employment law – Getentrepreneurial.com: Resources for Small Business Entrepreneurs in 2024

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Are you getting ready to take your startup idea to the next stage of development? It’s probably been a whirlwind of work putting together a business plan, lining up investors, adjusting that business plan, and then sealing the deal for capitol. At this point, your business is looking pretty good on paper. Now, you’ve got to step up and implement your plan. That means understanding the sometimes complicated, but also necessary, aspects of employment law.

Even though you might have what’s considered a small staff, you still need to follow the many federal, state, and local regulations with regard to their employment. Here are the five things that every entrepreneur should know about employment law:

Employee vs. Independent Contractor

As the owner of a startup, you’ll be keeping a constant eye on the bottom line, but the work still needs to get done. Hiring independent contractors is often an effective way to accomplish your business goals while keeping overhead costs at a minimum. The big plus with hiring an independent contractor is that you don’t have to carry them on your company’s medical insurance plan or worker’s comp insurance. Upon hearing that, many employers wonder, “Why not just make everyone an independent contractor?” The government is way ahead of you on that one.

From a regulatory standpoint, an independent contractor is someone who performs a task that is not directly related to your company. For instance, if you are an exterminator, you might hire an independent contractor as a content writer to promote your website. The independent contractor uses their own “equipment.” In the case of a content writer, that person will be working at home on their own computer. These are specialized workers who are usually hired to take on a specific task. When the job is done, they move on.

With employees, you will provide direct supervision for a wide variety of tasks that they will perform on an ongoing basis. They will be using your “office equipment” and working at your “office space,” even if that space is your home. An employee is also someone who earns their money based on time, whether you measure it in hours, days, or weeks. As the employer, you also have the right to terminate your employee.

Understanding the distinction between employees and independent contractors should help you make an informed decision about your staff hires.

State Guidelines Governing Overtime, Sick Leave, Maternity Leave, and Vacation

Depending on the circumstances, some of your employees could be exempt from things like overtime pay or maternity leave. Those exemptions vary from state to state. For instance, here’s one of the recently enacted amendments to New York City Earned Sick Time Act:

“Effective April 1, 2014, employers with 5 or more employees must provide 5 paid sick days to all of its employees; for employers with fewer than 5 employees, the sick leave can be unpaid. Initially, employers of 15-20 employees were not required to offer paid sick time under the Act until October 2015 and employers with less than 15 employees were not required to provide paid sick time at all under the Act.”

There’s yet another set of guidelines if you’re hiring for a federal contract. This is a clear indication of why consulting with an experienced employment law attorney is advantageous.

Put Your Workplace Policies in Writing

As with all things in business, your workplace employee polices need to be put forth in writing. This is something that every employee should have a copy of, and it should be posted in the office. These written policies will go a long way towards protecting your interests. There can’t be a squabble if the point of contention is clearly spelled out in the policies.

Not only should these policies cover things like overtime and vacation but also workplace procedures. If you want your employees restricted from using social media on office computers, then spell that out in your policies.

Protect Your Trade Secrets

If you’re opening a fast food franchise, you might not have a lot of trade secrets to protect. However, you would probably be signing a confidentiality agreement provided by the parent company that protects their trade secrets. This agreement is a good thing to have in any type of business startup. It can cover things like client lists and non-compete clauses. That can prevent an employee from learning everything from you and then going off to start their own version of your business.

It will be your responsibility to deem something a trade secret for your company. Once an item has been given that distinction, you have to make the effort to keep that information secure. That can be on a password-protected computer or even as a hard copy file.

Health Insurance Regulations

The Affordable Care Act has changed the way health insurance and healthcare are handled in this country. As an employer, you are on the front line when it comes to implementing a lot of those changes. Whether you are required to provide health insurance for your employees depends on the size of the staff and how long they work. Diving into the ACA can be extremely intimidating. Fortunately, there many agencies standing by to help you navigate through the regulations.

You shouldn’t be discouraged by the amount of potential “red tape” you might have to wade through in order to be in compliance with your employees. Once you understand the basics, you can turn your attention to growing your business and watching it flourish.

Ritu Anand of GE India sent me the below questions concerning my October 28, 2007, post concerning severance and separation agreements.
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Hi Charles,
Thanks for throwing light on this subject! However, I have a few doubts and would appreciate if You could help resolve them:
1. What is the guarantee that the exiting employee would not reveal the secrets/sue the firm even after signing the severance agreement/taking the money ?
2. is this a common practice in US/other parts of the world?
3. If this is a common practice with the organizations in the US , most of the companies would end up busting their HR budgets by paying severance to the exiting employees and all working population must be aware of this .. your views ..
Regards
Ritu Anand
HR, GE – India
My response to Ritu follows:
Hi Ritu,
Thanks for your questions. They’re excellent and thoughtful. I’m going to post them and my responses to the HR Community’s list serve and on my website.
I’m answering your questions in the same order and number you asked them.
1. What is the guarantee that the exiting employee would not reveal the secrets/sue the firm even after signing the severance agreement/taking the money?
Answer: As a means to discouraging the employee conduct you refer to, all severance and separation agreements should permit the employer to recover damages, costs and expenses from the employee (assuming the legal system permits such recovery). This won’t absolutely prevent an exiting employee from talking, but it increases the likelihood that they won’t breach the agreement.
Even if a severance or separation agreement prohibits disclosure, if the ex-employee breaches, the employer still needs to take enforcement action. This does not necessarily mean that the employer has to sue the ex-employee. The employer can issue some type of warning (letter, phone call, etc.), or the employer can contact competitors and warn them about using such secrets. The latter action poses its own risks due to ethical concerns, antitrust, defamation, libel and slander concerns. Obviously, the most extreme action an employer can legally take is to actually sue the ex-employee for breaching the agreement. A lawsuit will cost the business time and money, even if they can recover damages, costs and expenses from the employee.
With respect to a lawsuit or some other sort of complaint by the ex-employee, this is easier to deal with. As long as the terms of the agreement’s confidentiality, nondisclosure and other prohibitions are legally compliant, no court or other sort of tribunal should adjudicate a lawsuit or complaint, and all costs, expenses and damages should be awarded to the employer.
2. Is this a common practice in US/other parts of the world?
Answer: Yes, this is a common practice in the U.S., and it has been increasing in popularity. These agreements used to be reserved for top executives and are now being used for employees at all levels. The confidentiality and noncompete aspects of these agreements are also commonly used for pre-employment agreements between employers and employees.
With respect to its popularity in other parts of the world, it depends on the nation’s, province’s or region’s legal system. Common law and “Westernized” legal systems are likely to uphold severance and separation agreements as they’re mutually agreed to contracts with valuable consideration exchanged between the parties. Additionally, more capitalistic economies (e.g., former Soviet-bloc nations) might be more prone to honor such agreements as the protection of the employer’s property (capital) is paramount to innovation and profitability. However, these same legal systems will take measures to protect and ensure an individual’s ability to apply their skills, trade, knowledge and abilities in an unrestricted manner. After all, if individuals cannot freely earn a living, then they cannot consume the goods and services employers produce, and businesses will lose money.
3. If this is a common practice with the organizations in the US, most of the companies would end up busting their HR budgets by paying severance to the exiting employees and all working population must be aware of this .. your views ..
Answer: I briefly discussed your concern in my article. Excerpted below:
“Clients typically ask whether by offering an employee a severance, separation, or some hybrid agreement, they’re setting a legal precedent within their company or creating a feeling or belief of entitlement to such a benefit among employees. In short it’s not likely that the company will be legally obligated to offer the same to other employees. However, if other employees learn about such agreements, there’s a greater degree of possibility that a sense of entitlement will result. So, when deciding whether to use a separation or severance agreement, a business should consider the impact on employee morale, and to at least some extent consider the legal ramifications of using such an agreement.”
To expand further upon this, you might be right to say that “[i]f this is a common practice with the organizations in the US , most of the companies would end up busting their HR budgets by paying severance to the exiting employees.”
There are U.S. companies which have a reputation for caving in to exiting employee demands for large severances because they’re afraid of the public relations ramifications of lawsuits, complaints, ill-will, etc. Some companies just think it’s cheaper to offer money than to defend their record. But, as I indicated above, the likelihood of a legal precedent being set is minimal.
The concerns regarding employee morale and feelings of entitlement can be combated by offering severance and separation agreements infrequently or in extreme circumstances (e.g., in order to protect company confidentiality, capital, etc.), and making it clear to employees that they are at-will employees (if applicable). In other words, it’s relatively easy in an article like this to state in a generic and sterile manner what should or shouldn’t be done.
It’s a completely different matter to actually draft and execute an agreement in a way that sufficiently communicates to a particular employee and the entire workforce that this is an isolated and unique circumstance, and a serious and binding agreement with provisions that must be honored. In short, how individual businesses and practitioners implement severance and separation agreements is crucial. Issues with execution are what leads to misunderstandings, disputes and your questions. I personally believe that many of the issues you allude to are avoidable and resolvable via a professionally drafted and executed severance or separation agreement and the advise of competent legal counsel.
Now, a few caveats. My original statement, as well as my response to your questions, are general statements and not intended as legal advice nor do my statements create any sort of attorney-client relationship. Moreover, as stated above, every circumstance is unique and might require its own unique agreement, contract and mode of execution. Again, consult competent legal counsel before taking any action.
I hope that this answers your questions. Feel free to ask for additional information or opinions. Moreover, thanks for taking the time to read the article.

As a labor and employment attorney and businessperson, Charles Krugel, has represented management in hundreds of negotiations, in-house and 3rd party proceedings. Charles has over 13 years of experience in the field and he has run his own successful management side practice for the past 7 years.