Category Archives: Best Employment Practices

An Ounce of Prevention: Proper Classification of Employees

This week’s answer to “HOW DO WE NOT GET SUED BY EMPLOYEES?” is to properly classify them under the federal Fair Labor Standards Act (FLSA). I’ve represented clients from sole proprietors to Fortune 500 companies in claims involving misclassification. Like most claims, they could usually have been prevented, and also like most claims, they often hit small businesses harder than large corporations. Most misclassifications stem from employers trying to cut corners  or simplify their workload in payroll, taxes, or paperwork.

Although classification of workers and providers of services can be a complex process, there are basically three types: Independent contractors, employees that are exempt from FLSA laws, and employees that are not.

Independent Contractors work for themselves and hire themselves out to clients. There isn’t a bright line test, but they should make their own decisions about when, where, and how to do the work, be a professional or have some kind of license or certification, provide their own equipment and be free to do work for others. Independent contractors could be tattoo artists, bookkeepers, comedians, or (ahem) workplace mediators. There is a temptation for employers to treat workers as independent contractors because they don’t have to provide them benefits, withhold taxes, keep track of hours and overtime, or pay the 7.65% of their wages for social security and Medicare, but there are many risks of misclassifying a worker as an independent contractor:

Injury: If a worker gets injured on the job, worker’s compensation insurance isn’t there to cover their claim and limit employer liability. This could expose the employer to penalties.

Unemployment: If the worker files for unemployment compensation when the relationship ends, and the employer can’t defend the independent contractor status, there could also be penalties.

Taxes: For non-independent contractor employees, employers are required to pay half of the social security and unemployment tax, and most must also withhold federal and state taxes. If an employee misclassified as an independent contractor doesn’t report the income, the employer could be required to pay the taxes that should have been withheld, plus penalties.

Overtime: A true independent contractor can be paid a fee for services regardless of whether they work over 40 hours a week. If misclassified, a disgruntled worker could claim entitlement to overtime pay.

Additionally, a claim involving any one of these areas could end up with the involvement of all the others, leading to a legal debacle of grand scale. In summary, make VERY SURE your independent contractors really fit the bill. Remember that even if there is a written agreement to independent contractor status, none of the agencies that administer these laws are bound by it.

Employees are classified as either Exempt or Non-Exempt. Non-exempt employees are those paid an hourly wage, and are protected by the FLSA’s minimum wage and overtime pay provisions. Exempt employees are exempt from those laws, and paid a salary to get the job done, no matter how long it takes. The three main categories of exempt employees are executive/managerial workers, administrative workers, and professionals such as doctors, teachers, or engineers. Exempt employees must be paid at least $455 a week and treated as salaried workers, for example, not docked pay if they miss part of a day. There are other exempt employees, like outside sales staff and computer professionals, with slightly different rules.

Risks of misclassifying employees as exempt relate primarily to liability for overtime wages. Often the employer doesn’t require exempt employees to track hours and therefore has no way of refuting someone’s claim to have regularly worked 50 hours a week. If the employee turns out to have been misclassified, the employer is liable for all the unpaid overtime going as far back as three years. Generally, backpay awarded is doubled and the employer has to pay the employee’s attorney fees as well as their own. The cost adds up quickly if there is more than one similarly situated misclassified employee.

For example, Ride Aid recently paid $20.9 to settle a class-action lawsuit from 6,000 employees claiming they were illegally classified as exempt and thus denied overtime pay. Although the employees’ official job title was “co-manager,” they had almost no supervisory functions and spent most of their day doing manual labor.  McDonalds, Burger Kind, and CVS have all been involved in similar class-action claims. On the other hand, I recently mediated a claim between a small, 20-person company and an employee who claimed that when the business switched hands, her managerial duties disappeared, making her misclassified. She claimed to have been working 65-hour weeks, and her total demand for payment was around $50,000.

Although it can be tempting to misclassify workers to save money in the short-term, it leaves employers exposed to multiple liabilities. Don’t do it! Consult a human resources professional to properly classify employees, and protect your business from a world of lawsuits.


LGBT Rights in Lawrence, and the Rest of Kansas

A few days ago, I came across this article in the Lawrence Journal World: Outside Lawrence, discrimination based on sexual orientation is already legal in Kansas. The title pretty much sums it up. While House Bill 2453, another of Kansas’s nearly annual “religious freedom” bills, sputters in the Statehouse, this article points out that it’s already perfectly legal to discriminate against LGBT people in most of Kansas, except for Lawrence. Sexual orientation isn’t a protected class in the Kansas Act Against Discrimination, and in the absence of an explicit law, gays and lesbians have no legal recourse if they are refused service or fired for their sexual orientation. Lawrence adopted a non-discrimination policy in the early 90’s, the first city in Kansas to do so, and the only city where the policy is both widespread and enforceable.

Despite the dismal picture for LGBT rights in Kansas, it’s heartening to see many of my clients go beyond current state culture and establish non-discrimination policies themselves. One of the fundamental tenets of a healthy workplace is that employees feel safe and respected. Without that, communication breaks down and productivity and creativity become impossible. It seems obvious that protecting diversity is good for everyone, but if Kansas public policy is any indicator, it must not be obvious enough. More and more employers are creating policies that protect LGBT employees because it’s good business practice. Maybe someday the positive results will “trickle up” to the state legislature.

The Boss’s Guide to the Boss from Hell

I recently came across an article from the Wall Street Journal, “How to Spot the Boss from Hell,” about the pitfalls of prospective employees not screening their potential bosses carefully enough. It’s easy to forget, as employers, that a job interview goes both ways; while you’re trying to evaluate an applicant’s qualifications and work ethic, he or she is also evaluating you and your company. How many quality employees might be turned off by an arrogant interviewer or witnessing a belittling encounter between manager and staff? It would be useful for bosses to read this article from the inside out, and think about how they come across to potential employees.

The article discusses a woman who interviewed at a tech start-up. The boss was a friend of a friend, so she ignored the red-flags: lofty promises, self-aggrandizement, and profane language. Soon she found herself with a “Boss from Hell,” one of the leading causes of worker discontent. Although she was an asset to the company, she left after several months.

First, do you know how your managers come across when they interview?  Are they turning away quality employees with their behavior? Many employees get promoted to managerial positions without going through any HR training regarding communication or managing people, and they model themselves after their similarly untrained bosses. Even if they have an agreeable public image, what are they like away from such scrutiny? The article also mentions a woman interviewing for a paralegal job who noticed that although the boss was charming, the secretary never made eye contact with him and seemed cowed. Knowing how your interviewers come across and making sure they trained in people skills is essential if you want to attract good employees.

Second, what is their online presence? Employers run Internet searches on applicants, and applicants run Internet searches on employers. You should know as much as prospective employees do about the managers who work for you and about your own online presence. Is the first link in the Google search your manager’s arrest for public indecency? Is his Twitter account filled with racist jokes? Will an advanced search on LinkedIn turn up former employees who will give good references, or flee in terror from his name?

Third, if the boss is someone whose personality chases people away or has a terrible online presence, do something about it!  Does this manager need some training or coaching on people skills? It may be worth an investment if this is someone who is valuable to your organization. If you’ve tried the training/coaching approach and they still chase off good employees, ask yourself if you really need someone like that in your company. Is she or he THAT valuable?  What do they bring in terms of revenue, customer relationships, reputation, research dollars, being the son of the president… If you can’t figure out their value, then they may need to go.  If they do have value, consider the options: you could restructure so this person becomes more of an individual contributor and have someone else manage people, or up the intensity of the HR training. There are some good offsite intensive programs, for example, that are a bit like weekend summer camp for adults learning not to be jerks.

This article reminded me of how important it is for bosses to put time and attention into how they treat their employees, even before they become employees. You could be missing out on the greatest resource your company has due to poor interview skills. Think about your interview style, get some training, and avoid being a “Boss from Hell.”

The Four-Way Test (Employers)

I joined Rotary about a year ago and it has far exceeded my expectations.  My chapter (Jayhawk Breakfast in Lawrence) is filled with interesting fun people, we get to start our day looking out over the Alvamar golf course and the programs have always been good, sometimes fascinating.  They’ve certainly helped me get acquainted with the activities and resources of my community.  Thanks to Peter Steimle of Sedona Staffing for inviting me to a meeting.

As a new member I learned the Rotary Four-Way Test – of the things we think say or do

1)     Is it the TRUTH

2)     Is it FAIR to all concerned?

3)     Will it build GOODWILL and BETTER FRIENDSHIPS?

4)     Will it be BENEFICIAL to all concerned?

In general, this test really appealed to me, but I confess I rarely consciously focused on it when making decisions or giving advice in my business.  Then I read an article in the January 2010 Rotarian called “Downsize with Dignity” by Mindy Charski.  Mindy shares some excellent thoughts about applying the Four-Way Test in a layoff situation.  She quotes Rotarian Herbert J. Taylor, author of the Four-Way test in 1932, who credits it with turning around the fortunes of his company paraphrasing, when employers are truthful and fair, and strive to build goodwill and benefit everyone concerned they are almost certain to do the right thing.

At first blush, the test would not strictly apply in a mediation where a key component is self-determination.  In other words it’s not the job of the mediator to decide if an outcome is fair, rather the question is whether the parties agree.  However, the more I think about it, the test could be useful for mediators.  Stay tuned for the applicability of the Four-Way Test in mediation.

An Ounce of Prevention…

It strikes me that many workplaces have a lot in common with the healthcare system.  If we’d only spend a little bit more money upfront on training supervisors, or conflict resolution (wellness, preventative medicine) we could spend SO MUCH LESS on litigation (surgery, hospitalization) and dramatically reduce loss of productivity due to unhappiness, conflict and miscommunication (pain and suffering).  But it’s hard to dislodge those dollars you don’t absolutely have to spend.  Even when you understand that winning an employment discrimination or retaliation lawsuit on summary judgment can cost $50,000 to $100,000.

So what can employers do without spending much money that can have dramatic cost-reduction effects?  A few thoughts;

  1. Do a better job of hiring.  Every time there’s a job opening figure out what the person REALLY needs to do and be able to do and hire someone with those qualifications.  Pay attention to why people didn’t succeed in the job or left and don’t repeat the same mistakes. Do background screening.  Effect?  Reduced turnover (try quantifying this if you haven’t).  More productive employees.
  2. Don’t tolerate ignore “jerks”.  Every workplace has those people who are bullies or just take up more time than anyone else. They simply aren’t worth it.  Deal with unacceptable behavior directly when it happens and fire them when their value is outweighed by the trouble they cause.  Effect?  Happier more productive coworkers.  Reduced likelihood of litigation by the jerk or those affected by his/her behavior
  3. Develop a conflict resolution program.  This doesn’t have to be elaborate or expensive but find a way to allow employees to air their grievances before they turn into chronic problems.  The earlier in the life of a dispute it’s addressed, the less there is to deal with.  Effect?  Employees aren’t wasting work time harboring grudges, watching what “she” does next.  Avoid litigation when little problems grow into big ones.  From a lawyer’s perspective, the more opportunity an employee has to complain the less credible he/she is when bringing a hostile environment claim about conduct that “always” happened.
  4. Listen to employees.  The old time suggestion box was a really good idea.  Not only do your workers actually have some really good ideas about how the place could be run more efficiently, they’ll be happier knowing they are valued.  Effect?  Some really good ideas and more productive employees.
  5. Train supervisors on employment laws.  My soapbox for years has been this:  how can we expect people promoted into management positions to comply with laws they don’t even know about.  It’s not just commonsense to understand the obligations under the Americans With Disabilities Act or the Family Medical Leave Act.  Yet the consequences or an illegal – even if well meaning – comment can be enormous.  Effect?  Improved compliance and reduced risk of litigation.

It’s Not Just The Economy

It’s Not Just the Economy! (Links to an article I wrote.)

Here’s a pattern:  employers who are using the economy as an excuse to get rid of poor performers or trouble makers who they just haven’t done a good job managing.  It’s a bad idea, despite the superficial appeal of allowing the employee to save face by being laid off instead of fired.  It’s a bad idea mostly because it’s simply not true.  But what’s a little white lie, you ask?  Unfortunately it can translate to proof of pretext when defending a lawsuit by the employee. Simple illustration:  long time employee, over 40, only female in department, is told she’s being laid off due to the elimination of her position for economic reasons.  Four months later she learns that her administrative assistant has been promoted into her old position.  Angry, she finds a lawyer and files a charge of age and sex discrimination.  When the company tries to defend the termination decision with evidence of poor performance she responds with good performance evaluations and shows that the reason given – position elimination – wasn’t true and that the promotion of the assistant had been planned all along.  Her case goes to the jury which may well infer that when the reason given was false, it was hiding the real motivation to get rid of the older female worker.  And it may be that she really was a poor performer and that termination for performance reasons could have been supported if properly documented and communicated.

Good Old Hindsight

I’ve spoken on the issue of doing a post mortem on a wrongful discharge case a couple of times recently, to Human Resource Managers and to lawyers.  Bottom line – hindsight is a really valuable tool   And we rarely take the time to look back and really critique ourselves.  When we do, there are patterns, common mistakes, opportunities, efficiencies that we can learn from.  It’s not rocket science.  We ought to do it every time.  I have a short article on my website aimed at lawyers.  My colleague on the Management Labor & Employment Roundtable, Jathan Janove (Ater, Wynne LLP – ) did a piece for the February 2004 edition of HR Magazine entitled “It’s Not Over – Even When It’s Over” describing for human resources managers the “invaluable lessons by conducting an employment litigation post-mortem.”