In this litigious society, businesses have to be on the lookout for situations where their employees can sue. Although most employee situations and conflicts can be handled outside of the courtroom, the five items listed below are five best ways to get your company sued.
1. Classifying workers as independent contractors.
In 2009, misclassification cost the US an estimated $54 billion in underpayment of employment taxes. An estimated 3.4 million employees are classified as independent contractors when they should be reported as employees. By classifying a worker as an independent contractor, an employer saves a bunch of money in taxes, overtime and insurance. However, if your business controls how and where your person works, what type of equipment they use while working and are a key aspect of the “regular business” of a company, they are an employee not a contractor. The IRS and the employee have a right to collect fines and damages if they are mis-labeled.
2. Refusing to pay your workers unless they meet certain conditions.
Workers exchange their time and expertise for a paycheck. You can offer incentives and bonuses for achieving certain goals and conditions, but flat out refusing to pay for time and expertise is a violation of most employment agreements and can put you in hot water.
3. Assuming all employees are exempt.
Don’t mess with the Fair Labor Standards Act (FLSA). The FLSA establishes minimum wage, overtime pay, record-keeping, and youth employment standards affecting employees in the private sector and in Federal, State, and local governments. They have established clear standards for which employees are exempt and non-exempt. If you want to work your employees to death and call them exempt employees because you want to skip out on paying overtime, your best be sure and check the FLSA to ensure that your employee is properly classified.
4. Use it or lose it vacation policies.
In determining vacation policy, you must specify to employees how they accrue vacation time, the terms under which vacation is to be taken, how to request the time off and what happens to unused vacation if the employee leaves the company. You may choose to have an employee who never takes vacation time stop accruing paid time off after a certain amount, but your policy should never penalize an employee for not taking vacation time.
5. Not having a written agreement regarding compensation.
Whether you have one employee or 1000, it is important to have an employee handbook, a policy and procedure manual and an employment agreement in place for each employee. An offer letter with salary is often good enough to serve as written agreement, but being able to document the companies expectations and policies is important. A law suit can happen when expectations are varied and no consistency across employee performance is enforced. Take the time necessary to write these documents to avoid the mess of an employee lawsuit.
If this article made you think about your policies and whether or not your small business is in compliance with various labor laws, please reach out to us at D. Mathew Blackburn for assistance. We will be more than happy to review your company documentation and policies and make recommendations to help mitigate a potential employee law suit. We do attorney things, and one of those things is helping your business avoid the pain and expense of an employee law suit.