Avoiding Key Legal Mistakes in Startup Companies: Part 6
Part six of our blog series on common legal mistakes made by startup companies focuses on the importance of complying with labor, employment and non-discrimination laws. Employees are essential to a company’s success. Whether you bring in employees to close major sales deals or to build software applications, the talent that employees provide goes a long way in enhancing a startup’s operations. Improving your company’s performance through leveraging the skills that employees bring to the table starts with compliance with labor and employment laws.
6) Comply with Labor, Employment, and Non-Discrimination Laws
My workplace views may be biased because of my prior work at a plaintiff’s law firm where we represented workers suing their former companies for breaking labor and employment laws, but I think the research backs me up. Work environments that do not focus on making employees feel valued, supported, and respected generally lead to higher rates of employee disengagement. This is problematic because studies by the Gallup Organization and the Queen’s School of Business demonstrate that companies with high employee disengagement have 26% more turnover, 20% more absenteeism, 15% less productivity, and 65% lower share price over time. These numbers alone are startling.
How Do We Fix This?
Consult with an attorney and make sure that your startup is complying with federal and state labor and employment laws. Ensuring that your organization meets its legal requirements establishes a base floor upon which you can be proactive and build even further. Doing this early in your company’s life is especially beneficial because a culture of compliance will already be built-in as your company grows and new laws become applicable. Let’s turn to a few of the laws you should be aware of:
1. Anti-Discrimination Laws.
Federal anti-discrimination law prohibits discrimination against employees or job applicants based on race, color, religion, national origin, ancestry, age, sex, pregnancy, citizenship, disability, military or veteran status, and genetic information. Several federal courts have also found that federal law prohibits discrimination on the basis of sexual orientation. Beyond this, many states have enacted laws prohibiting discrimination against a range of legally protected persons.
2. Anti-Retaliation Laws.
Many of the federal and state laws that prohibit discrimination also prohibit retaliation. It is important that your startup implements a procedure that allows employees to report wrongful conduct without the fear of retaliation. This is best done by providing multiple avenues for reporting so that if an employee fears retaliation from his or her direct supervisor, the employee may still report the conduct at issue to a different individual within the organization.
3. Family and Medical Leave Laws.
The federal Family and Medical Leave Act (FMLA) requires employers to grant employees up to 12 weeks of unpaid family and medical leave. The FMLA requires that employers make available to employees returning from such leave the same position or a position comparable to the one they held before taking leave.
4. Wage and Hour Laws.
The federal Fair Labor Standards Act (FLSA) establishes minimum wage and hour requirements. The FLSA requires employers to pay employees a minimum wage of at least $7.25 per hour unless they qualify for an exemption. The most common exemptions from the FLSA are the administrative, executive, and professional exemptions. In addition, the FLSA says that employers must pay overtime to non-exempt employees for all hours worked more than 40 in a workweek at a rate of at least 1.5 times their regular hourly rate.
It is extremely important to consult the wage and hour laws of each state in which you are doing business because many states have established a minimum wage that is more than the $7.25 per hour required by federal law.
5. Workers’ Compensation & Workplace Safety
In all states, employers must provide workers’ compensation insurance to cover employees’ job-related physical injuries. In addition, the Occupational Safety and Health Act (OSHA) governs much of workplace safety law across the United States. Federal law requires most employers to adopt and communicate detailed employee injury and illness prevention plans.
6. Independent Contractor vs. Employee
This is a massive issue. Many businesses look to cut costs by bringing on independent contractors rather than employees. However, companies inaccurately classify workers all the time and this leads to substantial liability for overtime pay, taxes and penalties, especially when it comes to interns. It is extremely important to consult with an attorney so that your startup does not misclassify its workforce.
Putting Everything Together
There is a lot of labor and employment law to digest here, but there is no better time than now to start implementing policies and procedures ensuring your startup’s compliance. Doing so will transform your workplace culture and lead to increased employee engagement. As I mentioned in the beginning of this blog, the talent that employees bring to a business is instrumental to its success. A startup must comply with labor and employment laws in order to demonstrate to its employees that they are valued, supported, and respected.
Contact us today with any questions you have regarding compliance with labor and employment laws.
Check out the whole series: Part 1, Part 2, Part 3, Part 4, Part 5, Part 6, Part 7, and Part 8.
Photo by Shridhar Gupta on Unsplash
*The material and information in this blog is for general informational purposes only. In no way is this information to be construed as legal advice for a particular situation.*