Q&A with an OC Ventures lawyer: employment law challenges for VC-backed businesses

Adam Turner, one of OC Venture's senior corporate lawyers, sat down with Amy Moylett, an Associate in our Employment practice, to get an inside view of her work for venture capital-backed clients.

What are the most common issues or challenges you encounter with VC-backed clients?

One of the most common issues I encounter with VC-backed clients is unclear and sometimes undocumented contractual arrangements with employees, founders and other staff members. Without a clear written contract in place, there is uncertainty over the terms on which individuals are engaged. Also the company is unable to benefit from the various protections that can be built into such contracts (such as in respect of intellectual property (IP), confidential information and post-termination restrictions).  

Another frequent issue is the misclassification of employment status, where individuals are incorrectly categorised as consultants rather than employees, leading to potential legal claims and tax complications.

Non-compliance with national minimum wage (NMW) legislation in relation to employee founder remuneration is also a recurring problem – if a founder is an employee of the company they should be receiving a salary of at least the NMW, even when cash is tight and notwithstanding any separate dividend or other incentive payments that may be made to them. Failure to do so may lead to wage claims and enforcement measures being taken by HMRC. 

What tips would you give to VC-backed companies that are considering their workforce arrangements?

My top tips would be to ensure they have robust employment contracts (particularly for key personnel) and material policies in place that provide adequate protection for the company. Steps should be taken to protect historic IP created by founders, ensuring it is properly assigned or licensed (as appropriate) to the company The workforce needs to be properly classified for both employment and tax purposes, distinguishing correctly between employees and genuine self-employed consultants.

Getting these fundamentals right is essential for avoiding costly employment law and tax missteps and for withstanding investor scrutiny on any future funding round.  

Are there any upcoming changes to regulation that you have an eye on? How might these changes impact your clients?

It is a particularly interesting time to be an employment lawyer given the myriad of employment law changes unveiled by the Labour government in its recent Employment Rights Bill, from adjustments to flexible working rules to new obligations around the use of "fire and rehire". The most significant and widely reported  reform, though, is the proposal to make unfair dismissal a day one right subject only to employers being able to utilise a probationary period.

More detail (including consultations and secondary legislation) is awaited and, as always, the devil will be in the detail; however, whilst the new legislation aims to eliminate 'unfair' employment practices, it may also result in higher costs for employer clients, potentially reducing future employment opportunities. Watch this space! 

What led you to specialise as a lawyer in employment?

I was fortunate enough to have enjoyed all of the seats in my training contract, having undertaken seats in corporate, real estate and employment. What ultimately led me to qualify into the employment team was the sheer variety of complex, high-calibre work available (advisory, transactional and litigious) and the ever-changing nature of the employment law landscape – no two days of practice are the same, which makes for an interesting (and, at times, challenging!) career. It is also one of the more tangible areas of law – while clearly it has an academic side, it often requires practical application in everyday life.  

And what drew you to Osborne Clarke as a law firm to work at?

For an ambitious candidate who wanted to develop alongside leaders in their field, Osborne Clarke was an obvious choice for me when applying for training contracts. I think Osborne Clarke is one of the firms at the forefront of legal innovation; hence why it attracts such techy and forward-thinking clients.