Use Exact Share Numbers, Not Percentages and NSO vs ISO.
Should the offer letter or CIIAA include a non-compete?
No. We recommend against non-competes for employees. The CIIAA protects your confidential information and assigns the employee’s work to the company, and that’s what matters most. Non-competes are banned or limited in many states, including California, where an employer can’t even include one. A narrow non-solicit is usually enough. See Non-Compete Clauses.
Should the offer letter include an arbitration clause?
Arbitration sends employment disputes to a private arbitrator instead of a court. It keeps disputes out of public view and is often faster, but the company usually pays most of the arbitrator’s fees, even for weak claims, and there’s little room to appeal a bad result. Since 2022, federal law has let employees take sexual harassment and sexual assault claims to court whatever they signed, and some states, including California, add their own rules on how these agreements are formed and what they can cover. For most early-stage startups, arbitration is a judgment call rather than a default. If you use it, put it in a separate agreement the employee signs, not a clause in the offer letter or handbook, and have counsel draft it for each state where you have employees.
What does the employee sign alongside it?
- The CIIAA, before or on the first day. See The CIIA Agreement.
- Form I-9: the employee completes their part by the first day, and the company verifies documents within three business days.
- Tax forms: Form W-4 and any state withholding form.
- The handbook acknowledgment, if you have a handbook.
- The state wage notice, where required: New York requires a signed pay-rate notice for every new hire, California requires one for non-exempt hires, and other states have their own. See Employee Onboarding.
See What Agreements Should Startups Have With Their Employees?
When do I need an executive employment agreement?
Usually for your first outside C-level hire, or anyone who asks for severance protection. The core of the agreement is three definitions:
- Cause: typically willful misconduct, fraud, a felony conviction, or a material breach or failure to perform that isn’t fixed after written notice.
- Good reason: typically a material pay cut, a demotion, or a forced relocation, which lets the executive resign and still receive severance.
- Severance: paid only in exchange for a signed release of claims. At seed and Series A, three to six months of base salary plus health coverage is common for executives, often with more, including vesting acceleration, if the termination follows a sale of the company (a “double trigger”).
See Single vs Double Trigger Acceleration.
What else should I know?
- Pay transparency: a growing number of states require a salary range in job postings. Keep the offer within the range you posted.
- Changing terms: before the start date, issue a new offer letter. After it, use a written amendment signed by both sides. Officer titles (CEO, CFO, CTO) are appointed by the board.
- Rehiring a former employee: use a new offer letter, a new CIIAA and a new equity grant. Unvested equity from the first stint doesn’t come back.
Related: What Agreements Should Startups Have With Their Employees? · Employee Onboarding · The CIIA Agreement · Employment Agreements
