What AI tools and apps can offer in employment structuring and preparing documentation for start ups and how law firms bridge the gap in legal documentation and advisory?
As we witness almost two year mark since the introduction of Chatgpt by OpenAI in November 2022, Legal professionals have gained valuable hands-on-experience with AI technology. The contribution of AI algorithm in providing refined language and writing style is significant in legal documentation and drafting. However the risk associated with solely relying on this refined language and fanciful writing style is also considerable. Hence cautious use of technology is of course expected from legal professionals.
The intent of this piece is not to criticise ChatGPT or other automated tools like the HRone app for their lack of legal expertise while generating sample drafts and policies. In fact, two years of this technological renovation has significantly boosted confidence in every legal professional by enhancing writing style and ensuring drafts are free from grammatical errors. However scope of this piece is to explore how ChatGPT and AI tools have acted as supplementary tools in drafting legal documents and to identify the gaps that can be bridged by lawyers through their expertise and experience. Further this discussion is to streamline the drafting of documents related to employment structuring by start ups and businesses, highlighting where the expertise of law firms become indispensable.
Essential documents and beneficial clauses for employment structuring in startups includes key documents like Employment contracts, Non-compete agreements, Equity agreements including ESOPs and Sweat Equity Shares, Dispute Resolution clauses etc. As startups strive to establish themselves in competitive markets, structuring employment and navigating labour laws become crucial elements for success. Therefore it is really important to ensure that employee do not leave soon after they have been trained at startups expense. On the other hand , it is important to balance the rights and interest of an employee .In order to create employee contract suitable to the needs of both employer and employee, terms like ESOPs, Sweat Equity shares and other stock options are included in offer letter and appointment letter though they are thoroughly not discussed.
In an employment agreement, in addition to basic clauses such as Job Title, Salary , Health Insurance etc beneficial clauses may also include Sweat Equity shares and ESOPs. Section 2(88) of the Companies Act 2013 talks about Sweat Equity shares as shares given to company employees or Director as reward for their hardwork and contribution. By receiving these shares, Director or Employee becomes part-owners of company, and can benefit financially as and when the company grows and earns profit. In return, the company expects ‘value addition’ from the employee through their talent and commitment. On the other hand Employee Stock Option plans(ESOPs) are offered to employees as part of their Compensation package. ESOPs simply allow the employees to buy company shares in the future when specified price would considerably be lower than the current market price.
Technology such as ChatGPT and AI tools can offer valuable insights on the basis of trained data and algorithm. However its understanding of legal compliance is inherently limited. Law Firms provide essential expertise to help startups and businesses navigate rigorous labour regulations and protect their business innovation.
Employment documentation is not only limited to drafting and reviewing but it also involves negotiation strategies and contract management. Careful examination of drafted contract is necessary to identify ambiguities to save startups from unnecessary risk like legal disputes, financial penalties.
In discussing the contribution of AI Chatbots in Legal documentation and review as well as the role of legal professionals in bridging the gap between information obtained through AI chatbots and professional expertise it is clear that having a comprehensive plan is essential before structuring employment documents for a business. A well thought out plan helps in developing a broad employment model through employment structuring where a company has also listed out its requirements, type of business model and nature of work. The comprehensive employment model may include detailed bye-laws defining profile and responsibilities, standard operating procedures(SOPs), guidelines for appraisal and increments, guidance on ESOPs policies, necessary amendment to Article of Association(AoA), required Board Resolutions and standard employment contracts etc. along with other employment related communications. This holistic approach to employment documentation and structuring is crucial for the sustainable growth and success of any startup venture.
By Priyvrat Chauhan, Partner at Advik Law Partners
Assisted by Surbhi Sharma , Communications Head at Advik Law Partners
