What Should My Startup’s First Employment Agreement Include Before I Hire Anyone?
You found someone who wants to join your startup. They are excited. You are excited. You want to move fast and not kill the momentum with paperwork. So you send a quick offer letter and assume it covers you.
It almost certainly does not.
The moment someone starts working for your company, legal obligations attach. If you have not set the terms correctly from day one, you are creating problems that surface right when investors are examining your IP chain of ownership and your HR compliance history.
What a First Employment Agreement Must Cover
At-Will Employment and Termination Terms
Most startup employees in the US are employed at will, meaning either party can end the relationship at any time without cause. Your agreement must state this clearly. Without an explicit at-will clause, ambiguous language in offer letters can create an implied contract. State the at-will relationship explicitly.
Intellectual Property Assignment
This is the clause that protects your company’s most valuable assets. Every employment agreement must include a provision, assigning all work-created IP to the company. This covers:
- Code written during employment (including nights and weekends on company projects)
- Inventions made using company resources
- Designs, content, or trade secrets developed in the scope of the role
If a developer leaves and their work was never properly assigned, an investor’s due diligence team will find it. That gap can delay or kill a fundraising round.
Confidentiality and Non-Disclosure
Your employee will see your product roadmap, your customer list, your financials, and your strategic plans. A confidentiality clause binds them to protect that information during and after employment. A common mistake is relying on a standalone NDA signed at onboarding while skipping confidentiality language in the actual employment agreement. Both matter.
Non-Solicitation and Non-Compete Provisions
Non-solicitation clauses prevent departing employees from recruiting your team or poaching your customers. Non-competes restrict them from working at a direct competitor. Non-solicitation is enforceable in most states. Non-competes are increasingly restricted. California, Minnesota, and others have banned them outright. Know the laws of the state where your employee works before including either provision.
Common Founder Mistakes
Mistake #1: Using a Generic Template Without Customizing
Founders download a free employment agreement template and send it without reviewing it for their state, industry, or specific role. Courts look at what the parties actually did, not just what the document says. If your IP assignment clause contradicts how your team actually operates, it may not hold up.
Mistake #2: Skipping the IP Assignment for Early Contractors
Many early hires start as contractors before converting to employees. Contractor IP assignments require a separate written agreement. If you converted contractors to employees and never got an IP assignment signed for work done during the contractor period, that IP may not belong to your company.
Mistake #3: Not Revisiting Agreements as the Company Grows
The employment agreement you used for employee one is often still in use at employee twenty-five. Once you have outside investors, they will review your employment agreements in diligence. Generic or outdated agreements signal legal immaturity and slow down the process.
10-Minute Self-Check
Before extending your first offer of employment, confirm the following:
- Does the agreement explicitly state that employment is at will?
- Does the agreement include a written IP assignment covering work created during employment?
- Is there a confidentiality clause that survives termination?
- Have I confirmed whether a non-compete is enforceable in this employee’s state?
- Does the agreement include a non-solicitation clause covering both employees and customers?
- Has a lawyer reviewed this agreement before I use it as my standard template?
If you cannot answer yes to all of these, you are not ready to make your first hire yet.
Bottom Line
Your first employment agreement is not a formality. It is the document that determines whether your company owns what your team builds. Getting IP assignment, confidentiality, and at-will terms right from the start protects you at every stage that follows.
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Sources Used
- [What Every Startup Needs in an Employment Agreement](https://www.ycombinator.com/library) — Y Combinator Library, ycombinator.com/library
- [FTC Non-Compete Rule and State Enforcement Trends](https://www.ftc.gov/legal-library/browse/rules/noncompete-rule) — Federal Trade Commission, ftc.gov
- [Employment Law Basics for Startups](https://hbr.org) — Harvard Business Review, hbr.org
- [IP Assignment Issues in Startup Due Diligence](https://techcrunch.com) — TechCrunch, techcrunch.com