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8 Mistakes Companies Make That Often Lead to Business Litigation

F. Michael Ayaz

In the business world, there are regulatory agencies operating at the state and federal levels that ensure business owners fulfill their legal requirements and obligations to their employees. Business litigation becomes an issue when companies make certain mistakes concerning their relationship with and treatment of their employees. It’s vital for every business owner to know the most common causes of expensive and damaging business litigation and to understand why they must avoid or prevent these situations at all times.

Misclassification of Employees

California, as well as every other state in the US, upholds specific laws pertaining to the correct classification of employees. Some employers, unfortunately, choose to purposefully misclassify their employees, typically in an effort to avoid paying employees benefits they would otherwise receive with the proper classification. For example, California recently made significant changes to the laws applying to independent contractors, compelling many companies who hire and work with independent contractors to categorize them and treat them as regular employees in many situations.

Failure to Develop and Enforce and Employee Code of Conduct

Every employer has a duty to provide their employees with clear expectations when it comes to workplace behavior. If you own and operate any kind of business, it’s wise to assume that if you fail to clearly inform your employees that certain behaviors are unacceptable, you are tacitly allowing such behaviors to continue. This could be perceived as a threat to the safety of your employees and their ability to perform their job duties.

Failure to Develop and Enforce an Anti-Sexual Harassment Policy

Every American employee has the right to a workplace free of sexual harassment. Your duty as an employer is to develop a clear policy that states sexual harassment is not acceptable in any way in your organization. This policy must define not only sexual harassment and outline acceptable and unacceptable behaviors, but also include clear policies for investigating and handling internal claims of sexual harassment within the organization. Poor handling of a harassment claim could leave an employer liable for damages if an employee experiences sexual harassment and the organization has no anti-sexual harassment policy in place.

Wrongful Termination of an Employee

Most employment relationships in the US function on an at-will basis. This means both employers and employees operating with at-will employment arrangements have the right to end their working relationships for any reason or no reason at all, at any time, with or without prior notice. Employers may not fire employees for engaging in protected actions, such as taking necessary medical leave, filing claims for workers’ compensation benefits, or testifying under oath in an open case involving the employer as a witness. If an employer takes punitive actions against an employee or fires an employee in response to a legally protected action, the employer is liable for retaliation.

Illegally Withholding Employees’ Final Paychecks

The state of California has clear rules when it comes to the payment of employees’ final paychecks after the termination of employment. Illegally withholding a paycheck could lead to business litigation, especially when the business owner has no legal grounds to do so. There are very limited and specific circumstances in which it may be legally acceptable for an employer to withhold a final paycheck, but it is never a good idea to do so if the employer wishes to avoid business litigation.

Performing Unauthorized Deductions on an Employee’s Pay

Federal and state law prohibits employers from making unauthorized deductions from an employee’s paychecks. Typically, only deductions for employer-provided healthcare coverage premiums and other benefits programs are permissible. If an employer offers advance loans and to employees and then arranges repayment of those loans through paycheck deductions, these situations can lead to significant legal problems for the employer.

Demanding Employees Sign Non-Compete Agreements

A non-compete agreement may, on the surface, seem like a method for a company to reasonably protect its interests, but courts will rarely enforce these documents. Additionally, if an employer attempts to take legal action against an employee for violating a non-compete agreement, this will typically result in a very expensive legal loss for the employer as the court will generally rule that an employer does not have the right to prevent a former employee from making a living.

Mishandling Accrued Employee Vacation Time

There are specific rules in place for the management of employees’ accrued vacation times. Employers who attempt to enforce “use it or lose it” policies or who fail to pay out accrued vacation time value at the end of an employee’s working relationship could face substantial legal consequences.

Business owners must make careful decisions when it comes to managing their operations and their relationships with their employees. These are just a few of the most common causes of expensive business lawsuits. Instead of risking serious financial strain and a damaged public reputation for your company, avoid these situations, and carefully review your obligations as a business owner at both the state and federal levels.

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