Will It Be Trick or Treat at Your Business?
Halloween is just around the corner, so what better time to share a few horror stories, right?
As a youngster, I remember staying up late telling horror stories with friends while camping in one of our backyards, using a flashlight to illuminate only the storyteller’s face. It was a frightful but fun and adventurous time.
Unfortunately, most of the horror stories I hear these days involve small businesses. While I don’t take delight in sharing those stories, sometimes there’s no better way to make a point.
When we visit with owners of small businesses about the potential consequences of not properly handling their business administration affairs, frequently the response is that the business isn’t big enough to worry about compliance. Or, we’ve done business this way for years and haven’t had any problems. Or, the business is like a family, so any issues that come up will resolve easily because blood is thicker than water. Or, there’s not enough time in the day or money in the budget to address all of the business administration details—sales must be our primary focus. Or …
As a co-founder of On Point, I’m a business owner myself, and I understand these sentiments. But here’s what happened to businesses that failed to dot their I’s and cross their T’s in a few important business administration areas.
- Registered Agent Appointment: An Indiana sport bar was sued, and its owner, who was also the company’s registered agent, was served with the lawsuit. The lawsuit used the sports bar’s fictitious name (or “dba”) rather than its legal name, so the owner/registered agent didn’t think he needed to respond to the lawsuit. He was wrong, and the court entered a judgment against the company for $68,000 plus interest. The business appealed, but the court upheld the judgment finding that the owner/registered agent’s actions weren’t excusable.
Moral of the Story: One of the most basic corporate housekeeping responsibilities is for a company to appoint and maintain the best-suited registered agent for its business. The choice of registered agent involves several key considerations, and every company should take the decision seriously given the consequences of making the wrong choice, such as choosing an inexperienced registered agent.
- Compliance Program: A Tennessee case illustrates the importance of a business having an effective compliance program that includes policies, procedures, ongoing employee education and enforcement. In this case, the employer was held liable to the plaintiff for sexually harassing conduct by the plaintiff’s co-worker that occurred at an off-premises after-party that was found to be a continuation of the company’s Halloween party. The evidence presented a pattern of inappropriate conduct by the offending co-worker that the employer disregarded.
Moral of the Story: A recent Gallup Survey reports that 73% of employees are not engaged at work. Work celebrations of holidays like Halloween can foster employee engagement, but be mindful of the pitfalls. Communicate expectations and remind everyone in advance of the company’s dress code and alcohol consumption policies, which shouldn’t be disregarded at company parties. And keep in mind that employers are ultimately responsible for providing a safe, respectful, non-discriminatory workplace for all employees.
- Cyber Security: A Kansas City business owner recently shared that her business was the victim of a phishing scam when one of her employees innocently clicked on a link in an email appearing to come from Microsoft that suggested a password reset. That one click gave the hacker access to company information needed to email fraudulent invoices to the company from what looked like legitimate vendors, redirecting invoice payments to new bank accounts. The company made the invoice payments to the accounts the hacker set up. Thankfully, the company uncovered the scam early, but it took the company’s bank several weeks to unravel the situation. Ultimately, about two-thirds of the fraudulent payments were recovered.
Moral of the Story: According to a recent FBI report on internet crime, phishing scams made the list of top internet crimes in 2020. And another organization reports that 74% of businesses in the U.S. have been the victim of a phishing scam resulting in lost data, compromised credentials, infected systems or financial losses. Small businesses are often targets because many don’t have in place the necessary security measures or follow best practices when it comes to cybersecurity policies and employee education.
- Immigration Enforcement: Husband and wife owners of a framing company in Spring Hill, Kan., were sentenced to federal prison for employing undocumented workers. And earlier this year, several restaurant owners in Missouri and Kansas were charged with hiring undocumented workers. This isn’t the first time restaurant owners found themselves in trouble with U.S. Immigration and Customs Enforcement (ICE). Malicious intentions or not, employers are at risk of criminal prosecution if they hire workers without proper authorization to work in the U.S. One investigation began when ICE special agents received information, potentially from a competitor, that a restaurant wasn’t properly completing I-9 forms for its employees, which federal law requires of all U.S. employers.
Moral of the Story: Completing I-9 forms properly takes proper attention and a keen eye for detail, and the burden of ensuring it’s done EXACTLY right is on the employer. In light of the potential penalties for violations (knowing and unknowing) and the expense to be incurred by the business in an ICE investigation, hiring an experienced immigration lawyer to perform an audit of your I-9s at least annually will be well worth it.
Fall is here, and it’s the season of bonfires, pumpkin-spiced lattés, tricks and treats. Now is as good a time as any to call out the ghouls potentially lurking behind the scenes in your business so you don’t lose sleep worrying about if and when they will haunt you.
Sheryl Nelson is president of On Point Business Administration. Sheryl’s experience as a business and M&A lawyer provides a unique perspective to clients retaining On Point as outsourced chief administrative officer. That insight also benefits exiting business owners who need to get their businesses in order before going to market and responding to thorough due diligence requests from potential buyers.