Risky Business: How the Law Affects Employment Decisions

Tina Harkness, CWCC Member

Businesses make decisions every day about employment matters.  Employment law affects those decisions to a greater or lesser extent depending upon whether there is law on the topic and the business’s tolerance for risk.

Although federal, state, and local laws govern many aspects of the employment relationship, they do not cover all decisions that are made.  This is particularly true when it comes to voluntary benefits, compensation, and performance issues.  The law does not require: paid holidays, vacation or paid time off (PTO), bonuses, pay increases, performance appraisals, or progressive discipline.  Yet these are concepts employers work with daily.  Employers generally look to best practices in their industry or region to guide them.  This is wise because, even in the absence of law, legal claims can still be brought by employees who believe they have not been dealt with fairly.  An employee might sue, for example, if she felt that the employer had not paid her a bonus as promised or had not followed its progressive discipline policies or practices.

All business decisions carry with them a degree of risk.  While most businesses prefer to stay on the safe-side-of-conservative when it comes to employment laws, some businesses may push closer to the edge.  This is common in situations where the law lags behind the modern workplace and technology.  Some businesses have, for example, tested the waters of new and emerging topics affecting the workplace like social media.  Circumstances might also cause a business to assume more risk.  One common example is where an employer feels that it must discharge an employee even though his or her performance issues are not well documented.  This is a risky move, but a business may view it as a necessary one due to the disruption the employee causes or concern that it will lose other good employees if it does not act.

The reality is that even if a business does everything right, it can still be second guessed on its decisions and sued.  Some employment decisions are, however, risker than others.  They include:

  • Discharge for undocumented performance problems or misconduct
  • Employer’s failure to follow written or unwritten policies or procedures
  • Discharge for poor, but not worst, absenteeism
  • Retaliation/retaliatory discharge
  • Layoffs where some employees in the position are retained
  • Disability discrimination, post-ADA Amendments Act

Employers can try to reduce their risk in these situations by offering employees settlement packages in exchange for waivers of claims.  This is not a cure-all; however, as the legal nature of the waiver is likely to drive the employee to seek counsel who may advise him or her that it is better to sue than accept the package.  Also, employment claims like wage and hour, workers’ compensation, and unemployment cannot be waived.  And, although employees can waive their right to sue and recover damages in civil rights matters, employees cannot waive their right to file a civil rights charge with the Equal Employment Opportunity Commission or comparable state agency.  Another way employers might manage risk is to purchase Employment Practices Liability Insurance (EPLI).  Coverage differs, but these policies generally provide a defense to employment law claims and may pay all or part of a settlement.

Businesses will continue to make decisions and move forward.  Wise businesses know enough to identify when employment laws may be implicated by a decision and pause to examine those implications before taking action.  Businesses may need to consult with legal counsel and others experts to assure that decisions they make, even those on the riskier side, are informed ones.

Christine “Tina” Harkness, Employment Law Staff Attorney, Mountain States Employers Council
MSEC is the nation’s largest employers association.  MSEC provides services, products, and experts to solve management’s employment law, HR, training, and survey needs.