Wage and Hour and Employment Law

Employment law has increasingly been in the news. Harassment, discrimination, unpaid wages and hostile work environments are leading to owners and managers being sued with serious consequences for organizations. It is important for a start-up firm to understand their responsibilities, the law and ways to protect themselves from this risk.

Legal Liability

The first item a new firm needs to understand is when the company has employees, the company has certain legal responsibilities. Legally, each state requires that the moment an organization hires an employee, workers compensation insurance must be purchased. Penalties for non-compliance with state statutes can be as high as $1,000 every DAY of the violation. This is why many start up companies hire only independent contractors or else give everyone an ownership stake – rather than compensation. Only having owners or contractors will not require workers compensation insurance to be purchased. But when you do make that first official hire – make sure workers comp is in place.

Employment Practices Liability

Beyond the legal requirements, firms are being saddled with large and expensive lawsuits because of improper employment practices. Harassment, discrimination and abuse can take many subtle forms. Many new firms hire younger workers who many feel that their jokes or actions are innocent and do not understand the laws surrounding workplace interactions. It is important to make your start-up a place where everyone is aware that harassment and discrimination are not tolerated, and the company has a written policy stating it. Also advisable is to have any complaints be addressed quickly and judiciously. If your company is interested in insuring against these types of allegations, Employment Practices Liability Insurance (EPL) would be for you.

Emerging Topic

Another hot topic today is unpaid interns. Especially common in the entertainment industry, many tech firms and start-ups are also offering unpaid internships as a way of vetting potential hires. With limited capital, this may seem like a perfect way of doing business. It does, however, come with risks. Recent court cases have awarded thousands of dollars to unpaid interns who were found to have been performing actual employment functions – rather than intern duties. The courts set a six-item test to determine whether unpaid interns should have been paid. If the intern violates even a single test, they should have been paid and can sue to collect damages:

1) The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
2) The internship experience is for the benefit of the intern;
3) The intern does not displace regular employees, but works under close supervision of existing staff;
4) The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
5) The intern is not necessarily entitled to a job at the conclusion of the internship; and
6) The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
As your start-up grows and matures, employment issues will inevitably arise. Contact us to discuss when to purchase insurance as well as additional risk management tips to help avoid lawsuits before they start.