Thinking Machines Lab and the risk of “Human” Resources dramas; is your cross-border company resilient?

Every so often, we hear reports of a very human drama at a high value start-up which threatens the once promising company’s success. From the merely scandalous to the overtly criminal, there are plenty of cautionary tales to keep founders up at night. To this salacious list, we now add the recent drama that reportedly unfolded at Thinking Machines Lab.

According to press reports, Thinking Machines Lab recently fired a co-founder who was also the company’s CTO following purported disagreements between him and the company’s CEO. With each side putting forth their own version of events, we cannot be certain of the real story, but the reports include that the CTO and several allies had challenged the CEO’s strategic decisions, that the CEO had accused the CTO of underperformance, and that the CTO had engaged in a romantic relationship with another company employee. Regardless of the real story, the result is that the CTO has decamped back to OpenAI along with several other Thinking Machines Lab employees with resulting heighted press attention.

As any founder knows, the health of working relationships between company leaders is a key component to success, and personal dramas within teams risk division, disruption, and delay. But the tools available to deal with such dramas often depend on the legal rules of the jurisdictions in which the company operates. The options available for Thinking Machines Lab in California may not work in New York, Edinburgh, or London.

For example, that Thinking Machines Lab was reportedly able to fire the CTO without notice or any apparent fair process is likely due to default rules in California (and most US states) that employment is “at will” and neither notice nor process is typically required to dismiss an employee. This is not the case in the UK, where employees with sufficient service are protected by unfair dismissal and statutory notice rules. Additionally, that the CTO was reportedly able to quickly jump ship to OpenAI, a competitor, is also likely due to California’s prohibition on the use of post-employment restrictions against competition. In some other US states and in the UK, the company might have been able to enforce a non-compete against the departing executive.

We may never know what really transpired at Thinking Machines Lab, but we can learn from it nonetheless. When confronted with the inevitable “human” resources drama, companies should be ready with robust and appropriate policies and processes to de-escalate or effectively address. Companies should ensure they design employment agreements and terms to align with the laws of the relevant jurisdiction, even if that means terms cannot be uniform across multi-jurisdiction workforces. The treatment of any shares or share options held by departing founders and their role in the company should be agreed and documented. It is not helpful to have a discontented former founder remain part of any decision-making and while it’s not part of a “growth mindset” to plan for what might go wrong, it is worthwhile to agree at the outset how this would be dealt with. Ultimately, while having tools prepared for the possibility that some relationships may sour, founders must remain committed to nurturing and maintaining the relationships within the team that are most key to a company’s success.

Please do not hesitate to reach out to the lawyers at MBM for any UK or US employment law questions you have.