Employees are absolutely necessary to build and grow a profitable business. Often, in fact, they are considered a business’ most valuable asset. But—whether at the hiring, management, or firing stage—poor employment practices can have disastrous financial or legal repercussions.
Proper hiring and training practices are essential to ensure that you bring on qualified employees who can move into a position in your company successfully. Once they are on board, a written employee handbook that covers all aspects of their employment responsibilities will help prevent problems from arising.
Finally, at some point their employment will terminate, either voluntarily or involuntarily. You don’t want rogue employees stealing your business, so signed employment agreements with your key employees that include restrictive covenants and noncompete clauses will protect your business and services from unfair competition.
Below we will look at the typical lifecycle of an employee and identify three common ways in which business owners drop the ball in their employment practices. Even though these mistakes are common, they are easily avoided with the proper planning and the right advice from professional legal counsel.
Hire Right
In my opinion, small businesses have a leg up on large companies in the hiring realm. You can be more flexible and hire the person and their potential rather than their resume and their past.
When a large company looks to hire a new employee, they will get flooded with applications for a single position. One way that has become increasingly common to deal with this “problem,” is to write job advertisements that are more and more hyper-specific in hopes that only the imaginary “perfect candidate” will apply.
In addition to that, companies also increase—often to farcical proportions—the credentials and experience demanded for even so-called entry-level positions. What we get, in the end, is a job advertisement that almost seems like a parody of itself:
Advertisements like these eliminate high-quality talent from these business’ candidate pools because they don’t fit their absurd requirements.
A small business, on the other hand, can focus on the individual and their potential fit with the company and the position. If you leverage this advantage properly, you can hire better talent than large companies who will overlook these candidates. You also have the ability to branch out from a narrow range of candidates who check a preset number of boxes. This can be valuable.
For example, you may be seeking out a new marketing associate for your company. Your first instinct—and certainly the instinct of the big companies—will be to restrict your search to candidates that have a degree in marketing. But your new employee is going to have to market your business. You’ll want to hire someone who can learn new information quickly since it’s unlikely that he will have had previous experience working in the exact industry you work in; you’ll want to hire someone who can write well and communicate effectively.
Don’t fall into the trap that the big companies do of creating an artificial—and usually unrealistic—checklist of credentials that you think a job candidate has to satisfy before they even get in the door. Use your size to your advantage and screen your job candidates more effectively. Hiring and training an employee is an investment for an employer, and you should spend time and effort to hire the right employee for the job and for your business.
Up-to-Date Employee Handbook
Skirting problems in the hiring process and bringing on board only the best employees for the job and for your company is a wonderful first step. But, after you’ve hired an employee, there are steps you can—and should—take to forestall any employee problems.
You should also have an up-to-date employee handbook that describes, in detail, the key provisions of employment at your company. Every new employee should receive and sign a form acknowledging the receipt of the handbook, and current employees should be informed of any updates to the handbook.
The employee handbook helps resolve issues before they can arise by removing the possibility for legitimate misunderstandings about company policy and procedure. It can also offer protection for you from a vengeful employee.
Acme’s Bungle
Acme didn’t have an employee handbook. Instead, its owner kept handwritten notes about employee pay rates, reviews, raises, and vacation and sick time. The handwriting wasn’t that legible, even to the owner, and there wasn’t any obvious organizational system. But, the notes were there, and he more or less remembered it all, so it wasn’t a problem for him.
But then he died suddenly.
When his heirs took over the business, it was a mess. The employees claimed they had accumulated hundreds of hours of sick leave and vacation time. One employee even asserted he had enough time to take eight weeks off from work! And then there were the claims for overtime pay.
Unfortunately, the heirs had no concrete records to refute the claims. So, they were left with two bad choices. They could either give in and pay an outrageous amount of money, or refuse and lose key employees, disrupt the business, and possibly weather numerous wage lawsuits.
What’s worse, Florida law allows employees to recover attorneys’ fees when they sue an employer for failure to pay overtime and minimum amounts they’re due. So, while the employee may only get a few hundred or a couple thousand dollars in back pay, you can be sure the attorneys’ fees will cost even more.
Would You Fare Better?
While the above example may seem extreme, consider your own employee records. If you were to die or become disabled or incapacitated, would whoever takes over for you be able to make use of your employee records or would your business suffer irreparable harm? Is everything you’ve spoken about to your employees written in their files? How about performance reviews? Are they up to date and accurate?
Do you have an employee handbook? Do you have records of time sheets and a clear policy on overtime? What would happen if a disgruntled employee claimed you failed to pay overtime for the past year or two?
Items to Include in Your Employee Handbook
Your handbook should be comprehensive and address all of the terms of employment, including:
- Job description and performance expectations,
- Working hours, overtime, and time sheet requirements,
- Disciplinary procedures and complaint process,
- Performance review process,
- Vacation, sick leave, and other time off,
- Benefits, salary, and compensation,
- Expense reimbursement requirements,
- Code of conduct,
- Conflicts of interest policy,
- Sexual harassment policy,
Also, if you’ve had a particular problem in the past (e.g. over travel arrangements) or you have a business-specific issue, make sure they’re also included and fully addressed.
Take time to read through the handbook with employees when they are hired and whenever there is an update. At that point, every employee should sign a written receipt acknowledging they have read and understood the handbook or change.
Practically, the handbook will help avoid legitimate misunderstandings. Strategically, it will help prevent (or at least provide a defense to) unscrupulous lawsuits. Above all I encourage you to view the handbook as a tool for you and for the employees.
Noncompete Agreements and Restrictive Covenants
Business owners protect their business assets in the case of liability loss or accidents with insurance and other means. It makes perfect sense that they would also want to protect the business’ services and products from unfair competition by a former employee.
Noncompete agreements are contractual agreements wherein an employee promises not to compete with an employer’s business during employment or for a specified time and in a specified location post-employment. They are your way to prevent employees, contractors, licensees, and distributors from learning your business at your expense, then becoming your direct competition.
Florida’s Noncompete Statute
Under current Florida law (F.S. §542.335) restrictive covenants are acceptable so long as they meet certain requirements:
- The agreement must be in writing and signed by the employee;
- The business must prove it’s protecting a legitimate business interest such as trade secrets, confidential information, customer relationships, goodwill, or specialized training;
- The restriction must be reasonable in time, area, and line of business.
Common Missteps with Noncompete Agreements
Even when employers have noncompete agreements in place, they often find that they have made some critical error that has led to a court finding it unenforceable.
To avoid this happening to you, follow these guidelines:
- Identify your legitimate business interest(s) as precisely as possible. Then, the employees that are privy to or who could affect those interests should sign noncompete agreements. Some employers will have every employee, regardless of status or position in the company, sign a noncompete agreement. This says to a court that you play fast and loose with your proprietary information or the information you’re calling a legitimate business interest isn’t really that important. Either way, it calls into question the legitimacy of your legitimate business interest and limits the likelihood of enforceability.
- Reasonableness with Time, Area, and Business. The statute gives clear minimums and maximums for what courts will consider reasonable time periods, but for each business relationship there is a considerable gray area. For employees, restrictions between 6 months and 2 years is a battle ground for litigation. Carefully consider these guidelines when crafting your noncompete agreement. When possible adopt time periods that are demonstrably specific to your business using documentation such as product life or employee training time. Similarly, the geographical scope and business activity restrictions of your agreement must be based on your specific business. Here, business owners fall prey to being overbroad. Don’t try to restrict all of Florida if your customer base doesn’t extend outside of Tallahassee, and don’t restrict all software sales if you only sell library cataloguing software.
- Consistent Enforcement. The strength of a noncompete agreement is partially dependent on a company’s ability and willingness to enforce it. If litigation is necessary, it will take time and resources, but consistency is vital to ensure that your agreements retain their enforceability. A company with a consistent history of noncompete enforcement can even forestall potential litigation by promptly notifying an employer who poaches your employee of the noncompete agreement. Bottom line: If a noncompete agreement is in place and a breach occurs, regardless of the circumstances under which the employee left your company, a failure to take action can expose future attempts at enforcement to claims of retaliation or discrimination.
Protect This House
Your business can and should protect itself against loss of legitimate business interests that could harm the company by implementing noncompete agreements. Restrictive covenants are a legitimate and effective tool to protect your business and the livelihood of your employees. Your agreement must be carefully drafted to meet the legal requirements as well as your particular business needs.
However, employers who don’t take care to construct their noncompete agreements properly with the advice of professional legal counsel often find that their agreements are unenforceable. You will not only lose the time and money spent on the litigation to enforce the noncompete agreement, but you’ll also lose whatever aspects of your business you were trying to protect in the first place.
Your Most Valuable Asset
Because your employees are a valuable asset to your business, you need to make sure you hire the right ones. This ensures your business flourishes and that your current employees are taken care of.
Proper guidelines and employee handbooks will help resolve any legitimate employee-related disputes during the normal course of business and will also provide you some protection from disgruntled employees.
Most importantly, there will come a time when all employees will separate from your business. Regardless of how the separation occurs, you need to have noncompete agreements in place with key employees to protect your business and your other employees from ex-employees.
How Can We Help You?
Here at Alexander Abramson, we focus exclusively on business-related legal matters. Our attorneys have advised closely held businesses and business owners on everything from raising equity capital, to buying or selling a business, to partnership arrangements and commercial contract matters.
Our staff strives to create a high-quality client experience by actively listening and maintaining open lines of communication, consistently meeting deadlines, and being upfront about our pricing and services. Don’t trust your business to an attorney that can’t or won’t offer you the best service possible.
We would love to speak with you directly about how we can help you protect and grow your business with comprehensive agreements and contracts that fit your business needs. Call us at 407-649-7777 or email a team member to set up an initial consultation.
