Hi guys, I'd appreciate some outside perspective here.
I've been working with a startup for about two months as their CTO. Small team, three/four developers depending how you count. Handshake deal said moderate salary until series A but with equity.
I've been pushing and pushing for a contract stating the terms, but there always seemed to be something else the CEO had to do. However, I met the rest of the team and it all seemed legitimate.
Around the two month mark, I dug my heels in and said contract or I walk. Next day I have a meeting with the CEO and it comes out that there's no salaries being paid, people are working for equity. I explain that this isn't appropriate for my situation, to which the CEO responds with more work for me to do.
Obviously, I should walk away at this point (or ideally weeks before), but there are some twists:
1) The work that I produced for them is still mine, as no copyright transfer has been signed. They'll almost certainly be trying to sell this / bring it to investors.
2) It's not legal to work only for equity in my country, there's a minimum wage, and each employee has to be registered and tax paid on them to the government. I went to apply for unemployment assistance and was told that regardless of whether I was paid, I was considered employed, and thus had no entitlements. Furthermore, as I wasn't registered the company was not meeting its tax obligations in hiring me.
This brings me to the crux of my problem: If I want to claim unemployment benefit while I look for a real job, I must torpedo the old company. This is bad as it not only can hurt my reputation, it will negatively affect the co-workers who have previously worked for low wage and equity.
My feeling is to walk away and cut my losses, but I thought the community may have other suggestions.
Thanks for looking.
Leave immediately, take your IP, and don't even consider doing anything else until things are in writing and the backpay, etc are resolved.
I would go a step further and get the hell away from these guys. If they've scammed you, they've likely scammed others and/or will scam people again. This could be you again, customers, or your investors. You do NOT want to be part of a team that scams their investors.
Walk.
When I was involved in the startup scene in Silicon Valley, there were a lot of clowns who didn't understand what it means to run a company. They were charismatic; but at the end of the day, they didn't understand that they have to pay their employees in exchange for their labor. Often, these clowns assumed that things would work out in the end, and that hard work will always reward itself. They wanted everyone to make a sacrifice for their own dreams.
My opinion: I would have walked away at the two month mark. At day one, I would need to know that everyone under me is working for equity; because that changes the work dynamic significantly. The demands made on someone working for money are different than someone working for equity.
Furthermore, a tech startup is a for-profit venture, so you always need to do what's in your best interest, and your subordinates best interest. Ideally, you can torpedo the clowns enough so they can't pull this kind of stunt again; but it's also import to look out for the people working under you.
No. The CEO's actions negatively affected your co-workers, not yours. Do you suppose if you don't report this that life will become wonderful for them, that they'll suddenly get millions of dollars from their equity in a company that can't pay its employees? That seems very, very unlikely to me. And if the situation is this precarious, than any nudge could break the company.
Definitely get a lawyer. Ethically, though, you have no reason at all to feel bad about reporting them. You'd be doing the right thing.
I kept asking for the reimbursement and back-pay promised earlier, some months later they just refused, and I was not paid. I was offered stock options (not even stock/equity) instead of money. That's when my team and I saw the crap going down and started preparing for the worst.
You need to have all your communication about this problem documented, including if possible the responses from the CEO and others.
You may need to consult an employment advisor or lawyer for advice, if your department of labour can't provide this to you. You need to be crystal clear about your situation and repercussions if you choose to torpedo this company.
If things are really as bad as you say they are, you don't need to be too worried about your reputation - I have been through this situation and it is not hard to manage. As for co-workers, I sympathise with their plight, but you need decide for yourself how much you value your career (or don't) by not taking action now. Also, your co-workers ought to be smart enough to see what's happening.
In my situation, I went and spoke to a government officer in our department of labour. She told me that I needed to engage a lawyer in my situation. Legal fees would have been greater than the money I was owed. In the end, I filed a police report for the record, with complete documentation on everything that happened and details of the compensation owed to me.
I lost a few thousand dollars, chalked it up to experience and moved on. The company's office in my country had to close, their hardware and other equipment was seized for non-payment of rent, and they wasted many times the money they could have just paid me to build a great product. As for the product, their launch was delayed 20-24 months but I believe they did get something out.
What's even more pitiful is that they had a few million in funds, were already cash-flow positive on a previous product, and could easily afford to pay what's due.
Bottom line - if the company is run by a money-grubbing skinflint with a tendency to shaft his employees, you have every right to do what's good for you.
Keep everything professional, and unemotional. Document facts.
Whether or not a new job is hard to come by, you are in a toxic situation, and if you are anything like me, your physical and mental health is already being affected.
Even if there is an offer of compromise by the CEO, I would be very suspicious given his past history.
> The work that I produced for them is still mine, as no copyright transfer has been signed.
That is likely untrue. If it was made while you were an employee, during the scope of your employment, in the US (rules in many other places on this point are likely to be similar, but may differ in important ways) it would seem to meet the definition of a "work made for hire" which would be owned by the employer unless there was a signed agreement to the contrary. [0]
> It's not legal to work only for equity in my country, there's a minimum wage, and each employee has to be registered and tax paid on them to the government.
Depending on the laws of the jurisdiction where you are working and the laws of the jurisdiction where the firm is incorporated, as a person with knowledge of this violation, and/or as an employee with knowledge of this violation, and/or as a corporate officer with knowledge of this violation, you may well have legal obligations to (1) bring the violation to the attention of the government, and/or (2) bring the violation to the attention of the corporation's board of directors. You may be liable for sanctions if it later becomes discovered that you knew (and maybe even, as a corporate officer, reasonably should have known) about the violation and did not fulfill those obligations.
For that reason, I would recommend consulting with an attorney as to your options, and the risks and benefits of each, in this circumstance.
[0] See the definition of "work made for hire" at 17 USC Sec. 101, and 17 USC Sec. 201(b) for ownership of such works.
As it is I think the hardest thing for him to prove is that he worked there at all.
Lawyer up and get them to commit to something in writing to the lawyer. All this very much depends on the location he's in (and the location of the company, might not be the same), so any references to actual law would need more information.
The existence of an employment contract, in many jurisdictions, doesn't require that contract to have been reduced to writing or other physical form. Contracts exist in law, documents just provide evidence of the existence of contracts and their specific terms.
> and employer taxes paid.
Once the employment contract exists, wages are due on the terms in the contract and employer taxes are due under the conditions set in law (often, based on wages paid), and failure to pay those things may be (in the first case) a breach of contract and (in both cases) a violation of the law for which state action is warranted, but is probably irrelevant to whether a contract exists in the first place.
> Since he's not being paid, a contract never got signed
Contracts often, as noted previously, don't need to be either reduced to writing or signed to exist, and, in any case, its quite possible for one to exist (and even be in writing and signed) without required payment under the contract taking place (that's a breach of contract, of course, but the main point of contract law is to deal with breaches.)
> and likely the taxes did not get paid OP can either go and enforce his position as an employee or opt to be treated as a freelancer
I am aware of no jurisdiction where failure to pay required wages or employer taxes would give a worker to option to elect to be treated as an employee or a contractor (and certainly, if, as you suggest, no contract for their work exists, then they don't have that option as they are neither an employee nor a freelancer.)
Only a "handshake deal" employee with no wages, though.
A "handshake deal" is often (depending on applicable law and detail of the deal) a valid contract -- the lack of specificity on wages due may or may not be fatal -- the fact that wages were not paid may merely be a breach of that contract, not a sign that it did not exist.
To the extent that there is a lack of clarity on whether an employment and/or corporate officer relationship existed, that's even more reason to contact an attorney.
The rest of this thread is basically noise.
(Also, don't ever start work without a contract dammit. That's the first sign to walk away.)