Costly employment mistakes emerging companies should avoid, part 2: documentation and record keeping

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Last time we told you that cutting the wrong corners, by deferring the payment of wages until the company has cash, or misclassifying employees as exempt (and therefore not paying overtime) or as independent contractors (failing to pay employment taxes, or satisfy wage and hour requirements) can be potentially disastrous. Our goal was not to traumatize you, but to inspire preventive action.

 

Today, in part two of our article, we provide additional crucial tips on how to avoid costly mistakes through proper documentation and record keeping before, during and after the employment relationship that will prevent or lessen the potential for costly disputes.  Being able to avoid these issues will save time in the long run and give you an advantage over your less knowledgeable competitors.

 

Documentation and record keeping

 

Creating proper documentation and maintaining appropriate records are concepts that sound simple and mundane.  But their simplicity causes many employers to either forget to document, or just choose not to document, because they don’t think it is very important. 

 

This is potentially one of the biggest mistakes an employer can make, and here is why.  First, many state and federal laws require that employers document certain aspects of the employment relationship, especially with respect to time-keeping records and compensation.  Second, failure to document certain policies, and terms and conditions of employment can create ambiguity that will play out in favor of an employee in most disputes because the burden of proof is almost always with the employer.  For example, providing an employee with written notice regarding the employer’s expectation as to duties, performance and other obligations is essential when later justifying an adverse employment decision based on the employee’s failure to meet those expectations.  It will also be extremely helpful to an employer in avoiding or defending against claims for wrongful termination and discrimination to have documentation of pre-existing performance issues, as well as proper documentation of leave of absence administration, when the employee subsequently goes on a “stress leave” to avoid termination.  Finally, in most cases, if some negative act or unpleasant conduct or poor performance is not documented, then, for all practical intents and purposes, it didn’t happen.

 

For example, you provide half a dozen verbal warnings to an employee who repeatedly comes in late, telling her that there will be serious consequences if this behavior continues.  After these warnings, the employee shares with you that she is undergoing treatment for early-stage skin cancer.  Following her announcement, she again reports to work late, claiming her car would not start (i.e., an action unrelated to her medical issues).  Based on the prior six verbal warnings, you give her a final written warning for poor attendance.  The following week, she is again late (this time blaming a broken alarm clock) and you terminate her employment.  The employee claims you are terminating her based on her medical condition and claims that she was never warned about being late before her condition was disclosed. Yes, she is lying, but, alas, there is no documentation to demonstrate otherwise.  As a result, it can be made to appear that you only disciplined her for this conduct after she disclosed her medical condition to you, and that you therefore discriminated against her based on her medical condition.  It is as if her chronic lateness never happened. This is not a good place for an employer to be.

 

Key types of documentation to maintain

 

The following are some of the key types of documentation, along with some crucial elements, that all savvy employers should maintain: 

 

A. At the time of hire

 

  • Offer letter
        • Should include reference to at-will employment
        • Should characterize any initial bonus as retention vs. signing if your objective is to prevent the employee from leaving prematurely
        • If offering severance in the letter, condition it on a release of claims
  • Disclosure and authorization for background checking – this, in fact, is required by federal and some state laws
  • Confidentiality and nondisclosure/invention assignment agreements
        • Noncompete/nonsolicitation of customers agreement – where permissible and necessary
        • No violation of rights of third parties- require the employee to confirm in writing that he or she is not bringing trade secrets from a former employer, will not use any trade secrets of a former employer and is not a party to any agreement, such as a noncompete agreement, that may be violated by accepting employment with you
  • Job descriptions – these support exempt status, performance, disability/qualification
  • Wage notices – these may be required by state law 

B. During employment

 

  • Wage statements – these may be required by state law
  • Time sheets – a complete and accurate record of hours worked is critical to avoid and defend against wage claims
  • Bonus/commission plans – at minimum, these must specify how a bonus or commission is earned, how it is calculated and when it is paid. Some states require a written plan.
  • Performance issues/management
  • Leave of absence administration – the content of some notices and medical certification forms is dictated by state or federal law
  • Handbooks – some policies are required by law or are highly recommended, depending on the size of your company and its location

 

C. At termination of employment

  • Document the reason the employee is being terminated by the company - although employment is generally “at will,” such documentation is important because, by explaining the company’s reason for termination, it fends off unfounded speculation by the employee. A termination for unsatisfactory performance should not come as a surprise to the employee, who should have received prior, well-documented notice of the issues and how to correct them
  • Conduct an exit Interview – to identify any potential claims
  • Ensure completion of change-in-status documents – may be required by state law
  • Ensure return of company property
  • Provide reminders regarding obligations under any confidentiality/ nondisclosure/invention assignment agreements
  • Provide information about severance and release, when appropriate

 

The types of documentation summarized above are essential to ensure a productive working relationship and avoiding disputes and litigation following the separation of an employee. If you need assistance in developing any of these types of documents, please contact Merrili L. Escue.