There’s one topic that usually trips up the majority of first-time business owners.
Employment law.
Get it wrong and it can mean serious consequences for your business. 37% of small businesses faced an employee lawsuit last year, according to Business Wire. That’s almost 2 in 5 businesses that had legal action taken against them by their own employees.
The good news?
Most employee lawsuits are completely avoidable. With a good understanding of the basics of employment law, you can protect your business from costly litigation and stay focused on what matters, growing your business.
In This Article:
- Why Employment Law Matters For New Businesses
- The Core Employment Laws You Need To Know
- Common Mistakes That Lead To Lawsuits
- How To Protect Your Business From Legal Trouble
Why Employment Law Matters For New Businesses
One thing first-time business owners often don’t realise is that employment law isn’t just for big corporations. Every business that hires employees has legal obligations to those employees. Neglect those obligations and the penalties can be severe.
New business owners typically think they can ‘figure it out as they go along’ when it comes to employment law. This is a dangerous mindset to have. Employment law governs every aspect of your relationship with employees, from hiring them to firing them, from how much you pay them to how you handle workplace safety.
Partnering with an experienced team of employment lawyers can help new business owners navigate this complicated web of laws and regulations, preventing problems before they arise. For professional employment law services, visit https://punchworklaw.com/. Prevention is always better (and cheaper) than litigation.
It’s a bit like building a house. Would you try to build a house without knowing the local building codes? Of course not. But people treat building a business with employees as if it should be no different.
The Core Employment Laws You Need To Know
There are certain basic employment laws that every first-time business owner should have a good understanding of.
Wage and Hour Laws
The Fair Labor Standards Act (FLSA) is a federal law that sets minimum wage, overtime, and recordkeeping requirements. Sounds simple enough right?
Easy to understand in theory, but new business owners often make critical errors with the FLSA. Misclassifying employees as exempt from overtime pay. Miscalculating hours worked. Failing to use tools like a time and a half calculator can result in incorrect overtime payments and compliance issues. Simple mistakes that can lead to wage disputes, one of the most common types of employment lawsuits.
You should have a firm grasp of:
- The minimum wage (remember, some states have higher minimum wage than the federal standard)
- Overtime pay calculation rules
- How to properly classify employees
- Record keeping requirements
Anti-Discrimination Laws
The Civil Rights Act’s Title VII prohibits employment discrimination based on race, colour, religion, sex, and national origin. The Americans with Disabilities Act (ADA) covers disability discrimination, and there are separate laws prohibiting age discrimination against workers over 40.
Employment discrimination laws touch on every part of the employment relationship. Hiring. Promotions. Terminations. Even everyday interactions in the workplace.
Workplace Safety Laws
OSHA, or the Occupational Safety and Health Act, requires employers to provide a safe working environment for employees. This is not negotiable. Violations can lead to substantial fines and lawsuits if employees get hurt.
Businesses of all types must have safety protocols in place. Even an office environment has safety requirements. Ergonomics, emergency exits, adequate ventilation, they’re all part of OSHA compliance.
Common Mistakes That Lead To Lawsuits
If you’re wondering what types of mistakes new business owners make that can lead to lawsuits, here are a few of the most common offenders.
Insufficient Documentation
If an employee has performance issues, new employers often neglect to document them. When the time comes to terminate an employee for poor performance, insufficient documentation can be used as a wrongful dismissal claim.
Inconsistent Application of Policies
Inconsistent application of company policies to different employees can lead to discrimination lawsuits. Treat two employees who violate the same policy (tardiness, dress code violation) differently and you’re opening yourself up to a legal claim.
Ignoring Employee Complaints
Employee complaints of harassment or unsafe conditions must be taken seriously. Ignoring a complaint is far worse than the complaint itself. Harassment and unsafe conditions don’t go away if they’re not addressed.
Absence of Employee Handbook
Operating a business without an employee handbook is risky. The handbook is your opportunity to set clear employee expectations. It also protects you and your business by making policies and procedures known to employees.
The handbook should include everything from acceptable dress code to disciplinary procedures. The absence of a handbook means you’re lacking a clear roadmap for handling disputes.
How To Protect Your Business From Legal Trouble
The best way to protect your business from legal trouble is to prevent the trouble from happening in the first place. Here are a few key steps to take.
Create Clear Policies
Put your workplace policies in writing. Job descriptions. Performance expectations. Disciplinary procedures. Leave policies. The more information you make available to employees upfront, the less confusion later.
Document, Document, Document
Keep records of all employment decisions. Performance reviews. Disciplinary actions. Training records. Any complaints made by or against employees and how they were addressed.
Good documentation is your defence if a legal issue arises.
Train Your Managers
Managers are the first line of defence against employment law violations but can also be the largest liability if they’re not educated on the rules.
Invest in manager training covering harassment prevention, proper documentation, lawful interview questions and more.
Stay Up To Date
Employment law is a moving target. Federal and state laws change. Local and state regulations often go beyond the federal requirements. What you did last year may not be compliant this year.
Set up alerts for local employment law changes. Hire a professional to keep you informed.
Know When To Seek Help
Some situations demand the assistance of an employment law professional. Complex terminations. Harassment investigations. Accommodating a disability request.
Trying to navigate these issues without professional assistance can end in a spectacular way. The cost of expert advice is small when measured against the cost of litigation.
Wrapping It All Up
Hopefully this article on employment law for first-time business owners has been helpful. It’s an area of the law that seems so intimidating at first, but with a bit of education and the right resources, you can protect yourself and your business from preventable legal issues.
The important thing is to treat employees fairly and respectfully, document everything, and stay up to date on your legal obligations. The majority of employment lawsuits are due to easily preventable mistakes.
Research shows over 75% of small business owners in the United States live in fear of a lawsuit.
It’s not paranoia if the people committing employment law violations are real and lawsuits happen every day.
- Employment law basics for new businesses
- Common employment laws you should know
- Mistakes leading to employee lawsuits
- Preventing employment law problems
For new business owners, the best time to get employment law compliance right was before your first hire. The second best time is right now.