Of all the expenses a small business incurs, few are as significant — and perhaps avoidable —as employment-related litigation.
Business owners who take a consistent and thorough approach to workplace policies, HR documentation, and management training can be less likely to find themselves facing employment litigation. Here are five best practices to follow to help you minimize employee-initiated litigation:
1. Stay current with FLSA changes. As an employer, you're responsible for adhering to rules and regulations established by the federal Fair Labor Standards Act (FLSA), as well as applicable state and local wage and hour laws. Infractions such as misclassifying workers or incorrectly paying overtime can land you in hot water with the U.S. Department of Labor or your state department of labor, the agencies which enforce wage and hour laws — and possibly expose you to employee litigation as well.
2. Comply with discrimination laws. Employers are prohibited under several federal laws from discriminating in employment on the basis of a protected class, including but not limited to race, color, sex, age, national origin, religion, disability, and pregnancy status. Some states and localities have nondiscrimination laws with additional protected classes, such as sexual orientation, businesses may also be required to follow.
3. Maintain consistent employee policies. Businesses should establish specific policies for employee conduct in the workplace. Policies should be consistent across the board; making exceptions to the rules for a favored employee or singling out someone you don't like for special disciplinary actions can quickly lead to allegations of violations of anti-discrimination laws and employee lawsuits. If, however, the guidelines in your employee handbook are vague or confusing, you may leave your business open to potential litigation. Once a policy is put into writing, it's the responsibility of you and your managers to implement and enforce it fairly. Employee-initiated lawsuits can arise when employees aren’t held to the same standards of conduct.
4. Make documentation a top priority. In the event of problems with an employee's workplace conduct, a comprehensive paper trail is essential, says Jillienne Allgauer, a certified senior HR professional.
"The documentation compiled by an employer should be strong enough to clearly tell the story of what happened pertaining to a given employment situation, even if the employer is not there to fill in the gaps."
It's critically important to document every step in cases of progressive discipline. Doing so will clearly establish the steps that were taken to correct a situation in the event of litigation. Such disciplinary documents can demonstrate the employer's reasons for taking actions that an employee may attempt to dispute in court.
The same holds true for employee performance evaluations. If a manager fails to be honest or thorough in their evaluation of an employee — or if they give a rating that doesn’t honestly reflect the employee’s performance — it may be difficult for the employer to establish sufficient documentation should it become necessary to terminate the employee at a later date.
5. Train managers to avoid employment litigation landmines. Investing in HR training for your managers can be one of the smartest ways to spend your HR budget. Managers should be trained in all aspects of employment regulations, company policies, and HR best practices.
"Investing in training for managers can increase the likelihood that they are acting in a consistent and compliant manner, in order to minimize the risk for the business," says Allgauer.
Managers may also be your best line of defense against incidences of workplace harassment — a common cause of HR lawsuits. With the proper skills, they can defuse a situation before it gets out of hand.
Employee lawsuits are no laughing matter for small businesses, and they’re only growing in frequency — over the last 20 years, the number of employee lawsuits has risen by a whopping 400 percent. But by following a few simple best practices, business owners can help protect themselves from crippling litigation expenses as a result of potentially preventable events in the workplace.