How to Get Sued By Your Employees in 10 Easy Steps

Owners of small businesses may unintentionally violate employment laws just by trying to be flexible or nice. The Small Business Administration (SBA) shares ten of the most common mistakes and suggestions on how to avoid them.

The SBA based its list of ten common mistakes on a study by the California Chamber of Commerce on the top mistakes that can result in getting sued by your employees. You can read the Chamber’s report at www.calchamber.com/hr-california/white-papers/Documents/top-10-lawsuit-risks.pdf

1. Classify all employees as exempt, whether exempt or not.
   • An exempt employee is typically someone who is paid a specified amount of money, regardless of the number of hours worked in a week. Under both state and federal law, these positions may be exempt from overtime requirements, as well as meal and rest breaks. Other positions may only be exempt from overtime.
   • Employees who don’t qualify for one of the exemptions are considered nonexempt and subject to overtime and meal breaks.
   • Problems arise when employers assume it’s easier to pay everyone a salary (or treat them as exempt), rather than dealing with meal and rest breaks, overtime, and time sheets. Many employers are sued for failure to provide meal and rest periods for nonexempt employees improperly classified as exempt.
   • Read more about federal rules on overtime and meal and rest breaks at the U.S. Department of Labor’s website (http://www.dol.gov), and refer to the state department of labor for state-specific laws.
2. Give flexible breaks..

While federal law doesn’t require employees to be given lunch or coffee breaks, certain states require that non-exempt employees get 30-minute lunch breaks, plus breaks for hours worked during the day. Laws even stipulate when the break must be given. In California, a meal break must be provided no later than the end of the employee’s fifth hour of work. So giving employees the option of skipping lunch to get out of work early is a law-breaker. Again, refer to your state department of labor for more information.

3. Classify employees as independent contractors.

This is an area of the law ripe for litigation, which can also land you in trouble with the tax man. Your worker may be happy to be considered an independent contractor until money and benefits such as paid leave, workers’ compensation and disability become issues. For more insight into this thorny topic, as well as the role the IRS plays and why you need to be aware, see http://www.irs.gov/pub/irs-pdf/p1779.pdf.

4. Don’t train managers and supervisors on avoiding harassment and discrimination.

States vary on whether they require harassment and discrimination training. California, Maine and Connecticut mandate it; other states simply advise it. Training first-line supervisors is your best defense against a harassment or discrimination complaint. See http://www.globalcompliance.com/pdf/state-requirements-for-harassment-training.pdf for a list of training requirements by state.

5. Let employees decide which hours and how many they want to work each day.

State laws restrict the number of hours an employee can work without payment of overtime. If you have a flex-time policy that lets employees work longer days but fewer of them, you’ll need to follow the rules to ensure you don’t incur overtime or back-pay along with penalties. Check what laws apply in your state regarding pay and scheduling.

6. Terminate employees for taking a leave of absence.

The law protects employees from being fired for taking family or medical leave, military leave or serving on jury duty. The federal Family and Medical Leave Act applies to employers with 50 or more employees in 20 or more workweeks in the current or preceding calendar year. State leave laws may have different requirements; contact the state department of labor for information.

7. Withhold a final paycheck from an employee who has not returned company property.

Employers are not required by federal law to immediately give former employees their final paycheck. Some states, however, may require immediate payment, regardless of whether laptops, company phones, etc. have been returned — basically as soon as the words “you’re fired” are uttered.

8. Give employees loans and deduct repayments from their paychecks.

You may think you’re being a generous boss, but most states don’t permit employers to deduct anything other than pay and benefits from employee paychecks. Instead, have the employee sign a promissory note with the oversight of a lawyer and arrange a regular schedule of repayments.

9. Require employees to sign non-compete agreements.

Many employers ask their staff to sign non-compete agreements to protect company information and customer lists, and keep employees from working for the competition. However, enforceability of non-compete clauses vary widely by state and some, including California, prohibit them completely (with some exceptions). Consult your lawyer on these agreements and other options for protecting your business information.

10. Have a “use it or lose it” vacation policy, but fail to pay for unused vacation time on termination.

Some states, including California, prohibit “use it or lose it” vacation policies by law. In these states, vacation time is considered a form of compensation, and must be paid out when the employee leaves.

Of course mistakes happen, so you might want to look into employment practices liability insurance.