Minimizing The Likelihood and Expense of Employment Litigation

It is both a business truth and a legal truth that litigation is expensive.  Lawyers, lost work time, court fees — all of these expenses contribute to the high cost of taking a matter to trial.  Even lesser solutions to conflict resolution, including settlement negotiations and arbitration hearings, can be expensive, time-consuming, and stressful to a business.

“An ounce of prevention is worth a pound of cure,” as Benjamin Franklin offered.

While this is true in every business setting, it can be especially so in the field of employment litigation, or rather its avoidance.  Every business, no matter its size, should have current awareness of laws regulating the relationship between the company and its employees.  Even more, every business should have a best practices plan in effect at the outset of operations.

Those ounces of prevention should include:

An Employee Handbook

This is a great way to establish the rules of conduct you will expect from your employees, as well as the conditions of their employment, that can ensure a safe working environment for the entire organization.  Written policies make it much easier to resolve problems as they arise and protect both employees and the business.

The Handbook should include:

  • Identification of paydays and the provision of pay stubs
  • Benefits offered to employees
  • A personal leave and medical leave policy
  • Vacation policy
  • Paid company holiday policy
  • Who to contact with questions regarding benefits
  • How to report violations of policies
  • To whom and how to report harassment in the workplace
  • A social media policy
  •   Arbitration agreements
  • Guidelines on the use of company email

This list is not intended to be all-inclusive, but it is a good start and offers an idea of what an employee handbook should include to help protect your business legally.

Understanding the Distinction Between Employee and Independent Contractor

Employees work for the company, and the services they perform are controlled by the company.  They are paid by the company, have federal and state taxes, social security payments, benefits deductions (if applicable), and a 401K or other retirement benefits, deducted from their gross pay each pay period.  Their employment relationship with the company is defined in an employee agreement, which can include the employee handbook.

Independent contractors are self-employed, are usually contracted for a specific task or project, and are subject to self-employment tax.  The IRS’s general rule is that someone is an independent contractor if the company can control only the body of the work done and not necessarily how it is completed.

The IRS has developed a 20-factor test to determine the status of workers as either employees or independent contractors.  Businesses should familiarize themselves with this test to stay on the right side of the distinction.  See the Guide here for California practices.

Lest you think this is a minor distinction, in actual practice, a company could face fines and assessments for failing to understand its importance.  Again, an ounce of prevention goes a long way.

Knowing Meal and Rest Break Regulations

Employees are entitled to both meal and rest breaks under certain circumstances.  There are also distinctions between employees, and some are exempt from these entitlements.

Generally, non-exempt employees are entitled to a 30-minute lunch break if they work more than 5 hours a day.  Additionally, non-exempt employees are also entitled to a 10-minute rest break for every 4 hours worked.  There are waivers that may apply in each instance, but these are the general requirements in California.

Company policy and practice should reflect these entitlements in any employee handbook.

Planning For Arbitration As a Means Of Dispute Resolution

There are alternatives to litigation as a means of resolving disputes between employees and employers.  Businesses will often identify Alternative Dispute Resolution (ADR) processes in an Employee Handbook, and arbitration is one such process.

By creating an arbitration agreement in advance of the need for one, both employers and employees can help prevent the expense and pain of lengthy litigation in the future.  Arbitration agreements can define the process of choosing an impartial arbitrator who will hear both sides of the dispute and render a decision that would be binding on both sides.

Arbitration is a speedier method of dispute resolution than a trial that could extend over years, and it is much less expensive than litigation.  While lawyers would be involved, the expense of hiring a good lawyer to fight for your interests is generally less than going to court because you didn’t plan ahead.

This is not intended to serve as a full and complete punch list of needs for employers to consider, but it is a good start, that “ounce of prevention.”  Our attorneys at TencerSherman are positioned to help you finish that list and minimize the potential for future litigation with your workforce.

Contact us today and put us to work for you.

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