Avoiding Employment Vulnerability in the New Economy

April 24, 2002

In the high tech startup new economy, where creating and getting product to the market quicker than the competition is management’s main focus, human resources policies and practices are often given short shrift or even ignored. Today’s litigious and diverse workforce coupled with the high tech startup’s more casual office culture is a prescription for lawsuits and recruiting and retention problems. These potential catastrophes can be diminished by establishing and maintaining a proactive human resources function from day one.

A great deal of a startup’s legal vulnerability can be avoided by educating managers and employees about human resources policies and practices. Both managers and employees must be made aware of unlawful harassment and discrimination and trained how to eliminate and prevent them in the workplace. Education and training not only protect the new economy’s diverse workforce from exposure to unlawful harassment and/or discrimination, but also enable companies to better defend themselves against such claims.

Other legal attacks can also be diminished by closely scrutinizing employee classification issues. Simply classifying employees as “exempt” from the Fair Labor Standards Act minimum wage and overtime provisions without proper analysis and application can result in overtime and record-keeping violations with fines or litigation costs that may eliminate profit. Similarly, classifying workers as independent contractors without ensuring that they satisfy tests for such status can result in misclassification and substantial claims for denial of employment benefits, especially when stock options are involved.

Recruiting problems can be minimized by ensuring that all recruiting material accurately describes job requirements and omits non-job-related criteria. Given the opportunity, many people would like to hire just friends and peers, but beware of potential claims under the Age Discrimination in Employment Act. Passing over an equally qualified and older candidate can open a Pandora’s box of discrimination claims. The same can be said for terminations; take care to document reasons which validate employment actions. Paying close attention to employment applications and applicant resumes will help eliminate undesirable candidates. Background checks including criminal history checks and reference checks also serve this end.

Employee retention can be accomplished by implementing an effective strategy for developing employees’ careers, providing them with training and building their skills. This strategy must include timely performance evaluations and rewards for outstanding performance.

A high tech startup company’s human resources department must consider all aspects of the employment relationship in order to best insulate the company from liability. For example, the following are essential:

Employment applications
Employee handbooks
Job descriptions
FLSA employee classifications
Disciplinary policies
Electronic communications policy
Drug and alcohol testing policy
Employment agreements
Performance evaluations
Severance pay plans
Employment practices liability insurance

As the company grows, so must the human resources function; legal requirements and liabilities significantly increase as the company prospers and the workforce expands.

For more information, please contact jbrown@cohenlaw.com or lgarrett@cohenlaw.com.