Owning a business comes with many responsibilities, and when entrepreneurs reach the point where they need to hire employees, a whole new set of obligations arise.
Unfortunately, many business owners find themselves woefully underprepared in this arena–and through no fault of their own! Entrepreneurs are focused on being visionaries and selling their products and services.
They didn’t start a business because they were dying to deal with the nitty-gritty details of being an HR manager or creating formal employment policies. So when they find themselves with more employees than ever and no employment guardrails, major complications can erupt.
As a litigation attorney and employment attorney, I have been on both sides of many employment law disputes. Below I will share the most common employment law pitfalls I see regularly and the top items every entrepreneur should have in their proverbial back pocket to help protect their business and avoid potentially costly litigation.
1. Employee Handbook
I have listed this first because it is one of the most vital tools in every business owner's toolkit. Employee handbooks provide important legal guardrails for both employers and employees. They not only formalize guidelines, expectations and terms and conditions of employment but more importantly, they help provide a layer of protection against employee claims and lawsuits.
An experienced employment attorney can help create a comprehensive handbook addressing fundamental policies. The following is a list of essential topics to outline in the handbook:
● Compensation and benefit policies
● Vacation, sick, and paid/unpaid leave policies, including state and federal mandates for national health emergencies, such as the Covid-19 pandemic and maternity and paternity leave
● Dress code
● Workplace safety and security policies
● Conflict of interest statements
● Internet usage policies
● How to file or report workplace complaints
● Equal employment, disability, and anti-discrimination policies
● Workers' compensation policies
2. Executive and Non-executive Employment Agreements
Employers should have a template for each type of employment agreement because they will vary inherently due to the position and nature of employment. For example, an employment agreement for a CFO will not look like that of a manufacturing facility employee due to the amount of access to proprietary information, the type of compensation involved and other factors.
Work with an experienced employment attorney to develop these two agreements that should contain protective clauses relating to confidentiality, intellectual property, non-solicitation and non-compete agreements and arbitration. Each factor can differ depending on job responsibilities, industry and unique federal and state employment laws.
For example, several states recently passed bills that will impact the use and enforcement of non-compete and non-solicit provisions. A skilled employment attorney can counsel companies on ways they can still protect their trade secrets and intellectual property in employment agreements. For instance, all provisions around confidential information and intellectual property protections should extend even after employment ends—a key element many employment agreements miss and that many employees may not understand they are legally bound to uphold, even after separating from the company.
In addition, consult with an attorney to determine which specific issues or behavior will be included in the agreement as grounds for termination ‘for cause’ and whether or not the company will provide severance or other compensation for termination for or without cause.
Finally, employment agreements should also include choice-of-law and venue provisions specifying which state or country’s laws will be used to interpret the agreement and how disputes will be resolved, i.e., mediation, arbitration, court, etc. Again, discuss each option's pros and cons with an employment attorney.
3. Independent Contractor Agreements
These are a separate animal from standard employment agreements because there are so many distinct boundaries and legalities around work location, taxes, company property and benefits that identify whether or not a worker is considered an independent contractor vs. an employee of the company.
If the lines are blurred, or an independent contractor agreement was not signed, and the company gets audited by the Department of Labor, they will face expensive employment misclassification penalties.
4. Severance Agreements
Employers often reach out to their attorneys in need of a severance agreement immediately due to circumstances requiring them to terminate an employee the very next day. Unfortunately, that is not always a feasible ask. By preparing template severance agreements in advance, moving in a quick time frame will be possible.
Employers should also have two template severance agreements on file—one for employees ages 39 and under and one for employees ages 40 and over. The need for separate agreements based on age is an important distinction many employers are unaware of. Employees ages 40 and above are legally entitled to 21 days to review a severance package and seven days to revoke their signature on the agreement.
Understandably, many startups and young companies do not have the funds to staff an internal legal and HR department. However, working with a skilled employment attorney to make strategic decisions about how best to protect your company and assemble templates of the agreements listed above can cost less than $5,000. In turn, the business will receive significant protection against potentially costly employee claims, lawsuits and litigation.
