This week, Ivan Gaviria walks us through the 5 mistakes startups make with their people… A mistake a day.

Ivan is a partner at Gunderson Dettmer’s Silicon Valley office, practicing in the Corporate and Securities Group. He has extensive experience working with startup and emerging growth companies through their entire lifecycle as well as representing venture capital, private equity and other investors.

MISTAKE #2 OF 5:
Failing to be informed about employee rights with respect to wages

The same employee-favorable regime that can help entrepreneurs when they are leaving a job, can cut the other way when it comes to a startup founder’s new role as the employer.

Paying your people can be a big challenge in the pre-funding stage and there are not always easy answers.

At a minimum, entrepreneurs need to understand the rules and be educated about the risks they take so they can minimize their exposure.

The bottom line is California requires employees make at least minimum wage (and two times that amount for exempt employees for whom you don’t have to pay overtime). Wages must be paid in cash. More importantly, claims for unpaid wages cannot be released or waived. Once someone has worked without pay, they can bring a claim and the burden of proof is on the employer.

Not surprisingly, the state doesn’t have the resources to actively pursue violations.
Where the risk lies is when a relationship goes south and that co-founder or early team member leaves under acrimonious conditions and decides it’s time to get paid for the time they worked without salary.

Alternatively, you might have a great team that makes it all the way to an exit intact only to find that a public company buyer with a dramatically different risk tolerance doesn’t want to assume material exposure for unpaid wage claims and these matters become a real deal issue.

While there may be periods of time where there simply isn’t cash to pay salaries, companies can manage their exposure and mitigate risks if they get good advice on the rules, including the tax issues, and make educated decisions about how to document and manage these issues.

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Mistake #1 (posted Monday): Not understanding obligations to prior employers

ABOUT GUNDERSON DETTMER:
Gunderson Dettmer is a leading law firm for entrepreneurs, emerging growth companies and the venture capital firms that support them. With 125 lawyers in four offices – Silicon Valley, Boston, New York, and San Diego – we represent companies in every stage of development from incorporation through entry into public markets and beyond. We provide counsel on general corporate and securities law, mergers and acquisitions, venture capital services, intellectual property, strategic alliances, and tax matters. We combine our experience, industry relationships and expertise to provide practical, business-oriented advice tailored to the needs of the emerging growth company marketplace.