Lately, I’ve encountered several entrepreneurs who have recently started companies and are successful enough to need to hire employees. I am definitely seeing trends in terms of the questions, concerns and trials that these entrepreneurs are facing so will devote the next few posts to the top issues and vulnerabilities I’m seeing and some basics to cover when you bring aboard your first employees. For seasoned managers, HR professionals and employment attorneys, this is not going to be new information, but that doesn’t mean everyone is familiar with the ins and outs of our professions. As with many areas of HR, there is a great deal of crossover between issues appropriate for a human resources professional and an labor attorney. I have always considered a good labor attorney to be the most powerful and necessary resources at my disposal as an HR service provider and put great stock in verifying policies and contracts with a reputable labor law attorney if I am unsure about anything.
1) If you are telling them what to do, they’re probably not independent contractors
Almost every business owner I’ve met wants at some point to categorize his/her labor force as independent contractors. The reasons for doing this tend to be so that the employer can ‘try out’ the employee before committing to full time employment, because they cannot be sure there is a long term need, or because they can’t afford employee benefits. These are all valid concerns but are not legitimate qualifications to classify someone as a contractor. A legitimate independent contractor should have their own business, other customers, a business license and insurance. You should not direct their day to day activities. The IRS’ determining factors are here, but your state may have additional requirements.
2) Probationary Period
Actually, this isn’t just restricted to small businesses but there still is a tendency to want to have a probationary period. The intent is to indicate that the employer and employee are in a ‘try out’ phase and to indicate a lack of commitment. There is really no value to a probationary period and in fact, it usually negates any kind of at-will agreement the employer may wish to have. In an at-will employment agreement, either the employer or employee can terminate employment at any time for any reason. If you have a probation period you are implicitly stating that employment is secure after a designated window has passed. This is not a good idea.
3) Progressive Discipline
This is another policy that seems like a good idea but will could potentially give you headaches down the road if you’re not careful. Progressive discipline policies state the progression of consequences for performance infractions. For example, the first time an employee is late they may get a verbal warning, then a written warning, then a suspension and then terminated. The intent behind them is to ensure management deals with issues in a consistent manner and this is not only a very good idea, it’s crucial. The problem with progressive discipline plans is that you really don’t want to tie your hands as far as consequences go. If you are set on having a written progressive discipline policy, make sure you include wording to the effect that the employer reserves the right to impose discipline up to and including termination.
4) Non-Competes
Many employers work with proprietary information, trade secrets and client lists that they want to protect. In an effort to do so, there are often non-compete agreements drafted and provided to employees. The reality is that these are unenforceable in almost every state. California, for example, is a right to work states, and it is illegal to try to prevent someone from working in an industry of their choice for any amount of time. You are much better off putting in place a non-solicitation/non-disclosure agreement. These agreement prevent employees from soliciting employees or customers away if they leave your employ and/or from disclosing anything they have learned during their tenure with you. The best part is, these are enforceable.
5) Applications
It’s a good idea to have an employment application. These are legal documents that candidates fill out and they usually have wording indicating that falsifying information is grounds for termination. You can download these almost anywhere. You should be aware that if you solicit applications (such as from a job ad) you are obligated to keep applications for two years. As well, in many states and jurisdictions (such as the state of California, or the city of Seattle) it is illegal to ask if someone has been convicted of a crime at the initial stages of the selection process, unless you have a valid, job related, reason for doing so.
At the end of the day, if you have started your own business, and have employees, it’s a good idea to start with an employee handbook and make sure your policies are in accordance with your handbook. Labor law attorneys will review your documents to make sure they are legal and enforceable and a good HR person (or consultant) can give you some best practices tips to make sure you are on the right track.