Over time, a company’s structure and the relationship with its employees will change. It’s important, then, for founders to factor these changes in from the start to avoid complications further down the line and to ensure the company is an appealing prospect for potential acquirers or investors in the future.
Managing turnover
There’s a lot to think about when starting a business, such as branding, securing funding and agreeing a location. In the throes of this initial excitement, it can be easy to forget the importance of ensuring that, when building a team, you need to take steps to protect your company as it grows.
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Often, a scale-up’s first employees will be a small team made up of its co-founders and people with whom they have existing relationships.
As with any company, it will soon experience staff turnover – people will join, others will leave. Indeed, as it becomes more established, staff turnover will become part of its lifecycle. Fast-growing companies will need to be aware of the various practical and administrative tasks this involves.
These include, for example, registering as an employer with HMRC, putting in place appropriate employer’s liability insurance, and issuing written statements of terms and conditions to all employees – namely, ensuring all employees receive a written contract.
Employers will also need to consider employee rights and statutory obligations like sick pay and parental leave, as well as day-to-day HR issues such as performance management, and disciplinary processes.
Protecting confidential information and IP
On occasion, staff turnover can represent a risk to the company’s confidential information and intellectual property, probably its most valuable asset.
Disagreements happen all the time in business.
If co-founders and senior team members fall out, it could lead to someone leaving the company and attempting to use the same idea elsewhere.
The law prevents the misappropriation of a company’s confidential information during the employment relationship. But there’s no such implied duty after the relationship has ended.
Failing to include clearly drafted IP provisions assigning any IP to the employer can also lead to challenge. To address this, it’s important to include appropriately drafted confidentiality and IP provisions in employment from the very beginning – and this is particularly true for the founding team.
From start-up to exit
As a company grows, having the right employment processes and procedures in place will be of particular interest to potential acquirers or investors who will want to ensure that the company has complied with its obligations as an employer, and taken steps to protect its business should key employees choose to move on.
From start-up to exit, a fast-growing company will change over time, and relationships with employees will change with it. It’s essential, then, to ensure steps are in place which will allow the HR function to evolve accordingly. By factoring these in from the start, business leaders will avoid HR headaches in the future.
Oliver Spratt is an employment lawyer at Morrison & Foerster
