Wage and Hour Risks for Small Businesses

While I am not an employment lawyer, it doesn’t stop my entrepreneurial clients from calling with questions in that domain. It also doesn’t stop friends and family members, who assume having the title “Juris Doctor” means you are an expert on all things legal, from calling asking for me to guide them on employment issues — but that’s a topic for another post.

When clients call, I often provide some high-level thoughts on the issues (stuff that I have learned from some awesome colleagues, who actually are experts in HR-related matters) and, if they need more than that, I hand them off to these same colleagues on the 4th floor for more guidance.

Given that I frequently see early-stage entrepreneurs with limited cash resources struggling with employment-related legal issues, I wasn’t surprised that this recent article, titled “This New Kind of Expensive Lawsuit Could Easily Bankrupt Your Small Business,” was about the risks relating to the failure to comply with applicable wage and hour laws.

In case you don’t feel like reading all three pages of the article, here are the highlights:

• Underpayment and misclassification of employees are common fodder for both aggressive plaintiff’s lawyers and state and federal regulators;

• The risks of these types of lawsuits are increasing, with more suits each year and an almost 80% success rate for plaintiffs;

• Given the potential exposure, smaller companies have greater risk in this area because they can’t bear the costs of fighting or the expensive penalties imposed as a result of infractions; and

• There are some steps you can take to try and avoid or mitigate the risks:

• Make sure everyone is classified properly (contractor vs. employee) and that you are paying them at least amounts required by applicable law.

• Adopt and follow written policies, handbooks, etc. that comply with law.

• Consider adopting arbitration agreements with employees, which require them to handle disputes on an individual basis and to refrain from joining class actions. Given the U.S. Supreme Court’s recent decision upholding the enforceability of these clauses in Epic Systems Corp. v. Lewis (summarized here) one of my larger public clients has used this strategy very effectively to head off a couple of class actions by plaintiffs.