For most entrepreneurs, their business journeys begin with an idea. While it only takes one person to come up with an idea, it almost always takes a team of talented individuals to transform a dream into reality. That means hiring and employing people, which for many start-up founders is a new and unfamiliar process. It is also an area where a single misstep can expose a young business and its owners to significant liability, disruption, and loss; whether arising from ignorance of employment law or a fast and loose approach common to early-stage companies.
If you are a start-up founder, investing in qualified and experienced employment counsel can be critical to protecting the investments of time, money, and sweat you’ve already made in your company. Your attorney can work with you to proactively address and minimize risks through their guidance on the following top 10 employment issues for start-ups:
1. Interview Questions
You want and need to find out as much as you can about a candidate’s background, experience, and talents when making hiring decisions. That takes thoughtful interview questions. But a job interview is not a free pass to probe every aspect of a candidate’s life. There are many areas of inquiry (including age, religion, political affiliation, family status or plans, to name a few) prohibited by state or federal law, and if you ask questions that touch upon those areas, you could be facing claims of discrimination.
2. Applications and Background Checks
A well-crafted job application can facilitate your ability to learn about a candidate’s employment history, contact references, and obtain a background check. However, the laws on background checks or inquiries regarding criminal records are rapidly changing, and many local and state laws prohibit certain questions relating to prior arrests or convictions.
3. Employment Contracts
Do you need to have written employment contracts? No. But if you want to avoid lengthy and costly disputes and differences of opinion about the terms of employment, expectations and responsibilities, compensation owed, grounds for discipline and termination, and how conflicts will be resolved, you should have one.
4. NDAs/Non-Solicitation/Invention Assignment Agreements
Your start-up’s inventions, ideas, processes, and other proprietary data are invaluable. If employees or contractors were to share or use such information with competitors, customers, or the public, it could devastate your business. Make sure your attorney prepares effective and enforceable non-disclosure, non-solicitation, and invention assignment agreements that provide you with protections and remedies in the event of misappropriation.
5. Employee Handbooks
This is your company. You want to ensure that everyone you hire is on the same page when it comes to your start-up’s mission, culture, expectations, and policies. Putting these matters on the pages of an employee handbook can help prevent many employment-related claims or well-position your company to defend such claims if they arise.
6. Employee v. Independent Contractor
One of the most significant decisions faced by early-stage companies (as well as mature ones) is whether to bring on team members as employees or independent contractors. Hiring contractors can spare you from many financial and legal obligations that come with employees in terms of withholding, taxes, and wage and hours requirements. But just because you call and compensate someone as an “independent contractor,” does not necessarily mean they are one.
If you treat a contractor as you would an employee; if the degree of control you exert over how, when, and where they do their work and handle their responsibilities make them employees in everything but name, classifying and paying them as independent contractors can expose you to significant penalties.
7. Exempt v. Non-Exempt Employees
A similar and equally significant classification issue involves exempt employees and non-exempt employees. Determining who fits into each category is not as simple as deciding to whom you pay a salary and to whom you pay by the hour. You need to comply with wage and overtime laws for non-exempt employees, and as with employees and independent contractors, what you call someone or how you pay them is not determinative as to whether they are exempt.
8. Wage and Hour Requirements
Minimum wage and overtime pay requirements are just a few of the wage and hours issues start-ups face. As more workers do their jobs remotely or at all hours of the day, knowing the activities and time for which you need to pay employees is as important as knowing their wages. Failing to comply with state or federal wage and hour requirements can lead to penalties and litigation.
9. Harassment and Discrimination Policy and Investigations
Allegations of harassment and discrimination against management or fellow employees can indelibly stain a company’s reputation in addition to exposing it to regulatory enforcement actions, penalties, and significant damages. Make sure to educate your entire workforce on your anti-harassment and anti-discrimination policies and that you take swift and responsive investigatory action in response to any credible claims.
10. Paycheck Deductions/Withholding
While many paycheck deductions are either allowable by agreement or required by law, you need to make sure that you don’t take money out of an employee’s paycheck for unlawful reasons. Even permitted deductions could be unlawful if they reduce the employee’s pay below minimum wage or the applicable overtime wage.
Speak With a Michigan Employment Law Attorney
If you are a start-up owner and want to ensure that your team remains your greatest asset rather than a liability, the employment law attorneys at Kreis Enderle can provide you with sound, straightforward counsel to protect your company and guide your decision-making. Please contact Thomas Cedoz at TCedoz@kehb.com or (269) 324-3000 to arrange for a consultation.