Independent Contractor Agreement Texas: Fill & Download for Free

The real question is whether or not one's status as an independent contractor is dispositive and renders a non-compete agreement entirely unenforceable. The answer is no. There is no definitive rule that an independent contractor can never be subject to a non-compete agreement.The first question is what law applies? Is it Florida law? Texas law? Washington law? Non-compete law varies tremendously from one state to another. But under the law of most states, if the non-compete would be enforceable against an employee, then it would also be enforceable against an independent contractor.Trust me, I get the logic and the common sense: Independent contractors shouldn't have non-compete agreements because they should be, you know, independent and free to do other business, service other clients, etc. But this raises more of a misclassification issue than an issue re non-compete enforceability.The best rule of thumb: If the agreement would be enforceable against an employee (to protect a legitimate business interest, e.g., confidential information or customer relationships), then its probably enforceable against an independent contractor as well.

The VCs (Paul Cohn and Imran Ghory) are telling you to avoid ‘non-standard’ terms. Let me translate that for you: roll over and accept the terms in the National Venture Capital Association (NVCA) model legal documents.That might be good advice if your business plan requires burning lots of cash. If you can muster the patience to build what Prof. John W. Mullins calls a customer-funded business, you can reject the provisions of the NVCA model legal documents that are not founder-friendly.As Mullins writes in The Customer-Funded Business, “Making do with the probably modest amounts of cash your customers will give you enforces frugality, rather than waste… and will force you to run your business better.” Customer-funded companies have the option to leave VCs at the negotiating table. They can walk away and grow organically until they command investment terms in line with the Founder Friendly Standard. This answer is for lean startups and bootstrappers.Comparing the NVCA model legal documents to the Founder Friendly Standard.David S. Rose says NVCA model legal documents are very time-consuming and expensive to negotiate and document.[1][1][1][1] The NVCA model legal documents include 18 agreements. To write this answer, my associate, Josh Mathews, and I reviewed the following six (“NVCA Docs”):NVCA Voting AgreementNVCA Term SheetNVCA Stock Purchase AgreementNVCA Right of First Refusal and Co-Sale AgreementNVCA Investor Rights AgreementNVCA Certificate of IncorporationI’m going to start with the Founder Friendly Standard, which is simple, and compare the NVCA Docs to it.Section 1.1 of the Founder Friendly Standard says:Individuals who work for the company and are instrumental in its inception (“Founders”) receive a class of equity such as Common Stock which provides no less than twenty-four (24) votes to one (1) vote of stock held by investors or employees.NVCA Docs do not meet Section 1.1 of the Founder Friendly Standard. Article FOURTH (A)(2) of NVCA Certificate of Incorporation says that Common Stock holders are entitled to one vote for each share of common stock at meetings of stockholders. Common Stock holders can’t vote on issues solely affecting/reserved to Preferred Shareholders. These can potentially include issues such as voting on a director, allowing for conversion of shares, and receiving preferred dividend payments, among others.Section 1.2 of the Founder Friendly Standard says:Investors receive a class of equity such as Class A Preferred Stock which will have one vote per share with a higher par value justified by a liquidation preference.NVCA Docs do not meet Section 1.2 of the Founder Friendly Standard. The NVCA Certificate of Incorporation Article FOURTH (B)(2) provides that Preferred Shareholders have a liquidation preference, Article FOURTH (B)(3) of the same document provides that voting is done as a single class. Why this does not meet Section 1.2 of the Founder Friendly Standard is NVCA Docs provide the option for investors to elect two members of a five-person board. This would give investors a type of super-voting equity, not one vote per share.Section 1.3 of the Founder Friendly Standard says:Employees and contractors receive a class of equity such as Class B Common Stock which carries one vote per share and does not have a liquidation preference.NVCA Docs do meet Section 1.3 of the Founder Friendly Standard. In the NVCA Stock Purchase Agreement, Section 2.2 (b) provides for a stock option plan, under which “officers, directors, employees and consultants” may be issued shares of Common Stock. There is no separate ‘Class B’ for employees/contractors, but according to Section FOURTH, (A)(1) of the NVCA Certificate of Incorporation, common stock does carry one vote per share, and liquidation rights are subject to qualified rights of Preferred Shareholders.Section 1.4 of the Founder Friendly Standard says:The first board consists only of Founders. The term of the board is one year. After the first year, a new board is elected by the equity holders at the annual meeting. Board decisions are made by a majority vote of the board. Board members cast no more than one vote each on any decision. Board committees are disallowed for at least the first two (2) years.NVCA Docs do not meet Section 1.4 of the Founder Friendly Standard. Section 1.2 of the NVCA Voting Agreement provides the option to select the number of directors that the Board will consist of. Though optional, the NVCA Docs suggest that the Board initially consists of five directors, two of which are designated by investors.Section 1.5 of the Founder Friendly Standard says:New equity of any kind, including stock option pools, dilutes all equity holders equally. Therefore, no investor in the company has anti-dilution rights of any kind.NVCA Docs do not meet Section 1.5 of the Founder Friendly Standard. Subsection 4.4.4 of the NVCA Certificate of Incorporation provides for anti-dilution rights. There are two options provided, including a broad and narrow option, i.e. a “broad-based weighted average” anti-dilution provision and a “full ratchet” anti-dilution option.Section 2.1 of the Founder Friendly Standard says:Founders agree in writing they will give and receive performance reviews at the end of each fiscal quarter for the first four (4) years.NVCA Docs do not address section 2.1 of the Founder Friendly Standard.Section 2.2 of the Founder Friendly Standard says:Sweat equity vests each month over a period of four (4) years with a one (1) year vesting cliff. Vesting begins on the date shares are issued.NVCA Docs do meet Section 2.2 of the Founder Friendly Standard. Section 5.3 of the NVCA Investor Rights Agreement suggests a 4-year vesting term with 1-year vesting cliff. This is required not only for sweat equity but for “all future employees and consultants.”Section 2.3 of the Founder Friendly Standard says:Founders keep all information confidential and assign the company all intellectual property created within the scope of their work for the company.NVCA Docs do meet Section 2.3 of the Founder Friendly Standard. Section 2.19 of the NVCA Stock Purchase Agreement says current and former employees, consultants, and officers of the Company represent they’ve executed confidentiality agreements. Furthermore, Section 2.8 of the NVCA Stock Purchase Agreement provides that the Company represents that all “employees and consultants have assigned all intellectual property rights.” Key Employees also must not have excluded works or inventions from their assignment of inventions. However, the term “Founder” is not used in the NVCA Docs, so it may be important to note that there is the possibility for a founder to fall through the cracks of this Standard if they do not fit into one of the above-stated categories, such as an “employee, consultant, or officer.”Section 2.4 of the Founder Friendly Standard says:Due to potentially devastating tax consequences, the company tells individuals receiving sweat equity in the United States to consult with a tax professional about making an election under Section 83(b) of the Internal Revenue Code. Founders who live or pay taxes outside the United States are similarly advised to consult tax professionals about applicable local and national taxes.NVCA Docs do meet Section 2.4 of the Founder Friendly Standard. Section 2.22 of the NVCA Stock Purchase Agreement provides a representation by the company that all elections and notices for 83(b) have been or will be filed. However, there is no recommendation for individuals to consult any tax professional regarding 83(b) elections.Section 2.5 of the Founder Friendly Standard says:Non-compete restrictions only apply to employee or independent contractor agreements and do not survive termination. The company’s bylaws and other investor agreements are either silent on the issue of non-competition or expressly allow competition.NVCA Docs do meet Section 2.5 of the Founder Friendly Standard. Under Section 2.19 of the NVCA Stock Purchase Agreement, all key employees must sign a non-solicitation (and non-compete is bracketed as optional); this meets Founder Friendly Standard. It is worth noting that Section 2.11(b) of the NVCA Stock Purchase Agreement requires that the Company must represent that “no officers, directors, or employees, or respective spouses, children, or affiliates” are engaged in relationships with the Company's competitors up to the time of closing the investment transaction; it is not express language that prevents competition moving forward.Section 3.1 of the Founder Friendly Standard says:For at least the first two (2) years of operations, the company will not agree to pay the legal expenses of any investor as a condition of investment.NVCA Docs do not meet Section 3.1 of the Founder Friendly Standard. Section 6.8 of the NVCA Stock Purchase Agreement provides that the Company pays the reasonable fees and expenses of counsel for the lead purchaser, up to a capped amount. Under Section 5.8 of the NVCA Investor Rights Agreement, in the event of a sale of the Company, the expenses for investor counsel is to be borne by the Company.Section 3.2 of the Founder Friendly Standard says:For at least the first two (2) years of operations, the company does not agree to binding arbitration with any investor.NVCA Docs do not meet Section 3.2 of the Founder Friendly Standard. Section 6.16 of the NVCA Stock Purchase Agreement provides for:The option of courts in a particular jurisdiction,Or two options for arbitration, using AAA or DRAA rules, both of which include binding provisions with no two-year prohibition.Under the DRAA alternative, there is the option to remove the waiver of the right to appeal.There is no distinction made between investors or founders.Section 3.3 of the Founder Friendly Standard says:For at least the first two (2) years of operations, the company does not agree to binding arbitration with any Founder.NVCA Docs do not meet Section 3.3 of the Founder Friendly Standard. Section 6.16 of the NVCA Stock Purchase Agreement, Section 6.4 of the NVCA Right of First Refusal and Co-Sale Agreement, Section 6.11 of the NVCA Investor Rights Agreement, and Section 7.16 of the NVCA Voting Agreement, all provide for:The option of courts in a particular jurisdiction,Or two options for arbitration, using AAA or DRAA rules, both of which include binding provisions with no two-year prohibition.Under the DRAA alternative, there is the option to remove the waiver of the right to appeal.There is no distinction made between investors or founders.Section 4.1 of the Founder Friendly Standard says:Upon any transfer or sale of Founders’ super-voting equity, the portion of equity transferred converts to the class of equity described in Section 1.3. This also includes any transfer to a Founder’s estate, spouse, or heirs.NVCA Docs do not meet Section 4.1 of the Founder Friendly Standard. There is no super-voting equity provided for in the NVCA Docs; and as such, there is no conversion mechanism, as provided for and in accordance with the Founder Friendly Standard.Section 4.2 of the Founder Friendly Standard says:The company has the right of first refusal on any transfer or sale of equity for up to forty-five (45) days, but it cannot veto a transfer or sale. This provision is void after a company’s stock is listed on a public exchange such as the NASDAQ, OTCBB, New York Stock Exchange, etc.NVCA Docs do not meet Section 4.2 of the Founder Friendly Standard. While Section 2.1(b) of the NVCA Right of First Refusal and Co-Sale Agreement does provide the Company with the first right of refusal for up to 45 days, Section 3.3 of the same agreement says equity cannot be transferred to (a) an entity which directly or indirectly competes with the Company, in the Board’s discretion; or (b) any customer, distributor, or supplier of the company if the Board determines it would put the Company at a competitive disadvantage. Section 3.2 of the same agreement provides that this right of first refusal shall not apply to the sale of stock to the public in an IPO.Should I accept a venture capital deal that isn’t founder-friendly?NVCA Docs meet only five of the issues addressed by Founder Friendly Standard (sections 1.3, 2.2, 2.3, 2.4, and 2.5). NVCA Docs conflict with nine of the issues (sections 1.1, 1.2, 1.4, 1.5, 3.1, 3.2, 3.3, 4.1, and 4.2) and are silent on one issue (section 2.1). Nearly all the issues carry long-term ramifications.Signing an investor-friendly angel investment or venture capital deal can ultimately result in you getting fired from your own company. Investors fire founders more often than you think. It happened to Steve Jobs at Apple, Sean Parker at Plaxo, and the people who wrote Founder Friendly Standard.Whatever agreement you sign today will be following you into the future. If you’ve built a customer-funded business, you should delay investment until you can get terms that you’re comfortable living with.If your Texas-based startup has received a term sheet from an investor and you’d like to talk through the issues, visit our law firm’s website at https://www.fultonstrahan.com* Limit of Liability/Disclaimer of Warranty: Keith Strahan and Josh Mathews (“Authors”) are not providing any financial, economic, legal, accounting, or tax advice or recommendations on this site. Although Authors are attorneys licensed in Texas, the information contained on this site was prepared for general information purposes only, does not constitute research, advice, or a recommendation from Authors to the reader and is not a substitute for personalized financial or legal advice. Neither Authors nor any of their affiliates make any representation or warranty as to the accuracy or completeness of the statements contained on this site. Authors and their affiliates expressly disclaim any liability (including any direct, indirect, or consequential loss or damages) for all posts and their content.Footnotes[1] Are there any standard contract templates that investors and founders can use for startup funding?[1] Are there any standard contract templates that investors and founders can use for startup funding?[1] Are there any standard contract templates that investors and founders can use for startup funding?[1] Are there any standard contract templates that investors and founders can use for startup funding?

When you are fired as a 1099 employee, can they do it via text and not give any reason, and tell me not to contact the office or anybody that works there (in Texas)?Yes. Texas is an employment-at-will state, which means employers can fire employees for no reason at all. Texas doesn’t require employers to give a reason either. And they can tell ex-employees not to contact the business or any of its current employees. The means of firing can be oral or in writing.But there’s no such thing as a “1099 employee”. An employee earns wages, a salary, or tips. The form 1099 reflects income other than wages, salaries, and tips, so it is not proof of employment. Apparently you were an independent contractor. So you need to look at the terms of your independent-contractor agreement. I suspect it contains a provision allowing the company to terminate your services at any time.