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Lurking business litigation: 4 things you can’t afford to ignore


Owning your own business is difficult enough. Add to that the hundreds of ever-changing federal and state employment laws that you’re expected to comply with and your head may be spinning. And overlooking these regulations or not following the proper protocol can lead to costly litigation and penalties.

While questions regarding these laws are endless, here are four areas you need to pay close attention to.

1. Wages

When dealing with employees’ wages, it’s important that all your i’s are dotted and t’s are crossed. This will include:

  • Classifying workers appropriately as either employees or contractors and as overtime exempt or non-exempt
  • Correctly recording and paying employees for all time worked (including overtime and travel time for non-exempt employees) and paid time off
  • Ensuring that departing employees are paid according to timelines set by state law
  • Knowing the laws of the states in which you do business regarding wage and hour (i.e., vacation payout, pay timing requirements, etc.)
  • Ensuring any deductions taken from an employee’s pay are permissible and done so with proper notification and authorization, where required by state law

Keeping good records and documentation will be invaluable in the face of lurking litigation.

The Fair Labor Standards Act (FLSA) establishes minimum wage, overtime pay, recordkeeping and youth employment standards. Knowing what is required by the FLSA and whether your state goes further to define any of these standards is a must.

Recently, the U.S. Department of Labor (DOL) has added a number of new investigators to conduct audits looking for wage violations. And, certainly they’re targeting small to medium-size businesses.

Sometimes the audits are prompted by an employee reporting a problem, but oftentimes it’s the DOL that initiates the investigation—and they’re going to be thorough—focusing on all employees’ records, not just one. With the new health care reform laws, these investigators will also be reviewing your job classifications more closely. This means making sure your exempt and non-exempt employees are classified appropriately and your contract workers qualify as independent contractors.

One key to success in this area is keeping accurate and up-to-date records. If you show that you have made a good-faith effort to keep good and accurate records and pay your employees what they’re due, it will go a long way to helping you avoid litigation.

(See also: Don’t Get Caught Without These FLSA Records)

2. Harassment and discrimination

The Equal Employment Opportunity Commission enforces federal civil rights laws of harassment and discrimination based on race, color, religion, !!!, national origin, age, disability or genetic information. Make sure you understand and comply with these laws and the protections they provide your employees.

Employees should receive training about discrimination—what it is, how to recognize it and what to do if it is experienced or observed. It’s also illegal to target or retaliate against an employee who has reported discrimination.

While Title VII is a federal statute regarding civil rights, there are many states—and even municipalities—whose anti-discrimination statutes go beyond the federal protections.

3. Employment contracts

You should always have legal assistance when drawing up employment contracts with employees. This way you know what your legal rights are and what’s required of you as the employer and of your employee. If you have to alter, renegotiate or break the contract that same legal counsel should assist in that process, as well.

One aspect of an employment contract could be a non-compete agreement, which typically puts a hold on where and for whom an employee can work after leaving your company. This is used to protect a company from losing its employees and clients to its competition. If the agreement is breached, it can be a cause for litigation. Several states have laws restricting the use of non-compete agreements. And in certain states, non-compete agreements are not permissible at all. Legal counsel should be involved in drafting these documents, as well.

4. Medical leave

On the surface, The Family Medical Leave Act (FMLA) is clear cut. But, it can be an area of lurking litigation if not properly administered. FMLA provides up to 12 weeks of unpaid, job-protected leave per year. In addition, it allows employees to retain the health benefits that they had prior to going on leave.

If an employee is eligible for leave under the FMLA, then he or she has to designate it as such. Employers are required to identify and designate a leave as FMLA and also give proper notification to the employee that the leave falls under the protection of FMLA. If an employer gets this wrong and terminates someone with FMLA protection, then there is potential for litigation. Outside the federal laws, there are many states that have protected leave laws with similar requirements.

Even trickier is navigating medical leaves of absence that don’t fall under FMLA or that extend beyond FMLA. If employees don’t qualify for a state or federal mandated leave, then they could still be entitled to leave as a reasonable accommodation under the Americans with Disability Act (ADA).

A request for a medical leave of absence under the ADA requires the employer to consider whether the leave requested could be a reasonable accommodation. It’s generally reasonable to provide some amount of leave so an employee can seek medical treatment or comply with a health care provider’s restrictions. A reasonable accommodation can’t be denied unless it results in an undue hardship to the employer. The employer must then prove that the employee’s leave will create an undue hardship on the business. Often, it’s extremely difficult to prove this.

What you can do

Providing training on these issues and having a well-written employee handbook that outlines your procedures and guidelines will help limit your liability in many of these situations.

It should be a part of your onboarding process for new employees to read and acknowledge the handbook. As an employer, if you do have something go wrong, you need to be able to clearly demonstrate that you have policies in place, and that you made employees aware of them and trained them in key areas, such as anti-harassment and discrimination.

You may not be able to eliminate 100 percent of your risk, but you can greatly reduce it by having a handbook and training materials in place.

Have questions about wage and hour issues or need help writing your handbook? Insperity’s full-service HR can handle all this for you, so that you can stay focused on growing your business. Click here to find out more.