The Employment Agreement Clause That Creates Founder Liability

Laura Fleet, Esq.  |  Healthcare Attorney | Founder | Fractional General Counsel  |  May 13, 2026

Most founders make their first key hire under pressure. Someone great is available. The window is short. You pull an agreement template, send it over, and move on. The clause that will matter most never gets read.

That’s not negligence. That’s how early stage companies operate. But it’s also how liability gets built into the foundation.

THE CLAUSE FOUNDERS MISS

It’s usually the IP assignment provision. And the problem cuts both ways.

In one version, the clause is too broad. It assigns to the company everything the employee creates, including work done on personal time and using personal equipment, unrelated to the company’s business. That creates exposure if the employee later claims ownership of something they built outside of work.

In the other version, the clause is too narrow. It doesn’t clearly capture what the company actually needs to own, the code, the proprietary process and the client methodology. When that employee leaves, so does the clarity around ownership.

Both versions look fine at signing. Neither one surfaces until something goes wrong.

The clause that creates liability isn’t the one that was hard to negotiate. It’s the one that looked standard.

WHEN IT SHOWS UP

It shows up in two moments, and both of them are the worst possible time.

The first is due diligence. A potential investor or acquirer asks for your employment agreements. Their counsel flags that IP assignment language doesn’t clearly vest ownership in the company. Now, you’re trying to get a signature from a former employee to fix it and they may be someone who has moved on, may have leverage, or may simply be unresponsive.

The second is a departure. A key hire leaves and takes with them institutional knowledge, client relationships, or work product. You look at the agreement and realize you don’t have the protection you assumed you had.

WHAT ACTUALLY FIXES IT

You don’t need to review every offer letter you’ve ever sent. You need to review the template.

Specifically:

• IP assignment language should clearly cover work created within the scope of employment, using company resources, or related to the company’s business. It should include a prior inventions carve out so employees can disclose and retain anything they owned before joining.

• Non solicitation clauses should be reasonable in scope and duration. Non competes are unenforceable in many states, so including them without understanding your jurisdiction creates a false sense of protection.

• Confidentiality provisions need to be specific enough to hold up. Broadly worded clauses that cover “all information” are often unenforceable. Name the categories that actually matter.

Templates aren’t the problem. Unreviewed templates are.

One review of your employment agreement template, not every hire, just the template, closes most of the exposure. It’s one of the lowest cost, highest leverage legal fixes an early stage company can make.

The founders who skip it aren’t cutting corners intentionally. They just don’t know the clause is there until it matters.

Contact me if you would like a review of your template.