Rookie mistakes: five employment law pitfalls for startups.

• Author: Snow, Christopher
• Position: EMPLOYMENT

Louis XIV of France once said: "It is legal because I wish it." If business owners wielded the same power as the then-king of France, we wouldn't need employment law. The law would be what you wished it to be. But alas, we don't live in a world where dreams come true simply by wishing--and your company is subject to the dictates and restrictions of the law.

To ensure the longevity and success of your company's brilliant business idea, every startup company--and grownup company--should allocate a portion of its resources to developing a culture of legal compliance, particularly in the area of employment law. Unfortunately, many companies ignore human capital and resource compliance.

Here are five employment law challenges and pitfalls that are frequently overlooked:

1. FAILING TO IMPLEMENT OR MAINTAIN RESTRICTIVE COVENANTS.

   Non-compete agreements, non-solicitations and confidentiality agreements (Restrictive Covenants) are vehicles to protect the thousands of dollars and hours spent in developing a company's product or services. A non-compete prohibits an employee from working for a competitor after employment terminates. A non-solicit agreement prevents former employees from soliciting customers or employees to work or do business with a new company.

   Many companies wisely implement restrictive covenants at the inception of formation, but task their unpaid interns to find a "solid non-compete and non-solicitation template" from the internet. While this cost-saving use of the unpaid intern is impressive, the enforceability of restrictive covenants turns on specific state laws that vary throughout the country. There is no one-size-fits-all for restrictive covenants.

   Under Utah law, covenants not to compete must be carefully drafted to meet strict geographic and time limitations, among other things. Allowing employees who separate to immediately compete and solicit your employees and customers can be devastating and crippling to your business. Companies need to ensure their restrictive covenant agreements are up to date and enforceable.

2. MISCLASSIFYING EMPLOYEES AS INDEPENDENT CONTRACTORS.

   One of the biggest pitfalls for startups is the attempt to save on labor costs by labeling workers as "consultants" or "independent contractors" and not employees. Independent contractors are not subject to overtime and minimum wage requirements or payroll tax. Entrepreneurs often become tempted to take advantage of the financial benefits of independent...