Pump Up Your Startup Best Practices

Practical Law Legal Update w-001-4570 (Approx. 5 pages)

Pump Up Your Startup Best Practices

by Practical Law Labor & Employment

Minimize Liability Risks in the Hiring Process

Potential startup investors typically conduct due diligence to analyze, among other things, the liability and litigation risks in the companies in which they invest. To minimize liability and litigation risks in the hiring process, employers should:

Carefully conduct interviews. Specifically, employers should:
- ensure interview questions do not seek information about an applicant's membership in any protected class under applicable federal, state, or local law;
- focus on objective criteria and the essential functions of the job in evaluating candidates; and
- avoid hiring friends and family not possessing the skills needed for the job.
Ensure any job postings or ads soliciting employment applicants do not directly or indirectly discriminate against any protected class. For example, avoid ads that deter older individuals from applying, such as ads seeking:
- recent college graduates (29 C.F.R. § 1625.4); and
- candidates with only a few years of experience (such as seeking candidates with three to five years' experience), as opposed to seeking individuals meeting a minimum threshold (such as at least three years' experience).
Conduct due diligence about candidates and their current employers to ensure that:
- their employment does not cause them to breach any restrictive covenant or other agreement with their current employer;
- they do not take or use the confidential or proprietary information belonging to their prior employer when they leave (whether or not they signed a confidentiality or non-disclosure agreement);
- they have ownership or licensed rights to any IP that the new business is relying on them using (determinations that may vary depending on the employee's location), and have not assigned them to a prior employer (see, for example, Standard Clause, IP Rights Clauses for Employee Agreements (Long-Form)); and
- hiring a certain employee does not create an undue liability or litigation risk based on claims by the individual's prior employer of breach of an agreement or the employee's fiduciary duty.
Ensure background checks, if used, comply with applicable law, exercising particular caution if using:
- criminal background checks, as many state laws prohibit inquiry into an applicant's criminal history at the initial stage of the employment application process (see, for example, Background Check Laws: State Q&A Tool and Background Checks Toolkit); and
- social media screening, which may reveal information beyond the scope of permissible inquiry (such as revealing membership in certain protected classes) during the interview process (see Practice Note, Social Media in the Hiring Process and Social Media in the Hiring Process Checklist).
Comply with federal and state immigration laws (see Practice Notes, Demonstrating the Right to Work in the United States and Employer Obligations Under State Immigration Laws in the US).

For more information about best practices in the hiring process, see Practice Note, Recruiting and Interviewing: Minimizing Legal Risk and Trade Secrets and Confidential Information Best Practices at Hiring Checklist.

Learn more about the legal challenges faced by startups by joining Practical Law for its complimentary three-part Startup Essentials webinar series profiled below. The weekly series begins on March 2. Register for any or all of the sessions by clicking on the links below:

March 2: Structuring Equity Compensation Wisely.
March 9: Avoiding Common Employment Law and HR Pitfalls.
March 16: Key Formation and Seed Financing Considerations.

Pump Up Your Startup Best Practices | Practical Law