• Vesting of Founder’s Stock. Founders may agree that their interest in the stock of the company will “vest” over time (typically 1-3 years), and grant to the company the right to acquire any unvested stock when the Founder’s service with the company ends.

• Termination. The agreement may define the circumstances in which a Founder’s service with the company can be terminated. If termination is for “cause” (i.e. bad acts by the Founder), the company and/or the other Founders may have a right to purchase some or all of the terminated Founder’s stock in the company (including vested stock).

• Restrictions on Transfer of Founder’s Stock. Founders typically agree not to transfer their shares in the company without the consent of the other Founders, except in limited circumstances such as transfers to specified persons (ex. children or spouse) or for estate planning purposes. Founders often grant to the company and/or the other Founders a right of first refusal to purchase any shares proposed to be transferred by a Founder, except as permitted by the agreement.

• Tag-along Rights. Founders may grant each other the right to participate in any sale of a Founder’s shares to a third party. Any potential purchaser of stock from a Founder would then be required to purchase shares held by all Founders, usually pro rata based on the Founders’ relative ownership interest.

• Voting of Founder’s Stock. Founders often agree to vote all of their shares to elect specified individuals (usually including each Founder) to the company’s Board of Directors.

• Non-competition. Founders sometimes agree not to compete with the business of the company or solicit employees or customers for a certain period of time following the end of their service with the company.

While these provisions are common, a Founders Agreements should be customized to fit the needs of the Founders. Your lawyer can help you create an agreement that’s right for you and your company.

• If signing a non-compete will be a condition to employment, employers will be required to inform the potential new hire of this fact “to the extent reasonably feasible by the earlier of (a) two weeks before the employment period begins or (b) the time the offer of employment is made. The goal is to prevent employers from springing non-competes on an unsuspecting new employee, particularly where the new employee has already left his or her previous job.

• Non-competes would be unenforceable against employees earning under $50,000 and enforceable against employees earning $50,000 to $100,000 only to protect trade secrets or confidential information (but not for goodwill). As one panelist pointed out, these income thresholds seem fairly arbitrary and unhelpful, particularly for startups where the founders may not draw a salary.

• Where enforceable, non-competes would be limited to one year post-employment unless the employer makes “garden leave” payments to the employee, in which case the term could extend to two years.  Garden leave payments must equal or exceed the greater of $50,000 or 50% of the employee’s total gross compensation at the time of termination, and payments may not be offset against any income the employee receives from other noncompetitive activities.

• A restricted period of no more than six months would be presumptively reasonable (i.e., if it went to court, the employee would have to demonstrate that the restriction was not reasonable).

• Attorneys’ fees will be awarded to an employee if (a) a court finds his or her non-compete to be “grossly over reaching” the limits set by the statute, (b) a court must make material changes to the agreement to make it enforceable, or (c) a court determines that the employer acted in bad faith in enforcing the agreement. Several panelists argued that awarding attorneys’ fees is necessary to counter employees’ supposed reluctance to challenge non-competes due to the costs of litigation.

• The bill would not set limitations on non-competes in the context of a business purchase, nor would it affect non-solicitation agreements.

• The bill would only apply to agreements entered into on or after January 1, 2010.

If you’re interested in learning more about the impact of non-competes on a local economy, check out MIT Professor Matt Marx’s paper on Michigan’s experience before and after repealing a prohibition on non-competes in 1985, which is available at http://www.mit.edu/~mmarx. For some additional commentary, check out the blogs of Bijan Sabet of Spark Capital, Michael Rosen of Foley Hoag and Scott Kirsner of the Boston Globe.