Do you have the tools to “do the right thing” and mitigate risks on the “people side” of the business?by Michelle Bomberger | September 1, 2022
As entrepreneurs, we don’t have large teams. There’s no bench. Every person is a key player. A winning business requires investing and protecting team culture by doing everything we can to take care of our people who take care of our customers.
People can be the most rewarding, yet risky aspects of our business.
The “people side” of business is one of the areas where the laws are more “black and white” and where business owners often get into trouble, even when they are just trying to do the right thing.
The laws are state-specific, and they change frequently. Employers are held to a high legal standard and entrepreneurs often aren’t fully aware of the risks associated with employment compliance. It’s hard for business leaders to keep up, but it’s critical to do so.
Again, we look at how the three key legal infrastructure tools can work to protect the business from employment risks.
3 key legal infrastructure tools can work to protect the business from employment risks
The purpose of contracts is to eliminate ambiguity, set expectations, and insulate risk. Much of employment law is statutory. This means you cannot simply avoid compliance through contract — but your contracts set the stage for your expectations within the context of the law.
The most common “contracts” of employment include the offer letter, or employment agreement, and any confidentiality or restrictive covenants agreement. Other documents that set expectations of the employer-employee relationship are the employee handbook and policies and procedures documents.
By formalizing expectations in writing, you force yourself to think about the terms of the employment relationship, frame the company culture for your team, and give yourself the tools to make employment decisions. Clear expectations and consistent application of these expectations will limit liability exposure every day.
Employment related contracts should be reviewed annually for compliance with laws. For example, in just the last 6 months, a number of significant employment laws have passed that require employers to modify their contracts and create liability for them if they fail to do so. Examples include the “Silence No More” legislation and new requirements for Seattle based independent contractors. This regular review also becomes more important since the laws in each state differ and change as employers expand into new states.
Insurance is an often overlooked tool in protecting an employer from employment-related claims made by their employees. Coverage for errors and omissions or professional liability protects the business and its owners from claims made against the company due to an error made by the employee. Employment Practices Liability Insurance, or EPLI, protects the employer from claims made by employees against the company for violation of their workplace rights such as harassment claims.
As your workforce expands, the potential for claims increases, and insurance provides you the confidence to grow.
Your business entity provides an overarching tool that limits the exposure of the owners for employment liability claims. If there is a claim against the company, the owners will not generally be responsible.
However, an owner who has violated the law by failing to pay wages or has discriminated against an employee will be individually named and could be held personally liable. The corporate veil will not protect them from these violations.
Solid processes can add protection and mitigate the chances that you inadvertently miss an important legal requirement.
Employment Liability Overall
Employment liability can derail a company’s progress and financial security. Mitigating risk in employment includes proactively staying on top of changes in the law, building policies and procedures, and applying them equally.
As mentioned above, the legal infrastructure tools of contracts and insurance will be your strongest protections in this area.
With a thoughtful implementation of these tools, you’ll have confidence in making decisions in a highly emotional and constantly changing landscape and you’ll be able to quickly react to employment situations when they arise.
Not sure where your business stands?
Schedule a Business Health Consultation – A complimentary, one-on-one discussion with an experienced Equinox business lawyer to talk through areas of concern, strength, and risk. The meeting is extremely personalized, tailored to your business’s individual needs, challenges you may be facing, projects on the back burner, and any areas of your business that need more focused attention. Within a week, you’ll get a customized summary of recommendations based on your Business Health Assessment.