Entrepreneurs have only so much time and energy. Most of it is dedicated to doing whatever it takes to get their nascent ventures off the ground, including developing their products or services, pursuing capital and developing sales channels.
Even when the company begins hiring its first few employees, entrepreneurs often remain focused on those foundational activities and don’t pay attention to another essential aspect of the business: employment issues.
Ultimately, though, these matters are critical because the actions of employees who come and go over time will have enormous impact on the company’s ability to succeed.
The Value of Employment Policies
Entrepreneurs often believe they don’t need employment policies because employees have embraced the owner’s vision and will always have the company’s best interests at heart. Sadly, many of these entrepreneurs experience negative employee situations they never thought would happen.
With very few exceptions, the law doesn’t require small businesses to implement any particular policies. From a legal standpoint, however, certain policies are essential.
Every startup founder—and every small business, for that matter—needs written employee policies and procedures that protect the company. Developing the policies also compels the company owner to think through the culture he or she wants to create. That clarity, coupled with policies that support the cultural vision, makes the company a better employer and ensures compliance with relevant laws.
Employment Policies and Compliance
The following are basic policies and compliance issues for entrepreneurial businesses:
1. Worker classification // Small businesses often hire “independent contractors” to supplement employee expertise or manage increased seasonal demands. Similarly, many small businesses believe every “salaried” worker is exempt from overtime pay. However, the Department of Labor has strict regulations about who qualifies as an employee vs. an independent contractor or as an exempt vs. nonexempt employee. Businesses that misclassify workers are at risk for expensive fines and potential litigation that can cost thousands.
2. Noncompete agreements // These agreements can forbid departing employees from competing in certain geographic areas for certain periods of time, soliciting fellow employees or customers or disclosing confidential information. Small businesses often use internet resources to draft their own agreements, but many courts have declined to honor such “blanket” noncompetes. Entrepreneurs should consider seeking legal counsel in drafting or reviewing noncompetes to make sure the document can be enforced in the state in which the company operates.
3. Trade secret protections // A young firm’s employees often have full access to customer lists, formulas, methods, processes, techniques,
programs and product secrets. Employee mobility is increasing, and confidential work and proprietary models can be prone to covert theft when employees change jobs. Small businesses should ask employees to sign confidentiality or nondisclosure agreements that forbid the employee from disclosing trade secrets or using proprietary information against the company if the employee leaves.
4. Anti-discrimination and anti-harassment // Small businesses should have a policy against discrimination or harassment in any form. The policy should not only prohibit unlawful discrimination and harassment, but should also state that the company expects employees to treat each other in a professional and respectful manner at all times. The policy should outline a process by which an employee can make a discrimination or harassment complaint and prohibit retaliation against any who do complain.
5. Technology // The National Labor Relations Board has not looked favorably on policies that attempt to limit employees from making negative social media or blog posts about the company. However, it’s a good idea to have a policy about the company’s expectations regarding social media posts. The policy also should reference when cellphones can be used at work and how employees are expected to use devices the company provides.
6. Arbitration agreement // No entrepreneur wants to experience an employee lawsuit, but they do happen. If employees have signed arbitration agreements, the outcome of an employee lawsuit will be decided by an arbitrator instead of in a public courtroom with a jury. With these agreements, the company avoids the risk of a jury decision that awards exorbitant monetary damages to the employee.
Small business owners are good at running their businesses but aren’t necessarily skilled at addressing employment policies that may
be critical to their success.
Multiple policies need to be discussed and tailored for each company in order to help it succeed. Seeking legal advice on the front end to make sure policies and compliance issues are correctly addressed can save hundreds of thousands of dollars on the back end.