The two ways to hand a new hire a PIIA

There is a slew of typical first day paperwork activities for tech startup hires.  Filling out a W-4 and an I-9.  Benefits and direct deposit signups.  And signing a PIIA.

PIIA is short for Proprietary Information and Inventions Agreement.  Some companies call them Confidential Information and Invention Assignment Agreements, or CIIAAs.  The name is usually only different because a startup’s law firm calls it by one instead of another.  It contains, roughly, four key provisions:

  1. Assignment of intellectual property to the company
  2. Non-disclosure of the company’s confidential information
  3. Post-employment non-solicitation of company customers and employees
  4. Post-employment non-competition agreement.  This one depends on the location of the company and employee; non-competes may be valid in many places where startups build and grow, including New York, but are only enforceable in limited circumstances in California.

I’ve seen founders and startup executives generally lean towards one of two (extreme) approaches when it comes to sharing a PIIA with a new hire before their first day:

Approach 1: “This is the company’s non-disclosure and intellectual property assignment agreement.  Our lawyers told us that it’s important that everyone sign one of these as a condition of employment and to protect the company’s IP.”  

Approach 2: “This is the company’s non-disclosure and intellectual property assignment agreement.  Everyone on this team signs this as a condition of employment before starting on day one.  It’s important that we are all on the same page regarding company IP and I’ve signed the exact same PIIA myself.

Approach 1 is so common because for startups, especially at the early stage, founders feel like there is simply more important work to do when a new hire is getting started than talk about… paperwork.  I can’t blame founders for wanting to get new hires moving on substantive projects ASAP and not dig deep into a legal document.  And there are, and will be, times to “blame the lawyer” and times to work collaboratively with your lawyer to help move a negotiation along.  But handing over the PIIA isn’t a helpful time to frame anything as “what the lawyers want”.  

The problem with Approach 1 is that it unintentionally ignores the importance of intellectual property assignment.  And it unintentionally invites negotiation over what should be – if the company is using a market standard form from a law firm that focuses on tech startups – a non-negotiable.  Salaries and responsibilities are negotiated, but that happens before the hire.  Too often, the result of Approach 1 is the new hire not understanding that the PIIA is a norm and not an attempt to burn a new hire with buried legalese.  The hire will often mark it up themselves, or bring in their own lawyer to review.  Even worse, sometimes it’s a lawyer that isn’t a startup specialistIn many instances, the lawyer will try and negotiate away from the company’s form agreement.  This creates delay and add costs for the company.  And it’s costly to the new hire as well.  Not the best way to start a relationship.

The reason that Approach 2 usually works so much better than Approach 1 is that Approach 2 not only explains that the PIIA exists to protect the company’s IP, but also makes it clear to the new hire that this is something everyone at the company does.  Even founders.  It lets each hire understand that every team member has agreed to fundamental tenets of IP assignment and company IP protection.  The end result: less negotiation, less hassle, less expense, and a new employee that is aligned with the company regarding company IP from the start.  

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