📄 Employment Agreements & Offer Letters

🎉 Happy Friday, funds family!

Every hire a company makes should be documented with an offer letter and, in most cases, supporting agreements covering confidentiality, invention assignment, and equity. It’s an important topic for the companies and the investors who back them, because gaps in employment documentation create legal exposure, cloud 📄 IP ownership, and can derail a financing or acquisition when diligence reveals that key employees never signed the paperwork that protects the company’s core assets.

The short answer is that every employee and founder should sign an offer letter and a proprietary information and inventions assignment agreement (PIIA) before starting work, and the company should maintain signed copies of both for every person who has ever worked there.

For investors, confirming that this documentation exists, and that it actually assigns IP to the company, is one of the most consequential and most commonly overlooked diligence items in a financing.

➡️ What should an offer letter include?

A standard offer letter should cover:

• Title, reporting line, and start date.

• Compensation: base salary, target bonus (if any), and any 📄 equity grant (with the 📄 vesting schedule referenced, not necessarily detailed).

• At-will employment language, confirming that either party may terminate the relationship at any time, for any or no reason (subject to applicable state law).

• A contingency that the offer is conditioned on execution of the company’s standard PIIA and, where applicable, satisfactory background and reference checks.

• Exempt/non-exempt classification for wage and hour purposes.

• Benefits eligibility, at a high level (detailed terms typically live in the benefits plan documents, not the offer letter itself).

Offer letters should be short and administrative. Substantive terms, such as restrictive covenants, IP assignment, and dispute resolution, belong in the PIIA or similar separate agreements, not buried in the offer letter itself, where they are more likely to be overlooked or drafted inconsistently across hires.

➡️ What is a PIIA and why does it matter so much?

The proprietary information and inventions assignment agreement is the document that actually assigns intellectual property created by an employee to the company. Without a signed PIIA, an employee may retain personal ownership of code, designs, or other IP they create during their employment, even if it was created using company resources and for company purposes. This is one of the most common and most damaging gaps discovered in diligence: a founder or early engineer who never signed a PIIA, which creates a chain-of-title problem for the company’s core technology.

A well-drafted PIIA should include:

• A present-tense assignment of all inventions, work product, and intellectual property created during employment and relating to the company’s business.

• Confidentiality obligations protecting the company’s proprietary information, both during and after employment.

• Where permitted by applicable state law, reasonable non-solicitation of employees and customers.

• An acknowledgment and carve-out for any prior inventions the employee is bringing into the company, so there is no ambiguity about what is and is not covered.

Founders should sign a PIIA on the same terms as employees, even though it can feel unnecessary among co-founders at formation. It is far easier to obtain this signature at the outset than after a falling-out or departure.

➡️ What about restrictive covenants (e.g., non-competes and non-solicits)?

Restrictive covenant enforceability varies significantly by state, and this is an area where companies need to be especially careful:

• Several states, most notably California, broadly prohibit employee non-competes, and a growing number of other states and the FTC have moved to restrict or ban them, so a national employer cannot rely on a single template for all employees.

• Non-solicitation of employees and customers is generally more enforceable than a non-compete but is still subject to reasonableness limits on scope and duration under state law.

• Confidentiality obligations (as opposed to non-competes) are the most durable and broadly enforceable forms of protection and should always be included regardless of what other restrictive covenants are used.

Companies operating in multiple states should have counsel confirm that offer letter and PIIA templates are updated for the jurisdictions where employees actually work, not just where the company is headquartered.

➡️ What should be in place for executives and key employees specifically?

Senior executives typically warrant additional documentation beyond the standard offer letter and PIIA:

• Severance terms: what is paid if the executive is terminated without cause.

• Change-of-control or acceleration provisions: single-trigger or double-trigger vesting acceleration in the event of an acquisition (discussed further in the equity compensation context).

• Non-disparagement and cooperation clauses.

• For very senior hires, a more detailed employment agreement (rather than a simple offer letter) covering the above in a binding, negotiated form.

Investors should pay particular attention to founder and executive severance and acceleration terms, because overly generous packages can create liabilities that surface at exactly the wrong time: during a later financing, a restructuring, or an acquisition.

➡️ What should investors look for in diligence?

Before every investment, an investor (or its counsel) should request and review:

• Signed offer letters and PIIAs for all current employees, and ideally for former employees and founders as well.

• Confirmation that every founder signed a PIIA at or near formation, with no gap between when work began and when the assignment was executed.

• Any employment agreements for executives, with particular attention to severance and change-of-control provisions.

• Consultant and contractor agreements, which require their own IP assignment language distinct from the employee PIIA (a common gap, since contractors are often engaged informally).

A company that cannot produce a complete, signed set of PIIAs for its founding team and key technical hires raises a significant diligence flag, not a minor administrative one. It goes directly to who owns the company’s core technology.

➡️ The practical takeaway

For the company:

1. Require every employee, founder, and contractor to sign the appropriate IP assignment and confidentiality documentation before they start any work, not after.

2. Keep offer letters short and administrative; put substantive terms in the PIIA and any separate agreements.

3. Use jurisdiction-appropriate templates, particularly for restrictive covenants, and update them as employees are hired in new states.

4. Maintain a complete, organized file of signed agreements for every person who has ever worked at the company, including departed employees and founders.

For the investor:

1. Confirm that every founder and key employee has signed a PIIA, with particular attention to timing gaps around formation and early hires.

2. Review executive severance and change-of-control provisions for outsized liabilities that could surface at a future financing or exit.

3. Check that contractors and consultants have their own IP assignment agreements, not just employees.

4. Include representations in financing documents confirming that all employees and founders have executed the company’s standard confidentiality and IP assignment agreements.

Thanks for reading, everyone!

Have a great weekend! 🙌

⚠️ Note: This newsletter is for informational purposes only and nothing should be considered legal advice. For that, hire a lawyer! I am a lawyer, but not your lawyer (unless I actually am your lawyer because you’ve signed an engagement letter and we’re working together). This may be considered attorney advertising.