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When a company acquires a startup, the founder often comes with the deal—bringing vision, energy, and deep product expertise. But hiring a founder post-transaction is rarely seamless, and companies should plan from deal inception for the possibility of a rocky breakup down the road. From cultural clashes to misaligned expectations, the risks of a turbulent split are real—and often overlooked amid the urgency of LOI negotiations. Below are five key employment law challenges companies face when bringing a founder into the fold—and ways to navigate the challenges before-and after-the relationship goes south.

1. Bringing the Founder on Board: Transitioning from Entrepreneur to Employee

When a company acquires a startup, retaining the founder as an employee can be a strategic necessity. Founders are frequently integral to getting the deal over the finish line. Their buy-in can make or break negotiations, and offering the founder a post-acquisition role signals respect for their vision while easing resistance. Founders bring invaluable institutional knowledge and serve as a cultural bridge, which reassures investors, helps retain key talent, and drives smooth integration and early-stage success.

However, shifting a founder from entrepreneur to employee often brings legal and operational challenges for all parties—along with psychological hurdles for founders, whose identities are deeply tied to the business.

  • Personal meets transactional: Founders may struggle to navigate the emotional weight of handing over control while also grasping the ramifications of the transaction—making it harder to align expectations with the acquirer. Even the most detailed LOI may fall short in practice, especially when working with founders who approach the deal differently than seasoned acquirers. Acquiring companies can help avoid potential issues by ensuring the founder is supported with strong legal and financial guidance, making it more likely the parties will be able to bridge any differences in priorities and move the deal forward smoothly.
  • Employment status: Founders may have previously operated as owners, consultants, or contractors, so stepping into a formal employee role can be unfamiliar, and can bring new (and sometimes unwelcome) requirements around reporting structure, accountability, and compliance. To avoid confusion by the founder-employee about their employment relationship with the company, avoid dangers of misclassification, and ensure the proper handling of tax, benefits, and compliance obligations, the acquirer should clearly explain and define the founder’s new role as an employee in employment contracts, onboarding materials, and all related HR documentation.
  • Role transition: Transitioning into a structured employee role can feel restrictive for founders: 
    • Founders are used to autonomy and broad decision-making authority and may struggle with operating in a structured corporate environment.
    • Founders often thrive in fast-moving, risk-tolerant environments where quick decisions drive progress. Transitioning to a larger organization’s more structured processes can be difficult, stymieing smooth integration.
    • The founder’s distinct vision and deep commitment to their product or company may not always align with the strategic direction of the acquiring firm, leading to hesitation by the founder around changes the acquirer seeks to implement.

To reduce the risk of founder friction during role transitioning, companies should align early on strategic goals, document all commitments clearly, and design an onboarding plan that respects the founder’s background while setting realistic expectations. Establishing clear guardrails from the outset can help to prevent misalignment and future disputes.

2. Negotiating Compensation: Motivating the Founder in Line with Company Strategy

The negotiation of compensation for a founder post-transaction is inherently complex. While acquiring companies are keen to ensure the founder remains engaged and incentivized post-transaction, the structure of compensation and benefits must also align with the acquirer’s broader compensation philosophy, governance standards, and budget limitations.

  • Equity and vesting: Founders usually want to stay engaged in the business they grew and developed. To keep founders engaged and aligned with the acquirer’s goals, companies need to offer incentives that truly resonate. A mix of rollover equity and a customized equity incentive package often does the trick, with many founders seeking stock options or restricted stock units in connection with the deal. But revisiting prior equity grants can raise sensitive issues around dilution and valuation. Navigating this terrain requires careful attention to securities laws, tax implications, and the structure of company equity plans.
  • Severance and retention: Founders may push for severance terms that go beyond market norms—especially around “good reason” and “change of control” clauses—which can trigger payouts if the founder resigns due to significant changes in role, compensation, or company ownership. While these provisions can help attract and retain top talent, companies must strike a careful balance between offering competitive incentives and preserving the company’s need for flexibility.
  • Non-standard benefits: Founders might negotiate for unique perks—like continued use of company assets, office space, or other non-cash benefits—that fall outside typical executive packages. Each request should be carefully vetted not only for legal compliance but also to ensure the perk is comparable to what other similarly situated leaders receive. Overly generous or inconsistent terms can create tension within leadership teams and raise concerns about governance.
  • Anticipating the exit: Companies should begin planning for a potential separation with the founder as early as compensation negotiations—if not sooner. Assume that if the relationship does not work out, termination will occur without cause, and recognize that such terminations typically carry significant costs in these transactions. Internally, companies should evaluate (i) whether they are comfortable with the financial obligations associated with a without-cause termination, (ii) how equity will be treated, and (iii) whether existing post-employment restrictions provide sufficient protection. Finally, document all decisions clearly to avoid misunderstandings later.

Continue Reading Putting Founders on the Payroll: 5 Post‑Acquisition Employment Law Challenges

Illinois has entered a pivotal year for workplace regulation. Employers face a series of new requirements, with significant and wide-ranging changes—from paid lactation breaks and NICU leave to expanded whistleblower protections, stricter contract rules, and new obligations around AI use in hiring and employment decisions. These new laws will reshape policies on employment agreements, leave…

As AI adoption accelerates across workplaces, labor organizations around the world are beginning to take notice—and action. The current regulatory focus in the US centers on state-specific laws like those in California, Illinois, Colorado and New York City, but the labor implications of AI are quickly becoming a front-line issue for unions, potentially signaling a new wave of collective bargaining considerations. Similarly, in Europe the deployment of certain AI tools within the organization may trigger information, consultation, and—in some European countries—negotiation obligations. AI tools may only be introduced once the process is completed.

This marks an important inflection point for employers: engaging with employee representatives on AI strategy early can help anticipate employee concerns and reduce friction as new technologies are adopted. Here, we explore how AI is emerging as a key topic in labor relations in the US and Europe and offer practical guidance for employers navigating the evolving intersection of AI, employment law, and collective engagement.

Efforts in the US to Regulate AI’s Impact on Workers

There is no specific US federal law regulating AI in the workplace. An emerging patchwork of state and local legislation (e.g. in Colorado, Illinois and New York City) address the potential for bias and discrimination in AI-based tools—but do not focus on preventing displacement of employees. In March, New York became the first state to require businesses to disclose AI-related mass layoffs, indicating a growing expectation that employers are transparent about AI’s impact on workers.[1]

Some unions have begun negotiating their own safeguards to address growing concerns about the impact that AI may have on union jobs. For example, in 2023, the Las Vegas Culinary Workers negotiated a collective bargaining agreement with major casinos requiring that the union be provided advance notice, and the opportunity to bargain over, AI implementation. The CBA also provides workers displaced by AI with severance pay, continued benefits, and recall rights.

Similarly, in 2023 both the Writers Guild of America (WGA) and Screen Actors Guild-American Federation of Television and Radio Artists (SAG-AFTRA) negotiated agreements with the Alliance of Motion Picture and Television Producers (AMPTP) that include safeguards against AI reducing or replacing writers and actors. WGA’s contract requires studios to meet semi-annually with the union to discuss current and future uses of generative AI—giving writers a formal channel to influence how AI is deployed in their industry. The SAG-AFTRA contract requires consent and compensation for use of digital replicas powered by AI.Continue Reading Navigating Labor’s Response to AI: Proactive Strategies for Multinational Employers Across the Atlantic

From the requirement of pay scales and benefits in job postings to new protected classes under the Illinois Human Rights Act, 2025 promises to be yet another year of significant change for Illinois employers. While you determine how to navigate the new Illinois employment laws taking effect this year (and next!), review this checklist and…

Companies with a US workforce can expect material changes to employment laws under the Trump administration, with impacts felt across their business operations. President-elect Trump’s first term, his campaign platform, and the typical shifts in a Democratic to Republican transition provide clues about what’s to come: federal agencies, policies and rules will become more business-centered and many of the Biden-era worker-focused protections will be rolled back.

Below are four major shifts we anticipate:

(1) Significant shifts in US Department of Labor policy

The end of the DOL’s 2024 final overtime rule. On November 15, 2024, a federal judge in Texas blocked implementation of the DOL’s final rule in its entirety, thereby preventing the agency from instituting increases to the salary thresholds for the “white collar” overtime exemptions under the Fair Labor Standards Act. While the government may appeal the judge’s order before the change in administration, any such appeal is likely to be short-lived come January 2025.

Accordingly, employers can halt plans to change their compensation levels or exempt classifications in response to the now-blocked rule. If such changes have already been made, employers should consult with counsel on how best to unwind undesirable changes, if any.

A lower burden for employers to classify workers as independent contractors under federal law. Trump will likely reverse Biden’s worker-friendly contractor classification efforts, making it easier for businesses to classify workers as independent contractors, and pivoting away from the Biden administration’s 2024 DOL independent contractor rule.

Notwithstanding this easing at the federal level, employers must remember that, under US and state law, there is no single test for independent contractor classification. Many states have their own tests, which are often more stringent than federal law and that apply to state wage and hour claims. Moreover, even within the same states, different tests will apply to unemployment claims, workers’ compensation, wage and hour, and taxation.Continue Reading Back to Business: Trump’s Second Term and the Four Major Shifts Employers Should Expect

2023 was a landmark year for labor in the US, and 2024 is on track to keep up. Last year, the NLRB’s General Counsel was relentless in overturning precedential decisions and standards impacting both unionized and non-unionized employers. The result was an overall employee-friendly shift to labor laws encouraging both unionization and concerted employee actions…

Millions of additional employees will soon be eligible for federal overtime because of the Department of Labor’s April 23 Final Rule. Under the Fair Labor Standards Act (FLSA), certain salaried employees are exempt from federal minimum wage and overtime requirements if they are employed in a bona fide executive, administrative, or professional (EAP) capacity. This is sometimes called the “white collar” exemption. The Final Rule:

  • Increases the minimum salary requirement for the EAP exemption from $684 per week ($35,568 annualized) to $844 per week ($43,888 annualized) effective July 1, 2024 and to $1,128 per week ($58,656 annualized) effective January 1, 2025; and
  • Increases the minimum total annual compensation level for exemption as a “highly compensated employee”—e.g., one who customarily and regularly performs any one or more of the exempt duties or responsibilities of an executive, administrative or professional employee—from $107,432 to $132,964 effective July 1, 2024 and to $151,164 effective January 1, 2025.

Continue Reading DOL Raises the Federal Overtime Salary Threshold | Next Steps for US Employers

Illinois employers navigated an avalanche of new laws in 2023, with more on the horizon in 2024 (and even 2025). New paid leave obligations for Illinois (and Chicago and Cook County) employers are a significant change, and additional developments expand employer liability in some circumstances where individuals are victims of gender-related violence. There are also new obligations for employers who use temporary employees, and increased protections for striking workers–not to mention a soon-to-be requirement for employers to include pay scale and benefits information in job postings starting January 1, 2025.

Here are key updates that Illinois employers should be aware of for 2024–and beyond.

1. New paid leave laws in Illinois, Chicago and Cook County

Employers in Illinois, Chicago and Cook County have new paid leave obligations for 2024 under three new laws:

  • The Illinois Paid Leave for All Workers Act (PLAWA) (effective January 1, 2024) requires Illinois employers to provide most employees with a minimum of 40 hours of paid leave per year to be used for any reason at all–not just for sick leave.
  • The Cook County Paid Leave Ordinance (effective December 31, 2023, the sunset date of the prior Cook County Earned Sick Leave Ordinance) covers employees who work in Cook County and largely mirrors the PLAWA. The Cook County Commission on Human Rights will begin enforcement of the paid leave Ordinance on February 1, 2024.
  • The Chicago Paid Leave and Paid Sick and Safe Leave Ordinance (effective July 1, 2024) will require covered employers to provide eligible employees 40 hours of paid sick leave and 40 hours of paid leave (the latter usable for any reason) per 12-month accrual period, for a total entitlement of up to 80 hours of PTO per 12-month period.

Importantly, under both the PLAWA and the Cook County Paid Leave Ordinance:

  • Eligible employees earn 1 hour of paid leave for every 40 hours worked, up to a minimum of 40 hours in a 12-month period (with exempt employees presumed to work 40 hours per workweek for accrual purposes, but leave accrues based on their regular workweek if their regular workweek is less than 40 hours)
  • Though unused accrued paid leave from one 12-month period can be carried over to the next, employers can cap the use of paid leave in one 12-month period to 40 hours
  • Frontloading is permitted, and employers who frontload 40 hours at the beginning of the 12-month period are not required to carry over unused accrued paid leave
  • Employers cannot require employees to provide a reason they are using paid leave, or any documentation or certification as proof or in support of paid leave

The Chicago Paid Leave Ordinance diverges from the PLAWA and the Cook County Ordinance in several ways, including:

  • Covered employees will accrue one hour of paid sick leave and one hour of paid leave for every 35 hours worked-five hours less than what is required to accrue an hour of paid leave under the PLAWA or Cook County Ordinance
  • Employees may carryover up to 80 hours of paid sick leave and up to 16 hours of paid leave from one 12-month accrual period to the next
  • Employers may frontload 40 hours of paid sick leave and 40 hours of paid leave on the first day of the 12-month accrual period. Frontloaded paid leave does not carry over from one 12-month period to the next (unless the employer prevents the employee from having meaningful access to their PTO), but up to 80 hours of unused paid sick leave does
  • Employers with more than 50 employees in Chicago are required to pay the employee the monetary equivalent of unused accrued paid leave when an employee separates from the employer or transfers outside of the City of Chicago (see chart below for specifics)
  • Unlike in the PLAWA or Cook County Ordinance, unlimited PTO is specifically addressed in the Chicago Paid Leave Ordinance (so employers with unlimited PTO policies should review the Ordinance closely)

Continue Reading A Legislative Snowstorm: Key 2024 Updates for Illinois Employers Include a Number of New Leave Obligations and More

Many thanks to our Franchise, Distribution & Global Brand Expansion colleague Will Woods for co-authoring this post.

On October 25, 2023 the National Labor Relations Board issued a final joint employer rule (accompanied by a fact sheet) making it easier for multiple companies to be deemed “joint employers” under the law. This legal classification can have profound consequence by making independent entities now liable for labor law violations as well as obligations to negotiate with unions.

The new standard casts a wider net for “joint-employer” status

Under the new rule, an entity may be considered a joint employer of a group of employees if the entity shares or codetermines one or more of the employees’ “essential terms and conditions of employment.” The Board defines the essential terms and conditions of employment as:

  1. wages, benefits, and other compensation;
  2. hours of work and scheduling;
  3. the assignment of duties to be performed;
  4. the supervision of the performance of duties;
  5. work rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline;
  6. the tenure of employment, including hiring and discharge; and
  7. working conditions related to the safety and health of employees.

How the new rule dramatically shifts away from the 2020 rule

In issuing the final rule, the NLRB rescinded the prior 2020 joint employer rule (a remnant of the Trump-era Board), which provided that a business is a joint employer only if it both possesses and exercises substantial direct and immediate control over one or more essential terms and conditions of employment-with “substantial” meaning control that is not exercised on a “sporadic, isolated, or de minimis basis. ” (For more on the 2020 rule, see our prior blog here.) The 2020 rule’s higher threshold meant a lower likelihood that businesses would be considered joint employers. The new rule’s impact on employers could be wide-ranging, and particularly difficult for non-unionized employers who are not used to navigating typical union activity such as being required to show up at the bargaining table, handling unfair labor practice charges, or dealing with picketing by a vendors’ employees (which would have previously been considered an illegal secondary boycott).

No direct (or even exercised) control required

The new rule rejects the previous rule’s focus on “direct and immediate control.” Instead, now, indirect or reserved control is sufficient to establish joint employer status. Thus, if a company has contractual authority over certain employment terms but never acts on that authority, that may be enough to establish a joint employer relationship. The same goes for a company that exercises authority over another company’s workers through a “go-between” company or intermediary, or a company requiring a vendors’ employees to follow certain health and safety rules while on-premises. In these instances, liability under the National Labor Relations Act, including the requirement to negotiate with a union, could ensue.Continue Reading NLRB Announces Most Expansive Definition of Joint Employment Yet, With Potential Significant Implications for Franchisors, Staffing Agencies and More