Management Law 101

By Maria Rodriguez

Pick up just about any business consulting book, and you will read that human capital is one of a company's most important resources. A thorough understanding and application of management law can help protect these resources, improve any company's bottom line, and shelter a company from devastating liability. Start-up companies can be particularly vulnerable and therefore risk lethal litigation if they're not aware of critical management law issues.

Every company should assess its wage and hour practices, employment policies (including sexual harassment, discrimination, employee coaching and counseling), employee performance and development issues, documentation practices, hiring and firing policies, disability plans, leave policies, employment contracts and other management law issues.

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Currently, the most litigated issue in employment law deals with wage and hour practices. In the last year or so, juries have returned verdicts for tens of millions of dollars against numerous companies, including Farmers Insurance, Starbucks, and other retail chains. These verdicts are based on companies' improper classification of employees as exempt from overtime pay when their employees did not fall under any exempt classification under the law. This topic is so highly visible and presents such a pervasive problem that management attorneys are giving up their law firm jobs to become plaintiffs' attorneys and sue companies rather than defend them.

A simple wage and hour violation of this nature produces liability not only for the back pay owed the employee, but also for penalties and attorneys' fees. Indeed, in most of the major cases cited above, employees filed class action lawsuits or pseudo class action lawsuits under Business and Professions Code 17200, which provides a vehicle whereby employees can sue and receive awards as a group without having to endure complicated class certification issues. As a result, verdicts are astronomical. These issues do not just affect large companies.

Management laws impact companies of every size. Smaller companies with fewer resources have the most trouble absorbing the costs that result from these lawsuits.

Courts are also plagued with a high volume of employment law cases involving wrongful termination, sexual harassment, discrimination, disability, leave of absence violations and breach of contract claims. The most common lawsuits seem to be based on a termination or adverse employment action where an employee walked away angry from an interaction and found grounds to sue (whether those grounds were valid or not). Companies are served with a surprising number of complaints involving causes of action for wrongful termination, discrimination, sexual harassment and breach of contract claims when in fact the company merely terminated the employee for poor performance. Inevitably, however, the employee's manager did a poor job of coaching the employee and documenting the poor performance. Typically, the employee had no idea his or her job was at risk and the termination, in the employee's mind, came out of nowhere. That employee left the company feeling angry and upset. An employee either immediately approaches an attorney (it seems that all employees have lawyers these days) or elicits advice from friends who inspire the employee to take action. Low and behold, a company that could have avoided a lawsuit is required to spend time, money and resources fighting a battle instead of allocating those resources to its productivity and profitability.

Most management law conflicts can be avoided through a thorough analysis of management policies and practices. Furthermore, most companies can create more productive human capital and improve their bottom lines through a judicious application of management law practices.

A company should create job descriptions for every position. These job descriptions must then be reviewed with employees actually performing the work to ensure they are accurate. Then, job descriptions for each classification of employee should be reviewed and analyzed as they relate to the exemptions delineated in the applicable wage order. Management must beware, however, that exemptions in wage orders have been expanded upon, interpreted and molded by case law. Therefore, it is not always apparent whether an employee is exempt or not exempt. For example, under an executive exemption, an employee is exempt if he meets the wage and duty requirements and supervises at least two employees. But California case law has made it clear that if an employee is a working manager and is engaged in the work of her subordinates at least 51% of the time, she is not exempt. Therefore, management is strongly urged to seek counsel with respect to wage and hour issues. A company is far better off allocating resources to prevention rather than litigation.

A company should assess its approach to management and coaching. All managers should understand their company's philosophy and any progressive discipline plan the company utilizes. Managers should be coached in demeanor and sensitivity. Managers should keep employees apprised of the company's expectations and their performance. Every company should provide at least annual (if not semi-annual) reviews along with consistent feedback. If an employee is not meeting expectations, management must respond immediately with appropriate counseling. Every problem employee should receive a performance improvement plan that clearly delineates the company's expectations and a deadline by which the employee must meet those expectations. When an employee is in danger of losing their job, a company should immediately advise them in writing. Employees who are performing well should be praised for their performance and further developed. Prospering employees typically want to continue to grow, and a company serves itself and its employees by engendering their growth.

Every company regardless of its size should have an employee handbook that outlines its policies. California law requires that certain policies be published, distributed to all employees and include certain language, such as that pertaining to sexual harassment and discrimination. Both California and federal law require that companies of different sizes adhere to certain laws, including some disability rules under state and federal law that apply to companies with 5 and 15 or more employees, respectively. In addition, certain company practices, such as disciplinary policies, should be carefully crafted to ensure employee awareness and communicate consequences for non-compliance. A company will also be well served by publishing benefits and policies that reflect fringe benefits in order to motivate employees and create incentives.

In short, an ounce of prevention is indeed worth a pound of cure. Every company, regardless of size, can benefit from a thorough auditing of its management law practices. In doing so, a company can generate confidence, create a productive workforce and avoid risk and liability, all of which creates a positive impact on its bottom line.

For more information on assessing your company's management law issues, attend Larta University's Managment Teach classes on July 22 in Irvine or July 24 in West LA. Click for more information

Maria Rodriguez is an associate with the law firm of Silver & Freedman. She represents and counsels employers in all areas of employment law including state and federal wage and hour claims and litigation, employee personnel issues, policies and documentation, agreements concerning the relationship between employers and employees, as well as the defense of sexual harassment, wrongful termination, discrimination, breach of employment contract, and other employment related claims. She may be contacted at mrodriguez@silfre.com.

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