Startups are often hailed as the lifeblood of innovation and progress, but they also come with inherent risks. While some startups thrive and transform industries, others face the harsh reality of failure, leaving their employees in a precarious position. One such instance recently came to light when CSIS Health Ltd, a startup in the health technology industry, struggled to raise money and had to deal with the ramifications of unpaid employee remuneration. This case, decided by the Workplace Relations Commission (WRC) of Ireland, teaches important lessons concerning the obligations of startups and the rights of employees while facing financial difficulties.

The Case of Per Johansson

Per Johansson, a software engineering manager, was employed by CSIS Health Ltd from May 2022 to December 2022. However, the startup experienced financial difficulties and could not pay its employees, including Mr. Johansson. As a result, Mr. Johansson took his case to the WRC, seeking unpaid wages, notice pay, and accrued holiday entitlements.

The Struggles of a Startup

CSIS Health Ltd, like many startups, faced the daunting challenge of securing funding to sustain its operations and growth. Despite their best efforts, the company’s attempts to obtain grants or shareholder funding were unsuccessful. They even explored international opportunities, engaging with potential investors in the US. However, the COVID-19 pandemic disrupted their plans, and they were unable to secure the much-needed investment.

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The WRC’s Decision

The WRC’s adjudicating officer, Peter O’Brien, carefully examined the case and acknowledged that CSIS Health Ltd owed Mr. Johansson the unpaid wages, notice pay, and accrued holidays. While the company acknowledged its financial obligations, it claimed a lack of funds to make the payments and had little hope of obtaining them in the near future.

In the ruling, Mr. O’Brien found in favor of Mr. Johansson, emphasizing that the unpaid wages were legitimately due and uncontested. The decision highlighted a breach of Section 5 (6) of the Payments of Wages Act 1991, which is intended to protect workers’ rights regarding their compensation.

The Compensation Award

Based on the WRC’s decision, Mr. Johansson was awarded €3,489 for unpaid wages from September 2022, €8,333.33 for each of the months of October and November 2022, and €4,545 for December 2022. Additionally, he received €25,000 gross as compensation for the non-payment of his notice period and €1,008.06 gross for his accrued holiday entitlements. The total compensation amounted to €50,708.72.

Takeaways for Startups and Employees

The case of CSIS Health Ltd and Mr. Johansson offers essential lessons for both startups and their employees:

1. Transparent Employment Contracts: Startups should ensure that employment contracts clearly outline notice periods and procedures for termination by either party. Clarity in contracts can prevent misunderstandings and disputes.
   
2. Responsibility and Accountability: While startup founders face immense challenges, they must also be accountable for their employees. Adequate financial planning and responsible management are crucial to meeting obligations to employees, even during difficult times.
   
3. Legal Compliance: Startups should familiarize themselves with employment laws and regulations in their respective jurisdictions to avoid breaching any provisions related to payments, wages, or termination.
   
4. Investor Contingency Plans: When startups rely on external funding, they should have contingency plans in place to manage potential financial setbacks. Diversifying funding sources and exploring alternatives can mitigate risks.
   
5. Communication: Open and transparent communication between startups and employees is vital. In times of financial distress, keeping employees informed about the company’s challenges and efforts to address them fosters trust and understanding.

The case of CSIS Health Ltd underscores the challenges startups face and the importance of honoring employees’ rights. Financial struggles do not absolve startups from their obligations to their workforce. By learning from cases like this, startups can build a more resilient and equitable business environment, fostering trust and promoting fair treatment of employees even in times of adversity.

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Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer, who has several years of experience working in Africa’s burgeoning tech startup industry. He has closed multi-million dollar deals bordering on venture capital, private equity, intellectual property (trademark, patent or design, etc.), mergers and acquisitions, in countries such as in the Delaware, New York, UK, Singapore, British Virgin Islands, South Africa, Nigeria etc. He’s also a corporate governance and cross-border data privacy and tax expert. 
As an award-winning writer and researcher, he is passionate about telling the African startup story, and is one of the continent’s pioneers in this regard