The Correct Answer is “Of Course We Have Agreements With Our Employees and Consultants”


Every start-up lawyer counsels his or her client to be sure that everyone working for the company signs an agreement confirming that the company owns everything that’s developed by the company. However, when it’s time to sell the company or raise a financing round and the management team is asked to produce these agreements, it’s amazing how often the response is “what agreements?” That response usually causes anxiety for the buyer/funder and its lawyers (which is never a positive development) and begins a flurry of activity to obtain signatures on the necessary agreements (which takes time and can be expensive).

Employees should sign a proprietary information and inventions agreement when their employment begins. This agreement usually ensures that the employee will keep non-public information learned in the course of his or her employment confidential, and confirms that the company owns all of the intellectual property developed by the employee. Additional provisions confirm that the employee will assist the company in protecting the intellectual property by signing patent assignments and other documents. Because some state laws require more than just continuing employment as the basis for the assignment of intellectual property, it’s important that this agreement is entered into when employment begins.

For consultants (including advisors), the consulting agreement typically includes provisions about confidentiality and the ownership of intellectual property. It is sometimes more important to obtain the appropriate agreements with consultants, because in the absence of an agreement they often will own the intellectual property they develop, and the short-term nature of their assignments can make it “challenging” to obtain the necessary agreement later.

The laws of some states, including California, restrict the permissible scope of employees’ intellectual property assignments, and require that these assignments reference these limitations so that employees are aware of them. For this reason, it’s important that a company discuss these agreements with experienced counsel before they are signed.

Entering into the agreements described above as employees and consultants come on board will allow the start-up company to truthfully say that “of course we have agreements with our employees and consultant,” and eliminate a potential roadblock to a quick and low cost financing or merger and acquisition transaction later.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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