By Paying Employees to Be Closer, Startups Take a Risk

riskPaying employees to live closer to the office may seem like a smart idea, but employment attorneys say startups should steer clear of the small but persistent practice.

Before it was acquired by Microsoft in 2008, semantic search engine Powerset offered financial incentives to employees to live close to its office. At one point, Facebook also reportedly offered a housing subsidy to employees who moved nearer to its Palo Alto headquarters.

Among the venture-backed startups that continue to provide location-based financial incentives is San Francisco-based, whose Javascript framework is helping to fuel faster smartphone, tablet, and PC applications; and Imo, a messaging company in Palo Alto, Calif.

It’s easy to understand the companies’ rationale. Employees are more accessible when they’re nearby. Presumably, the less time that employees have to spend commuting, the happier and more productive they are. There’s also a strong case to be made that proximity to the office is better for the environment. If your employees are walking or biking to work, they aren’t polluting the air with car exhaust.

Still, attorneys say that dangling proximity-related incentives is risky for numerous reasons.

Though DLA Piper attorney Margaret Keane doesn’t think there is “a person alive who thinks it’s life-enhancing to spend time commuting,” she can envision, for example, a “scenario where you’re [viewed as] favoring one [economic] class over another.”

It’s a concern echoed by Dan McCoy, an employment attorney with Fenwick & West. He observes that offering incentives to employees to live closer to a company, particularly in an expensive city like San Francisco, could be seen as having a “discriminatory impact” on those who live in cities such as Freemont or South Jose, where housing prices are lower.

The appearance of age discrimination is another potential pitfall.

“San Francisco tends to have a younger population as older workers get married, have kids, and leave the city for the suburbs,” says McCoy. “You can imagine an age claim by someone who says, ‘You’re better compensating a twenty-something than me — who has more experience — because they live in this loft by the ballpark.”

Even if it’s impossible to prove that a company’s policies have an adverse impact, startups should probably think twice about anticipating what’s in their employees’ best interest.

Assumptions about people and their commutes will inevitably “be misleading or partly inaccurate, just because that’s life,” says McCoy. Think of the person who lives farther away but gets to work faster because of public transportation, he says, or the couple that likes to drive into the city together.

“Unfair doesn’t necessarily equal lawful,” McCoy notes. “But at a minimum, you’re going to engender a lot of bad will.” And why take that risk?

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