Common Pitfalls for Emerging Companies
Founders of emerging companies are often first-time employers and find themselves having to wade through the dense patchwork of state and federal labor and employment laws. This can be a confusing undertaking that often requires legal counsel. However, there are a few very common employment law pitfalls that all emerging companies should be aware of as they grow their business and increase their workforce:
- Harassment in the Workplace and Other Forms of Discrimination – Harassment not only potentially subjects the company to legal liability (including costly and time-consuming litigation) — it can also reduce workplace productivity, reduce morale, and negatively impact recruiting efforts. It is important to craft, implement, and enforce policies against harassment. Equally important is the need to train all managers on issues such as spotting discriminatory or harassing language and knowing how to address it, receiving complaints, knowing when to escalate complaints, conducting thorough investigations, and proactively seeking counsel when issues arise.
- Independent Contractor Misclassification –Misclassifying employees can result in an investigation, litigation, back pay, and potentially substantial penalties. Emerging companies should be aware that merely signing an agreement stating that an individual is an independent contractor does not automatically make it so. This question is highly fact dependent, and is often not intuitive. It is important to think long and hard before classifying a worker as an independent contractor, because if the individual is misclassified his or her pay is likely to be incorrectly administered.
- Wage-and-Hour Laws – Companies must ensure that all time worked is properly tracked and recorded, as well as ensure that employees are compensated in compliance with all state and local laws. One major pitfall for emerging companies is “off-the-clock” work; i.e., time worked that is not reported and paid. This issue often comes up with respect to non-exempt employees who have remote access to their email. Time spent outside of work responding to work-related emails is compensable time. Therefore, non-exempt employees with remote email access must be instructed to report (and must be compensated for) all time worked, including time spent handling emails outside of business hours.
- Leave and Accommodation Issues – Most employers are aware that employees are entitled to up to 12 weeks of leave pursuant to the Family and Medical Leave Act (FMLA). However, many are not aware that the Americans with Disabilities Act (ADA), which requires employers to reasonably accommodate medical conditions in certain circumstances, could also entitle an employee to a leave of absence. Thus, while the FMLA allows for 12 weeks of leave, there are certain situations in which an employee may be entitled to additional leave beyond that, as a reasonable accommodation under the ADA.
- Restrictive Covenants – Protecting a company’s business interests – such as its confidential information, employees, and customers – is critical to a company’s success. Restrictive covenants can help you protect those interests. Yet the law governing the enforceability of such agreements differs from state to state. This is another area where it is helpful to obtain the advice and counsel of an employment lawyer – particularly if the business operates in multiple jurisdictions.
- Discipline and Termination – Terminating someone’s employment is never a pleasant task, but it is an unfortunate reality for employers. It is essential that you document any performance or conduct issues in advance that support the reason for the termination. When communicating the termination decision, bring a witness and hold the meeting in a private space toward the end of the day. Keep the meeting brief and do not engage if questioned excessively as to the reason for the termination. Arrange for the employee to return all company property.
What Does This Mean for Startups?
These are just a few of the labor and employment law issues that often arise for emerging companies. Having clear and legally compliant policies and procedures and ensuring that all employees (particularly managerial employees) are properly trained on these policies and procedures can help to avoid legal liability. Counsel can guide you through this process.
This blog was written by Jenny Goltz at Cozen O'Connor, which authors our Minnesota Human Resources Manual, New York Human Resources Manual, and Pennsylvania Human Resources Manual. You can find the original post and their Copilot (navigation and know-how for all your entrepreneurial needs) on their website.