Employee Lawsuits Hit Small Businesses the Most

“We’re a small business…it would never happen to us.”

“It hasn’t ever happened in the past so why worry about it happening now.”

“Its not as big a deal as every makes it out to be.”

Any of those comments sounds familiar?

If you’ve worked in a start-up or small business setting, its probably something you’re heard all too often. Why am I bringing this up? Because it CAN happen and will if you don’t take steps to proactively prepare for it.

Melanie Boone (with Boone Management Group) put together a list of facts and figures as it applies to employee lawsuits and small businesses that I wanted to share:

“Labor and Employment Law is the second highest pending litigation category in the United States this year. The average cost of an employee lawsuit for a company skyrocketed by 60% in 2008. In 2009 the median employer payout due to litigation was $326,640.

While $326,640 is the average cost, about 97% of all cases are settled before trial. Can you afford a settlement, $10,000 or $20,000 how about $100,000? Moreover, managers spend 30%-50% of their time dealing with employee conflicts. If they are not trained on risk mitigating company policies, your company could wind up in real hot water. All and all, the total cost both in money and in time can be devastating to a small business.

Did you know?

• The claim where your company will most likely pay the most: retaliation. Judges and juries are especially tough when they perceive that a supervisor got tough with an employee who filed a complaint about discrimination or other unfair treatment.

• The claim your business will pay the most for if it goes to a jury: age or disability discrimination.

• The claim your company is most likely to get hit with: sex or race discrimination. They remain the most common.

• The Department of Labor estimates that approximately 70% of employers are routinely violating wage and hour laws, and the Wage and Hour Division recovered back wages of $1.4 billion for Fiscal Years 2001 through 2008, with numbers continuing to grow in 2010 and beyond.

So what can you do to protect your business?

1. Compliance with Government Regulations: Most but not all federal laws cover companies as small as 15 employees there are few regulations that do not apply to most businesses. Companies must also comply with State and local regulations. Know employment laws that apply to your business or work with a trusted partner who can advise you.

2. Hire the Right Person: Many small business owners hire people but do not take the proper steps to ensure that the person is right for the job. Hire Smart & Hire Right! Having a hiring process will help you find the right fit, conduct due diligence to make sure the person has a sound background and minimize the costs of turnover.

3. Properly Classifying Employees: One law that applies to almost all employers regardless of size is the Fair Labor Standards Act. It is estimated that 70% of businesses routinely violate wage and hour law under this act. Know the proper classification and have processes in place to ensure compliance.

4. Document, Document, Document: Documentation in most companies is typically an afterthought and non-existent in some. Performance issues discipline and terminations must be supported. You could possibly face lost unemployment cases and lawsuits either lost or settled for unforeseen amounts of money which can cripple a small business.

5. Motivate Employees: Employees value rewards, and not just monetary ones. In today’s economy, employees are feeling under-appreciated and overworked. Employee turnover cost money, lost productivity, lost hours for managers and can be devastating to a small business.”

Not paying attention or thinking “it won’t happen to us” will end up costing your company thousands of dollars in litigation down the line. Let’s face it, in today’s market, employee lawsuits are on the rise from discrimination for race or age to “creating a hostile work environment.” These are some simple steps that Boone Management Group has laid out for employers to follow…the biggest thing is DOCUMENT!

Be proactive not reactive! And even if you haven’t done it in the past, start doing it now.