Why Employers Get Sued: 10 Reasons

January 23, 2012
Posted by Link Staffing Services

You don’t have to be a bad employer to become embroiled in a lawsuit with a former employee. Even the most well-intentioned bosses can find themselves in court. All it takes is a dash of sloppiness, a hint of ignorance, or a sprinkle of bad fortune. Sometimes even being a “nice guy” can lead to problems. Here are ten common mistakes good employers make that can get them in trouble.

1. Automatically classify all employees as “exempt.”

An exempt employee is usually someone who is paid a specified amount of money, regardless of the number of hours worked in a week. An employee who does not qualify for one of the exemptions is considered to be non-exempt and therefore subject to overtime, as well as the required meal and rest breaks and time-keeping requirements.

Because it’s easier to pay everyone a salary, rather than dealing with meal and rest breaks, overtime, time records and the like, and because many employees like the comfort of knowing exactly how much they’ll be paid for any period, it can be tempting to make all your employees exempt, even when they shouldn’t be.

But under both state and federal law, certain types of positions may be exempt from overtime requirements, as well as meal and rest breaks. Other positions may be exempt only from overtime.

It’s not uncommon for an employer to be sued for failure to provide meal and rest periods for non-exempt employees. This may result from improper classification of an employee as exempt. If an employee is truly non-exempt but classified as exempt, the employer is neither tracking the hours worked, nor meal and rest breaks, since exempt employees are not subject to such requirements. Obviously the penalties—especially if you’re misclassifying a number of employees—can add up. Don’t make this mistake. Find out the rules for exempt and non-exempt employees for your state.

2. Allow employees to work through lunch so they can take off early.

A non-exempt employee is usually required to take at least a 30-minute meal break. By law, the meal break must begin no later than the beginning of the 5th hour of work, or 4 hours and 59 minutes into the workday. Employees are also entitled to a 10-minute rest break for every four hours that they work. Failure to provide meal and rest breaks can result in one additional hour of wages owed, at the employee’s straight time rate of pay.

The additional money owed cannot be waived by the employee, even if the employee is the one who wanted to leave early and not take a lunch. The additional wage must be paid in the pay period in which the missed meal or rest break occurs.

3. Make everyone an “independent contractor.”

There are lots of cost advantages to using independent contractors, rather than salaried employees. And there are some potential advantages for the employee, too. But calling someone an “independent contractor” just because it’s convenient can get you into all sorts of trouble. When money becomes an issue—such as for a workers’ compensation claim, unemployment insurance, state disability insurance or paid family leave benefits—you become an easy target for litigation. Or what happens when the state tax people or the IRS demand payments from your “independent contractor,” who hasn’t been keeping up with and simply can’t pay. If you’ve failed make required tax withholdings, you may be on the hook.

Sometimes the differences between independent contractors and salaried employees can seem vague. But you should take the time to know them.

4. Don’t provide training about harassment and discrimination to managers and supervisors.

The best defense you have against a discrimination or harassment complaint is usually your first-line supervisors — they are the eyes and ears of the organization. Employers with 50 or more employees are required by law to provide two hours of training on sexual harassment for their supervisors every two years. The last thing you need is a sexual harassment suit. Even if you don’t have 50 employees, training your supervisors on discrimination and sexual harassment could be the best investment you ever make.

5. Let employees decide what hours and how many they want to work each day.

Flexibility is nice, but by law most employees can only work a certain number of hours before they earn overtime. One of the exceptions to the overtime rule is an alternative workweek schedule. However, employees can’t decide that they want to work four days a week, 10 hours each day. A valid alternative workweek schedule requires that employers follow specific steps to institute such a program. Failure to meet the specific requirements can mean back pay for overtime, as well as penalties.

6. Terminate any employee who takes a leave of absence.

Arranging for a worker’s leave of absence is a disruptive pain in the you-know-what. But there are a number of legitimate reasons for workers to take a leave of absence: workers’ compensation, disability, pregnancy, family and medical leave, military leave, and jury duty, just to name a few. Workers are legally protected for these. Laws also provide protection from retaliation for taking the leave. If you terminate an employee while the employee is on a protected leave, or soon after the employee returns to work, you will have to prove that the termination was for a legitimate, non-discriminatory business reason, unrelated to the protected leave, or face the legal consequences.

7. Don’t give employees their final check if they fail to return company property.

It’s a sad fact that employees who quit or are terminated might not turn in company property such as laptops, cell phones, pagers, uniforms and tools. Holding their final paycheck until the items are returned seems reasonable. But in many states, final paycheck deadlines carry a hefty penalty if the deadline is not met, even if the former employee is holding your equipment hostage. Unfortunately, you’ll have to find another way to collect your property.

8. Provide loans to employees and deduct the money from their paycheck each pay period.

Some states permit deductions authorized by the employee for benefits such as health insurance. No other deductions are permitted and are thus illegal.

Deductions for loans made to employees are not permitted and therefore cannot be made. If you decide to loan money to an employee, or make any other type of payment for which repayment may be required, you should have the employee sign a promissory note that has been reviewed by your legal counsel. The employee should then make payments to you, according to the specified payment schedule, just as he would to any other lender.

9. Use non-compete agreements and protect confidential information such as business secrets, customer lists and pricing information, and prevent employees from working for the competition.

There are ways to protect trade secrets, such as customer lists and pricing information, but using a non-compete agreement to prevent an employee from working for a competitor can get you in trouble, because it infringes on the employee’s ability to work and earn a living. You can’t force employees to stay with you any more than you can prevent them from earning a living elsewhere.

10. Implement a “use it or lose it” vacation policy and avoid paying out all that money at termination.

Many states do not permit “use it or lose it,” because accrued vacation is considered a form of wages. You can probably place a reasonable cap on the accrual of vacation, which stops the accrual of vacation when a certain level of accrual is reached. But you cannot take away what the employee has already accrued. You’ll have to pay the wages for the accrued vacation when the employee leaves the company, or face potential legal action


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