Hiring Employees: Guidelines for Foreign Owners of US Startups

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Deryck Jordan

Deryck is admitted as an Attorney at Law in New York and Berlin.

All startup ventures face occasional challenges when hiring employees. For US startup companies that are owned by foreign entrepreneurs, getting a grasp of relevant human resources issues can sometimes be tricky.

  • Perks:  By becoming familiar with the federal and state laws that impact your business, you may be able to take advantage of special opportunities.
    • Hiring foreign employees:  As a foreign entrepreneur, chances are high that your permission to live and work in the US is based on one of two visas: an E2 visa (for your substantial investment in a US company) or an L1 visa (for an intracompany transfer). In your application for the E2 visa or L1 visa you most likely submitted a business plan that specified the number of Americans (or green card holders) that your company would hire. An E2 visa can also be used to hire individuals who are of the same nationality as the owner of the E2 company. This is a great provision that enables E2 investors to hire people from their home country who will be key to the success of the company in America.
    • Entrepreneurship of women:  Some states have programs to incentivize entrepreneurship of women. For example, New York City and New York State both have programs to certify Women-Owned Business Enterprises. Benefits to such certification include promotion in an online directory of certified businesses and prioritization during procurement for NY State government initiatives. The challenge for foreign business owners, however, is that this certification requires the company to be at least 51% owned, operated and controlled by women who are US citizens or permanent residents. So while businesses that were formed using an E2 visa may not be able to take advantage of this certification, some businesses that were created using an L1 visa may be eligible for certification as a Women-Owned Business Enterprise.
  • Shares:  Startup companies in some regions (eg, western Europe) typically award only a very small amount of equity (if any) to key early employees.  As a result, many foreign owners of US startup companies perceive the amount of equity expected by job candidates as excessive. If a startup company is having difficulty attracting key early personnel, it should reevaluate the amount of equity in the employee compensation packages. Especially consider that most employment relationships in the US are “at will” (ie, the employee can be fired without warning for any legal reason), so granting equity to early employees may incentivize key personnel to stay with the company through the critical early formative period. When deciding on the amount of equity to award your key employees, here are some benchmarks of hires made after Series A financing rounds:
    • CEO: 8%
    • Other C-level board members: 4%
    • Vice presidents: 2%
    • Other key early employees: 0.25 to 1%
  • Discrimination:  Laws in the US protect employees from a wide range of hiring practices that are discriminatory, although the same practice might be legal in the home country of foreign entrepreneurs.
    • Gender:  The annual Global Gender Gap report by the World Economic Forum (WEF) demonstrates that pay inequality exists to different degrees in all parts of the world; the US currently ranks as #51 out of 149 surveyed countries. Foreign entrepreneurs therefore likely have diverse ideas regarding the issue. Despite the US’ paltry ranking in the WEF report, several US states have taken action to combat gender-based differences in employee remuneration. For example, the New York State Equal Pay Act provides for 300% liquidated damages; ie, the successful plaintiff will be awarded quadruple the pay differential. In fact, although this New York law was originally intended to prevent pay inequality due to sex discrimination, it will—beginning October 8, 2019—be expanded to protect against pay inequality based on discrimination of all protected classes under the New York State Human Rights Law, including age, color, creed, disability, domestic violence victim status, familial status, gender, gender expression, marital status, military status, national origin, predisposing genetic characteristics, race and sexual orientation.
    • Physical appearance:  In many countries it is common for companies to require job candidates to submit a photo of themselves with their job application.   In the US this practice is considered discriminatory and illegal. (Some hiring managers have an insatiable curiosity regarding the physical appearance of job candidates and—probably against the advice of their company’s legal counsel—look for photos of job applicants in online social media platforms, thereby creating potential legal liability for the company.)
    • Age:  While it is acceptable to specify in a job description the number of years of experience the ideal candidate will have, it is considered discriminatory and illegal to ask job candidates for their age or date of birth.
    • Religion:  Unless an employee’s religious practice will cause undue hardship to the business, your US company should be prepared to make reasonable allowances for that practice. For example, while an employee’s attire may include an article that is considered a ‘religious symbol’ in your home country, you probably cannot ban such attire from your US company’s workplace in the hopes of having a religion-free atmosphere. Additionally, when it comes to work schedules, recognize that some job applicants may have limited availability because of religious observances. If the job candidate must be available for work during certain time periods (eg, 9 am to 5 pm every Friday, or occasionally on Sunday), this requirement should be stated in the corresponding job description.

To ensure that your human resources goals and activities do not contravene state or federal laws, review them with your attorney or contact our law firm to schedule a consultation.

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