How to structure employment contracts for early-stage startups

Employment contracts for startups need to address a different set of concerns than contracts written for established businesses. Equity participation, IP assignment, confidentiality covering nascent technology, and the fluid nature of early-stage roles all need to be handled carefully.

Many founders make the mistake of using a generic employment contract template — or worse, relying on an offer letter with no formal contract at all. Under Australian employment law, the Fair Work Act sets minimum entitlements that apply regardless of what a contract says, but a contract remains the primary document that governs the specific terms of the relationship.

Every employment contract should specify the role title and reporting structure, the commencement date, the base salary or hourly rate, leave entitlements (or a reference to the National Employment Standards), and the notice period for termination by either party.

For startups, the notice period clause deserves particular attention. If a key engineer or product lead can leave on one week's notice, that creates significant operational risk. Notice periods for senior roles should reflect the time needed to transition that person's work — typically four to twelve weeks depending on seniority.

The contract should also specify the employee's primary place of work, any requirements around remote work arrangements, and any agreed flexible working conditions. These arrangements, if undocumented, become sources of dispute when the company's needs change.

The IP clause in an employment contract determines who owns the work an employee creates. In Australia, the default position under copyright law is that work created in the course of employment is owned by the employer. But this default is narrower than most founders assume.

Code written at home on a personal laptop, ideas developed outside work hours, and contributions to side projects can all fall outside the default employer ownership rule. A specific IP assignment clause in the employment contract should confirm that all work related to the company's business — regardless of when or where it was created — is owned by the company.

This clause is not about distrust. It's about protecting the company's cap table and ensuring that IP is cleanly owned by the entity investors are funding.

Startup employees are typically exposed to sensitive information — roadmaps, customer lists, pricing strategies, and unannounced products. A confidentiality clause should define what constitutes confidential information broadly and specify that the obligation survives termination of employment.

Post-employment restraints — non-compete and non-solicitation clauses — are enforceable in Australia, but only to the extent they are reasonable in scope, geography, and duration. A blanket two-year global non-compete is unlikely to be upheld. A six-month restraint from soliciting current clients in a specific market is more likely to be enforceable.

The key is specificity. Restraints drafted to protect a legitimate business interest, with a scope proportionate to the employee's role and access, are the restraints that survive scrutiny.

If an employee is receiving equity — whether through direct shareholding or an employee share option plan (ESOP) — the employment contract should reference the equity grant but not duplicate its terms. The ESOP rules document governs the equity; the employment contract records that a grant has been made.

This matters because employment contracts and equity plans are governed differently. Conflicting terms between a contract and an ESOP can create interpretive disputes. Keep the documents separate and cross-referencing rather than merged.

For early employees who are joining before a formal ESOP is in place, a letter of intent confirming the equity grant alongside the employment contract is a practical interim measure — provided a formal plan is established within a reasonable timeframe.