Employment Law Tips for Small Businesses

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Employment costs are usually among the largest for businesses of all sizes. Employment issues also can be among the most problematic, invasive and disruptive — whether the business has two employees or 500.

Many small-and-mid-size businesses leave themselves open to employment-related problems by not taking precautions through policies, contracts and other tools. The reasons range from perceived high cost to owners not wanting to be overly-rigid or formal — after all, many people launch their own businesses to be free of such a mindset.

However, staying ahead of potential employee disputes and issues isn’t necessarily about control or being “corporate.” It’s about protecting your business, money and time.

I can tell you from personal experience — as an owner — and attorney that few things are more exhausting and resource-consuming than employment issues.

This especially is true in smaller businesses where employees tend to work closely with ownership and are closely tied to every aspect of the company. Sometimes employees and owners are close friends, they know their families and their existences are often mutually-dependent. When an employee must be laid off or fired — or they quit — the psychological impact can be similar to a couple breaking up. Conversely, many times employees in small companies will feel, after time, they have an elevated status and are irreplaceable.

There are always exceptions but for most owners and managers these issues are a matter of when, not if.

The following are a few tips that can make a real difference when the time comes to end an employment relationship:

Employee Handbook. This is a must for businesses of all sizes — and it doesn’t cost nearly as much as most owners think. A handbook should cover everything from discipline to vacation policies. It should specify that all employees are “at will” and can be terminated at any time. It also should require employees to sign an acknowledgement that they have read and understand the handbook.

An employee handbook is an excellent place to communicate social media and Bring Your Own Device policies — both of which every single company should have.

Employment Reviews and Records. Reviews are mandatory and deficiencies must be documented, even if the business has only a few employees. The mandatory aspect cannot be emphasized enough. If and when it is time to fire an employee, having proper documentation can save the day if a discrimination or unemployment claim is filed. All employees must be subject to the same process and program without fail and policies must apply to everyone equally. A failure to do so can be fatal if an employee in a protected class is terminated (more on this later) and it is found that he/she was not disciplined in the same way as non-protected employees.

Please keep in mind that any employee can file a claim with the EEOC or the PHRC claiming discrimination against your business. This process triggers an investigation by the government that will demand your time and attention, even if you’ve done nothing wrong and the claim is clearly flawed. A lack of attention to detail during the employment relationship definitely can make such an investigation more stressful and time-consuming than necessary.

Execute Non-Compete and Non-Solicitation Agreements Prior to Employment. Restrictive covenants must be executed prior to or on the day of employment or you can run into serious enforceability problems. Pennsylvania law is very clear on this subject. The problem with executing agreements after employment is that the employee must be given additional compensation, benefits, or the like for the restrictions to take hold.  For example, an employer who waits a week after an employee’s start date to have a non-compete executed can find that the entire agreement is invalid.  Such an issue can be corrected, but it must be done carefully.

Be Decisive, Yet Compassionate.  Act immediately when there are disciplinary issues. There is never a good time to fire or discipline an employee. It is a traumatic experience for the employee and can effect every aspect of their lives. However, it must occur immediately once a decision is made. For whatever reason, there are always personal issues for the employee that arise between the time the decision to terminate/discipline and the date on which it might that may give an owner pause, such as a parent becoming sick, an engagement, etc. Remember, it’s business, not personal. Handle the matter professionally, politely, and compassionately — just do it immediately.

Maintain the At Will Relationship. There are very few circumstances where an employee should be under “contract.” Unless they are high-level employees or are making an equity contribution to the business, all other workers need to be employed at will. This means they can be terminated at any time and for any legal, non-discriminatory reason. Never, ever promise — orally or in writing — any employee a term of employment or any benefit they don’t normally get in their paychecks.

Use Separation Agreements. These agreements can mean the difference between success and failure if an employee decides to file a discrimination claim. These must be done with strict compliance with the law and with adequate review periods for the employee.

The legal requirements for separation agreements are stringent, so be wary.

Maintain Professional Distance. This is a problem for many small business owners and managers. Maintaining an employer/employee relationship is difficult when working in close quarters. It’s very easy to share too much information or confide in subordinates when there are only a few employees in a company. However, the more personal or confidential information that is share, the greater the likelihood that a termination will be taken more personally. The employee, by serving as a confidante, will begin to feel as if they are equals to ownership.

It’s impossible to anticipate every possible employment law issue or stay ahead of issues that might possibly arise. Taking a few simple, consistent steps that are applied to all employees as a matter of policy is the best way to maintain flexibility and legal compliance.