Does severance pay make sense?

Does severance pay make sense?

Question

I’m curious about how companies determine severance pay packages. I assume there are state laws that dictate minimum severance amounts, or it seems there would be no severance packages at all. But some companies give more than that. One recently gave its laid-off employees six months of severance, which is very generous in these times. But why? While that’s good news for the employees, why would a company or its shareholders want to give more than it has to?

I’m also curious why upper management receives more severance. I understand that CEOs and their echelon often have prearranged golden parachutes. But managers without such agreements or contracts sometimes get more severance (in terms of weeks of pay) than others. Again, I don’t understand the benefit to the company. What’s the deal?

Nick’s Reply

I hope some of the HR members of our community will chime in here. I’m sure they’ve got some good insights on this (and even better stories.) You’re asking a lot of questions, but not for advice. I’ll try to illuminate what I can, and I’ll offer some advice at the end anyway!

Why severance pay?

I don’t believe there are any states in the U.S. that require severance pay to be paid to a departing employee. For the most part severance is a company’s prerogative and an employee’s privilege — it’s not a right.

severance payHowever, severance always serves the employer — it’s not a gift. It’s always a form of handcuffs because the agreement you sign will tie your hands in some ways.

One of the main reasons companies offer severance is to avoid future legal problems. A company will offer severance in exchange for you signing an NDA or a non-disparagement agreement, or a release from any further liability to you. Call it a bribe, but it often works. Sometimes the severance offer is very aggressive: “We’re willing to drop big bucks on you, but you have to agree so some pretty unsavory terms.” The more they offer, the harder it is to say no.

While extravagant severance deals sometimes border on criminal, they’re usually negotiated at the time of hire. The employer makes the deal with eyes open. So what might seem irrational is a pragmatic way for a company to convince a desirable job candidate to accept an offer.

Severance pay is practical

It’s also a practical thing to do. When used properly and for the right reasons, severance is a company’s way of parting on good terms, especially when it’s the company that terminates the relationship. (Companies rarely pay severance when you decide to leave.) It’s the complement to an employee giving two weeks’ notice before quitting.

Negotiating a job offer? Don’t miss:
Employment Contracts: Everyone needs promise protection
While we all know parting company can be a fraught – even nasty – experience, it should be civilized, and we should try to respect one another’s needs when we can. We don’t want to leave each other in the lurch. Of course, that’s the best case.

Often, severance is paid to ensure a smooth transition. The departing employee getting a nice package is more apt to leave their workflow in good condition for their replacement — and perhaps to take a call or two with questions even after they’re gone.

Severance is often based on how badly the company needs the employee’s services between now and the termination or layoff date. For example, a company might need a manager to stick around until the last employee is laid off and until the last project is wrapped up. In exchange for having less time to look for a new job, the manager accepts more severance.

It’s also good public relations

Why do some companies pay more severance than others? They’re smart. When a worker leaves a company with a nice package, he or she is more inclined to speak favorably of it to other workers, probably for years to come. That’s a competitive edge. Good public relations are no accident, and they don’t require government incentives. A company that wants a good reputation works hard at burnishing its image as a responsible employer. Severance is part of that strategy.

Managers often get better packages than staff for a few reasons. To start, their compensation is higher and severance formulas are usually rational (if not outlandish). They’re based on compensation and time served at the company. Higher compensation usually means more severance.

Managers also belong to a club of sorts, and they tend to take care of each other because they never know when they’ll run into one another again. Today’s department manager might one day hire his or her old boss, and what goes around comes around. So it’s not just public relations. It’s also professional relations.

Some advice

And this brings us around to my advice. There’s a lesson you should take from all this: Not everyone gets a chance to negotiate a severance deal. But everyone should try. You might ask yourself, what will this company need from me when I depart, and what will they not want me to do? (For example, share something I learned at the job.) What’s that worth?

Don’t assume only executives or managers get severance pay. When you negotiate your next job offer, ask about severance. If you believe your job is important to the employer, you might even negotiate aggressively. Make it part of your written offer. Then you might not be so irritated about the severance deals others get!

To give you a head start on dealing with severance deals, I’ve included a special News I want you to use item this week. Don’t miss Hack that severance agreement! You’ll learn not just what you might ask for, but what to avoid agreeing to.

Do you have a good severance agreement with your employer? Are you in management? How did you negotiate your severance deal? Do you bring severance up when negotiating a job offer?

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Hack that severance agreement!

Hack that severance agreement!

An Employment Severance Agreement Explained in Detail

Source: Carey & Associates, PC
By Mark Carey

severance agreementWhether or not you use an employment attorney to review and negotiate your employment severance agreement, you need to know the mechanics of the agreement. Generally, all severance agreements accomplish one task, paying employees to release their claims against the company in exchange for money and confidentiality. I have seen thousands of these agreements in my twenty-five years of practicing employment law for employees and executives. They are all relatively the same in the terms, but differ in their layout.

Every severance agreement contains a non-disparagement clause, but one only applicable to the employee and not the employer. We advise clients to include a mutual non-disparagement clause to be signed by the employer so it does not engage in blacklisting, which is a very real phenomenon.

We often see employers sneaking into severance agreements brand new non-competition and non-solicitation provisions where none previously existed during the employee’s employment… The following discussion will go in depth and explain the legal terms in an understandable way…

 

Continue reading

Nick’s take on the severance agreement

My buddy Mark Carey, a leading employment attorney who represents only executives and employees (not employers), shows you how to hack that severance agreement. You don’t need to hire Mark to get his insights and advice about how to protect yourself when you part ways with an employer — he shares a lot here! I learned a couple of things myself. (Don’t miss Mark’s column about employment at will on Ask The Headhunter.)

What’s your take? Do you have a severance agreement? Has one ever hamstrung you? Got a horror story? How about a positive experience with a severance deal? Let’s dissect these agreements!

 

 

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WWEJSS: How does a fake recruiting firm get a credit card merchant account?

WWEJSS, LLC — a.k.a. SevenFigureCareers — is a “recruiting” company that does not legally exist, yet major credit card companies have authorized merchant accounts that it uses to fraudulently collect fees for services it never delivers, while it silences its victims with a confidentiality agreement that’s fake, too.

WWEJSSA credit card scam

In a series of recent articles, readers shared their experiences with phony recruiters at SevenFigureCareers (a.k.a. 7F, 7figcareers, and loads of other names) who scammed job seekers out of loads of money:

But, how does a racket like SevenFigureCareers get a merchant account to collect fees via American Express, MasterCard and VISA — then win disputes when victims complain about being scammed?

By getting victims to sign a contract.

To defend against claims of fraudulent credit card charges, 7F tells credit card companies that its “customer” signed a contract and that 7F delivered what it promised under the contract — hence, no refund is due.

One victim, John Rice (not his real name), told me that AmEx said it was a contractual problem between him and 7F because 7F reported it had fulfilled its obligations. AmEx suggested he hire a lawyer after AmEx rejected four requests for a refund.

After reports detailing the scam appeared on this website, AmEx eventually refunded Rice and other cardholders thousands in fees collected by 7F, and cancelled 7F’s merchant account. But it seems that AmEx issued that merchant account without confirming whether 7F is a legal entity. AmEx declined to explain exactly how it vets merchants before signing them up. AmEx also won’t disclose what problems it found with 7F after a phony lawyer threatened a user of this website who spoke up about getting scammed.

The SevenFigureCareers contract is a fraud

Two real lawyers reviewed the 7F contract for Ask The Headhunter. One of them explained the problem:

“A contract is between two parties. If there are not two parties, then there is no contract. This contract is invalid because there’s only one party — the victim.”

When high-salary executives don’t recognize that an agreement they’re signing is invalid, then everyone needs to learn the basics.

Read the contract

Let’s start with the SevenFigureCareers contract. Several victims provided me with copies. Each seems to be coded with an ID at the upper left, to identify the victim. I’ve redacted that.

Here’s why the contract is a fraud, and why AmEx — and MasterCard and VISA — should never have issued merchant accounts to SevenFigureCareers.

7f-contract-1

Although it calls itself by many names, SevenFigureCareers does business under a name its victims don’t see until they receive a contract: WWEJSS, LLC. But this “Texas corporation” does not exist. Thus, there is no contract.

Did credit card companies get scammed, too?

So, how does a fake company collect payments through real credit card accounts? Why would credit card companies with anti-fraud departments authorize merchant accounts for crooks? Good questions, for which we have no answers. And that means you should never assume that paying with a credit card protects you from fraudulent vendors.

Did these credit card companies get scammed, too? How? Will they ever admit it?

Tip: If you have concerns about a company you’re about to contract with, investigate the entity. If SevenFigureCareers’s victims had done due diligence, they’d never have gotten suckered. They never would have paid — even with a credit card. John Rice, a seasoned executive, has said to me several times, “I was such a dumb shit.” Yes, he knew better — but he suspended his concerns because he figured American Express would protect him from losses. American Express, however, apparently didn’t take reasonable precautions to protect Rice from this phony merchant.

Caveat emptor really does mean that due diligence is always your responsibility.

WWEJSS, LLC is a fraud

American Express credit card charges from SevenFigureCareers appear as WWEJSS, LLC or WWJESS, LLC on victims’ statements.

After doing some basic research, one victim learned the company is not licensed in Texas and confronted 7F recruiter “Tony French.” French replied in an e-mail that SevenFigureCareers doesn’t have to be licensed, but that it is registered in Texas under “WWEJSS, LLC.”

7f-e-mail-1

On September 29, I contacted the office of the Texas Secretary of State. Victoria, a helpful employee, told me that, “If it’s a legal entity, like a Texas corporation or LLC or limited partnership, it has to be registered with the State, even if it only does e-commerce.”

She then looked up WWEJSS, LLC and WWJESS, LLC, “a Texas corporation,” in the Texas registry.

“There is no WWEJSS or WWJESS registered,” Victoria reported.

That makes Tony French a liar and his “company” illegal.

7f-whitetailsHunting… scammers, or deer?

Nor is there a registration for SevenFigureCareers, Seven Figure Careers, 7Figures, or any other such name. (In 1993, “Seven Figure, Inc.” was registered to Carl Poston, but that expired in 1996.)

There is, however, a registration for 7F, Inc. — to Gary Benbow in Yoakum, Texas. I spoke with Gary, who runs the respected 7F Whitetails Ranch. The 7F comes from an old cattle brand that’s been in his family for generations. He’s never heard of SevenFigureCareers. Gary’s not in the recruiting business. His family raises cattle and offers trophy deer hunting on the property. And he’s not happy about scammers tarnishing his registered brand.

Targeting the credit card companies

American Express and other credit card companies have permitted an unregistered legal entity to collect payments with their credit cards even after the victims gave notice that this merchant is a fraud. Apparently, AmEx failed to do the simplest due diligence. (When I asked, AmEx would not disclose exactly how it vets its merchants.) Then AmEx rejected requests for refunds out of hand, relying on what we now know is an invalid contract used by a fake company operating illegally in Texas.

These credit card companies have put a target on their own backs that says “Fraud.” I didn’t ask Gary Benbow whether he takes credit cards. But I’m sure he’d love to find the guys who call themselves 7F.

As of the date of this column, Texas Company Search lists no registrations for any of the SevenFigureCareers legal entities — least of all WWEJSS, LLC, the name listed on its contracts.

WWEJSS: How it silences its victims

It seems clear that WWEJSS has flourished because it keeps its victims quiet.

After John Rice’s credit card dispute was rejected, he posted about the scam on this website. Within minutes, SevenFigures silenced Rice with an e-mail. A phony lawyer “representing” SevenFigures threatened him with a contractual penalty of $25,000 if he didn’t remove what he posted. It was actually that threat that publicly unraveled the entire SevenFigureCareers scam.

What scared Rice and other victims into silence is an intimidating non-disclosure clause (or NDA, or Non-Disclosure Agreement) in the contract — “Mutual Confidentiality Regarding ENTIRE AGREEMENT and your Search.”

The NDA threat

We’ll forget for a minute that the entire contract is invalid because WWEJSS doesn’t exist. Let’s take a look at what these people agreed to — and at what a lawyer says about it.

7f-contract-2

This clause essentially says that the signer can’t reveal anything about their experience with 7F, or comment about it anywhere to anyone. Victims I interviewed were convinced that, even if they knew they’d been scammed, they’d have to pay 7F $25,000 if they told anyone.

But, this section of the contract by itself wouldn’t stand up in court, say two attorneys who reviewed it. That is, it seems there is no danger to SevenFigures’ victims if they tell all to the world. (Note: The opinions of the lawyers I spoke with are not legal advice. If you have a specific contractual controversy, you need to get advice from a lawyer about your specific problem.)

Phony Lawyering: liquidated damages & penalties

It’s worth understanding a legal concept that’s key to many contracts. The idea is pretty simple. If we bind ourselves with a contract, and I do something that violates our contract, I will cause you damage, and I must reimburse you for that damage.

But, how much could the damages be worth? The law acknowledges this can be hard to calculate. Here’s how one lawyer explains it:

In situations where it’s not practical or maybe possible to come up with an actual number, in a contract parties can “pre-decide” what the damages will be (called liquidated damages), but there has to be a reasonable relation to the actual harm caused. It can’t just be some outlandish number like a bazillion dollars because then that would be more like a “penalty” and less like compensation for actual damages received.

If a court (judge) feels like the amount pre-decided (the liquidated damages) is actually a penalty then they may decide to throw out that figure. That is why lawyers go to great lengths when using a liquidated damages clause to make it seem as far from a penalty as possible, starting with not calling it a penalty!

7f-contract-3In this lawyer’s opinion, the fact that the contract calls the payment a “penalty” would probably invalidate any damages claim. What this — along with the other sloppy wording and writing in this “contract” — tells us is that a lawyer didn’t write it.

My guess is it was written by the same putz who impersonated a lawyer — illegal in all 50 states — in the e-mail threatening John Rice.

This is how 7F silences its victims, using an unenforceable confidentiality agreement in a fraudulent contract to intimidate them into keeping their mouths shut. They naturally worry that speaking up would cost them $25,000 for violating confidentiality. But liquidated damages normally can’t be a penalty — only compensation for damage.

Go suck rocks.

All that Tony French’s victims have to do is tell him to go suck rocks when he threatens them. And that’s why we’re having this brief legal lesson, courtesy of two friendly lawyers who hate scammers.

(We won’t get into it here, but SevenFigureCareers violated its own NDA when Tony French shared confidential communications from his private equity “clients” with the candidates he was supposedly recruiting. Except those PE clients don’t exist — so where’s the harm?)

Who should sue whom?

Well, it seems Mr. French might be doing more than sucking on rocks soon.

I asked Lawrence Barty, a retired attorney who has specialized in employment and labor law, for his views on this case. He suggests the SevenFigureCareers victims may have grounds to sue whoever is behind this phony recruiting firm. Even though SevenFigureCareers doesn’t legally exist, someone convinced the victims that the firm does exist and that the contract is real. And that person faces trouble.

The persuasion of this “person” led you into a situation in which you lost money. If you have a legal claim, it can’t be against an entity that doesn’t exist — right? So who can you sue?

If you can identify the person who perpetrated this fraud, a tort claim of fraudulent inducement might be possible (as always, State laws vary) against that person — not against the illusory 7F. You were induced by X (identity presently unknown) to enter into a contract that cost you money, but was known in advance by X to be worthless. So, you should sue X, the person who tricked you into entering that contract. A claim of that type can be a tort claim, possibly giving rise to compensatory and punitive damages.

Ah. Now we get to penalties. Not just compensatory damages, but punitive damages. Except now the penalty is against the scammer.

This is tricky stuff — maybe more than your readers need to know. The threshold issue is to identify and locate who is behind 7F. You can’t sue someone whom you can’t identify. And, because he is a crook by any definition, he therefore is likely to be a very, very elusive target.

Yah — like a deer on Gary Benbow’s ranch.

What’s next?

Since this series about SevenFigureCareers.com was published, the “firm’s” website has gone dark. Many of the associated phony websites of phony private equity and venture capital firms have disappeared. But SevenFigureCareers continues to operate and collect fees, with a web presence on Manta, a business web-hosting service. It’s newest customers have been in touch with Ask The Headhunter — after they lost their money.

Where is the crook? Has American Express found him?

How does someone running a fake company get merchant accounts with American Express, VISA and MasterCard? What basic controls against fraud do these credit card companies have in place? I mean — how hard is it to look up a corporation’s or LLC’s credentials? A dog with a note in its mouth can do it.

In the next edition, we’ll go down to the bottom of this wormhole: Who’s behind the SevenFigureCareers recruiting scam?

Are you one of the victims scammed by SevenFigureCareers? Or did you see the scam coming and walk the other way? How would you avoid getting fleeced by a “career service?” What due diligence do you do?

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Should you sign an NCA? Not so fast!

Quick Question

sign-thisI was offered a job with a small tech company. The NCA that they asked me to sign was so broad that it would have prevented me from taking a job with any other company writing embedded software. When I balked at signing it, they told me I would have to talk to to someone in their legal department.

I walked into their lawyer’s office and explained my objections. His reply: “If I were in your position, I wouldn’t sign that either. Let’s strike out the paragraphs you object to.” What do you think of that?

Nick’s Quick Advice

This is an instructive story about NCAs (non-compete agreements). Thanks for sharing it. It’s also a good lesson about negotiating job offers. It’s not just about the money!

People don’t always believe me when I tell them NCAs (and NDAs, or non-disclosure agreements) are very often negotiable, mainly because they’re ridiculous, and the legal people who write them know it.

These employers figure no one would question or refuse to sign “a necessary legal document” — especially when a new job hinges on it. And most job applicants wouldn’t dare. The lawyers go overboard and include terms and restrictions “just because they can.”

It makes you wonder how many people before you signed that thing simply because they felt intimidated.

I’d love to ask that lawyer whether he thinks it’s ethical for his company to keep using that document, and whether — now that he’s acknowledged how ridiculous it is — he’ll cancel NCAs that other employees have signed and produce a more reasonable agreement.

Or maybe the employer should just fire the lawyer who wrote it and behave more responsibly toward its employees and the people it’s trying to recruit.

I won’t even get into my opinion of an employer that can’t explain an obligation it wants a job candidate to sign — without sending you to its lawyer!

For more about NCAs, see How can I negotiate an NCA or NDA?

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How can I negotiate an NCA or NDA?

In the June 21, 2016 Ask The Headhunter Newsletter, a reader doesn’t like giving up future opportunities by signing restrictive agreements.

Question

First of all, thanks for writing your columns and educating us folks out here. If we ever form a union, you’ll get my vote for union leader! Anyway, I was wondering about non-competes and NDAs. I know you’re not a lawyer, but I’d like to hear your thoughts on the subject.

valueI can understand why companies want and need non-competes and NDAs, but I feel signing such contracts limits my future job opportunities; at least the ones that would pay me the most. So, I could refuse to sign, and they can refuse to hire me. If I want the job, it seems I’ve gotta bite the bullet. Perhaps I could sign the contract as “Darth Vader” and they won’t notice.

Is there a fair, balanced deal that I could make here? Thanks for your thoughts.

Nick’s Reply

Ouch, you’re hitting a nerve. Non-compete and non-disclosure agreements (NCAs and NDAs) are a sore spot with me because I believe they’re over-used, misused and too often signed. Nonetheless, both documents are becoming more common. Heck, they’re such boilerplate that you might be right — you could sign as Darth Vader and they might never notice! Some companies might just file the darned thing without looking at it any more carefully than they expect you to. But, don’t bet your future on that.

What’s an NDA or NCA?

For those who don’t know what we’re talking about, an NDA is an agreement you sign as an employee prohibiting you from divulging sensitive company information while you work at the company and often after you leave. When you sign an NCA you agree not to compete with your employer (now and when you leave) by soliciting its customers, going to work for a competitor, or through other actions. Sometimes, an NCA and an NDA are rolled into one document.

I think companies often use NCAs and NDAs for no other reason than because “everyone else does it.” The fact is, these agreements are very controversial. In some states NCAs are illegal because they restrict a person’s right to earn a living. Nevertheless, when you take a job, it’s up to you to protect your rights.

There are some legitimate reasons for a company to ask you to sign such agreements; for example, when you’ve worked on a sensitive trade secret that, if leaked, could cost the company a lot of money. It’s up to you to decide what’s reasonable, or to discuss it with an attorney who represents you, not the company.

Negotiate the terms

There’s no reason to get into an argument with a prospective employer about an NCA or NDA. The best thing to do is negotiate it. Because these agreements are often legal boilerplate, a company that really wants to hire you may be willing to negotiate specific terms that you object to. You may be able to get both the compensation deal you want and a comfortable agreement.

Your goal with an NCA or NDA is to limit the constraints. Here are some terms to negotiate:

  • Geography: A 100-mile radius of non-competition may be reasonable, but a blanket “all of the U.S.” or “all the world” is just nuts.
  • Term: One year may be acceptable, but a five-year restriction is not.
  • Competitors: Prohibiting you from working for any company in an entire industry is extreme. Try to get them to list specific companies by name. Make sure the list is short and realistic.

In light of the limit that an NCA or NDA might place on your future job opportunities, I recommend getting quid pro quo. That is, get fair value for anything you relinquish — and work this out before you accept a job, not after you’re on board. An employer has no incentive to re-negotiate an overly restrictive NCA or NDA after you’ve already joined up.

Trade fair value

When a company wants an NDA or NCA to protect its interests, then you should get something to protect yours. Always trade fair value. If a company is going to restrict your ability to earn a living, it should compensate you reasonably.

Get a contract.
If you agree not to go work for a competitor for a year (by signing an NCA), then don’t agree to work “at will,” whereby the company can let you go any time it wants. In exchange for signing an NCA, request an iron-clad employment contract. That way, if the company terminates you, it agrees to keep paying you through the end of your contract. The NCA gives the company protection (perhaps for a year), and the employment contract protects you (for a year also). By asking for a year, you might be able to get six months’ pay, if you consider that sufficient.

Get a severance deal.
Another quid pro quo for an NCA or NDA is a significant guaranteed severance deal. Ask for it, since your choice of next employers will be limited. Negotiate a severance package as a form of compensation for relinquishing your right to compete or to “talk about your work.” (Be careful: A blanket NDA can actually restrict you from talking about work you’ve done that is not even proprietary to the company!)

What might be in a severance package varies. Usually, severance is one week’s pay for each year you worked at a company. But in this case, we’re not talking just about severance; we’re talking about a special deal that compensates you for relinquishing some of your freedom. In my opinion, if you sign a one-year NCA, the company ought to cover you for at least a year after you leave, or until you land a new job that does not violate the agreement. (If that sounds extreme, so is an NCA!)

If the company’s not willing to compensate for protection, then it should not require an NCA or NDA. It should instead keep better control over its proprietary information and avoid divulging to you anything during your employment that might compromise the company when you leave. It’s up to the company to manage its assets — not you.

If any of this perplexes you, it’s smart to consult an attorney. It will cost far more to defend yourself later than it will to protect yourself now. (For some valuable insights from my favorite attorney, Bernie Dietz, see Employment Contracts: Everyone needs promise protection.)

Thanks for your kind words about Ask The Headhunter. But, no thanks — don’t elect me as your union leader!

Have you ever signed an NCA or NDA? Did it come back to bite you? Or, did you negotiate compensation for a fair restriction? How would you advise this reader?

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2 Rules About Working for Start-Ups

In the July 21, 2015 Ask The Headhunter Newsletter, a reader is in a pickle — er, start-up — without a salary, and without protection on the upside or the downside.

Question

Your advice in the newsletters is brilliant. However, I haven’t seen you say much about start-ups. I’m in my 50s and enjoy the chaos of a new company. I have been doing it for nine months, and I love it. I am not getting paid, or receiving any benefits. The company has been getting exposure, and a few small projects, but no investment backing. That means no money. The CEO continues to tell the development team, the editors, and writers that “we are so close.”

bait-and-switchShe also mentioned they are moving to Silicon Valley, but will be using distributed-teams software to push more projects out.

The problem is that my budget and time are expanding. I am worried that my “job” will be lost by their move. I have only a handful of e-mails outlining the stock certificates, with promises of full-time employment when investors come through. However, I have nothing legal or tangible to suggest they are serious.

I’m ready to quit, but need some guidance. How do I approach her about my concerns without questioning her integrity? Should I suggest several options that have some legal teeth that protect me? So far I have all the risk while she continues to pump out projects. Thanks!

Nick’s Reply

There are two good reasons to work at a start-up:

Why work for a start-up?

One, you’re an owner with ironclad shares that cannot be diluted without your approval. If the company takes off, you’ll get your reward. If it doesn’t, you at least had a deal that protected your upside.

Two, you’re an employee being paid a fair (if not good) salary, and you’re expected to work hard over and above anything resembling “reasonable” — because you have some shares and stock options as a reward if the business takes off. Your salary protects your downside.

If you’re working at a start-up under other circumstances, I’m sorry to tell you that you’re probably a chump — unless you’re independently wealthy and love that kind of work.

I’ve got two rules for working at start-up companies.

Rule #1: Don’t get screwed

star-wars

I love start-ups. Been there, done that, had great experiences… except the time I got screwed because I had nothing in writing. When the founder decided to bring in other investors, my 250,000 shares were instantly diluted down to virtually nothing. (See Start-Up Stock: What’s it “sort of” worth?) The first rule when joining a start-up is don’t get screwed. Invest in legal and accounting advice to protect your up- and downside.

Let’s discuss how to handle your boss. You’re being naively nervous about offending a founder that you’re giving free work to. It’s time to make it legal.

I’d sit her down without any apologies and without hesitation in your voice.

How to Say It
“I’m excited about what we’re doing and I love the work. However, this is a business proposition — I’m working for free for equity and the promise of a full-time job. I think it’s time we put this in writing for our mutual protection.”

If she indicates any problem with that, then I think you’re being taken for a ride, and that you’ll be summarily dumped by the side of the road. She should be apologizing to you and extending every courtesy — you’ve been working for free with no written assurance of any reward!

You might want to talk with other “employees” to see how they feel — and to find out whether they have contracts. You all need them. You may want to speak with her as a group. But in my opinion this has already gone too far. You’d be pretty upset if she took advantage of all of you at this point — so don’t fret about having this discussion.

Rule #2: Don’t get screwed

Before you do that, I’d talk with an attorney. (See Employment Contracts: Everyone needs promise protection.) Equity deals and contracts with start-ups are complicated and fraught with risk. If it’s not worth the legal fee, then how can the promise of this job be worth anything? Please take this seriously.

The other issue is that if and when investors come in, your boss will have very little to say about your equity share. Investors don’t like seeing their shares diluted. You could wind up with very little, if anything, if you don’t have a solid contract now — and the right kind of shares.

I don’t mean to scare you, but I’ve seen this again and again. Even a well-intentioned founder can wind up hurting the team that poured its blood and sweat into the business. Working with no contract is totally imprudent and un-businesslike. I’d get to it asap. Did I caution you not to get screwed?

Don’t forget about IP (Intellectual Property) rights. Have you signed an NDA or NCA? Have you signed over any IP rights to anything you’ve developed? Your boss could be screwed, too, without these. It’s another reason you need a good employment lawyer.

Get compensated

My philosophy is, get value for value. Your work is valuable. Ask for salary, and ask for equity. I don’t think suggesting “several options that have some legal teeth” will help you unless you talk to a lawyer first. This is easy: Just tell her it’s time for a written, signed agreement — and stock certificates. Something tells me that’s when she’ll tell you you’re not part of the move — though I hope I’m wrong.

Before you quit, give your boss a chance to protect your investment in this business by compensating you fairly for the risk you’re taking. Get compensated. That’s not a rule; that’s good business. Do your best to prepare yourself in advance. These Ask The Headhunter PDF books will help you with your “boss”:

Fearless Job Hunting, Book 6: The Interview – Be The Profitable Hire. This works even when discussing salary with your current employer!

Fearless Job Hunting, Book 7: Win The Salary Games (long before you negotiate an offer), especially “The Pool-Man Strategy: How to ask for more money,” pp. 13-15. Sometimes it helps to ask casually!

Fearless Job Hunting, Book 8: Play Hardball With Employers, especially “Due Diligence: Don’t take a job without it,” pp. 23-25. This is a must when considering a job at a start-up, though this section applies to established companies, too.

Fearless Job Hunting, Book 9: Be The Master of Job Offers, especially “Non-Compete: Did I really agree to that?”, pp. 5-7.

There’s a lot more to start-ups, of course. (See Ben Slick’s excellent article, Evaluate a Start-Up Job Opportunity Like a Venture Capitalist.) If something I’ve said is helpful, I’m glad. I’d love to know what you decide to do and what comes of this. Thanks for your kind words about Ask The Headhunter!

For those considering the excitement of working at a start-up, if it’s what you really want to do, don’t be dissuaded by risk. As this reader points out, it can be an exciting experience. Just follow my two simple rules, and make sure you protect yourself on both the upside and the downside. I hope you get rich, but don’t end up losing your shirt.

(If you’re thinking about making the leap to starting your own start-up, learn more about Trading Your Job For Venture Funding.)

Have you ever worked for a start-up? How did it turn out? Did you protect yourself? (Did you get rich?) How would you advise this reader?

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The HR Gantlet: How to leave your job without getting hurt

In the June 30, 2015 Ask The Headhunter Newsletter, a reader is faced with the HR gantlet on his way out the door.

Question

I’m leaving my company and HR is asking me to sign all sorts of forms and documents. I’m faced with reams of legal-ese! I’m worried they’re going to slip in something that hurts me later. I also want to make sure I get documents that I might need later, and I want to avoid doing anything that might get me sued. Do you have any tips so I won’t get hurt while I make my way through the HR gantlet on the way out the door?

Nick’s Reply

gantletThe path out the door, whether you quit or have been fired, is usually rushed and HR goes into high gear issuing orders and giving you paperwork to sign.

Some of the paperwork is for your own protection. For example, insurance and retirement account information. Some of it can indeed hurt you later. I can’t walk you through everything in a newsletter, but I can touch on some gotchas you should be aware of.

This is from the “Crib Sheet” section of my PDF book, Parting Company: How to leave your job, pp. 67-73.


  • If you were fired after being put on a Personal Improvement Plan (PIP), obtain copies of relevant documents. Even if you don’t expect to take legal action, you may change your mind and your lawyer will need the information.
  • If you are given a letter of separation that requires you to sign off, consider having an attorney review it before you sign. Don’t forfeit your rights in an effort to exit quickly. Protect yourself.
  • Don’t leave your personal stuff in your office. Upon termination or resignation, you may not be able to retrieve it easily. Some employers will lock you out and pack what they believe is yours and ship it to you later. (See “Get your stuff,” p. 46.)
  • Don’t use company technology to store personal information. If the laptop and phone belong to the company, so does what’s stored on them.
  • If you work in sales, discuss who owns your customers and contact lists. Keep what’s yours, but don’t take what belongs to the company.
  • If you’ve been involved in inventions or patents or proprietary information, make sure you understand who owns the rights. Be aware of any restraints you may have already agreed to, e.g., Non-Disclosure Agreements (NDA). Retain copies for your files and possibly for your attorney.
  • If you’ve signed any Non-Compete Agreements (NCA), make sure you understand the restraints. NCAs usually define a time period, geographic region, named customers you may not call on, and other terms. Retain copies. [Note: NCAs are not legal in some jurisdictions. Employers want you to sign them anyway. Also be careful with NDAs — Non-Disclosure Agreements.]
  • Do you anticipate a lawsuit for wrongful termination, age or sex discrimination, or sexual harassment? Before you do anything pertaining to your exit, consult an attorney. What you say or do during the exit process might be used against you. Don’t limit your options carelessly.
  • Throughout your exit process, carry a notebook. Make it clear to HR that you are taking notes about commitments and representations made to you. To put it bluntly, this encourages HR to take it all more seriously—and it keeps everyone more honest.

If you think you may need legal advice, don’t dawdle. Start by identifying good employment lawyers through trusted referrals, and inquire what the fees are. An initial consultation often costs nothing, or very little. Compare that to the cost of parting company without legal assistance.

There are many daunting challenges and choices you probably don’t realize you’ll face during this awkward time.

  • Do you know how to resign? (p. 40)
  • Should you consent to an exit interview? (p. 53)
  • Did getting fired shatter your self-confidence? (p. 12)
  • Should you accept a “package” to quit your job voluntarily? (p. 26)
  • What’s the truth about counter-offers? Should you accept one? (p. 50)
  • How can you prepare for the shock of a downsizing? (p. 20)
  • Is outplacement a big, costly mistake? (p. 28)
  • How do you explain to a new employer why you left your old one? (p. 58)

Reprinted from Parting Company: How to leave your job, pp. 67-73.


I hope these few tips cover some of your bigger concerns. When I wrote this book, I spoke with some of the best HR folks I know — and some of their warnings surprised me. Parting company can be a trying experience, so be careful.

The last bit of advice I’ll give you is this: Be on your best behavior on the way out the door, no matter how your employer behaves. Do the right thing, be professional, be cordial — but protect yourself.

Parting company can be a friendly experience, or you can get burned. What’s your experience been? When you left a job, did you encounter any nasty surprises you’d like to warn others about? Or, did your old employer do something nice during your departure?

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