What to Ask: Employment Law, HR and Incorporation | Adam Aldrich, Esq.
Starting a new business? UpCounsel attorney Adam Aldrich explains what every startup should be asking their legal team about employment law, HR and incorporation3 min read
What steps has the company taken to protect talent and intellectual property?
Protecting your IP and talent pool is critical to an emerging company’s success. Virtually every employer will encounter a situation in which a key employee leaves to work for a direct competitor. Fortunately, there are several precautions that your company can take to limit the likelihood that a former employee will disclose your trade secrets to a competitor and to ensure that a court will provide relief if he or she does disclose such secrets.
Is the company compliant with wage and hour laws?
It is important to realize that under the various federal and state wage and hour laws, some employees may be entitled to overtime pay regardless of whether the employer pays the employee a salary. Failure to properly classify employees from the outset, and to otherwise comply with the applicable wage and hour laws, can create significant legal and financial problems for an emerging company. A compliance audit by a government agency, or individual and class action wage claims, can result in an obligation to pay significant amounts in back pay plus penalties and can thwart or delay financing opportunities, a planned initial public offering (IPO), or a desired M&A transaction.
Has the company implemented employment practices?
As your company grows and hires more employees, the company’s employment practices, and its consistent application of them, become increasingly important. Ad hoc employment policies can often lead to inappropriate employee expectations and even claims of discrimination. An employee handbook that clearly conveys the company’s policies to employees may reduce litigation by clarifying company rules and benefits and communicating expectations for behavior. A poorly drafted employee handbook can lead to potential breach-of-contract actions by employees and former employees, bolster claims of discrimination if you do not have an effective discrimination and harassment policy or do not apply an existing policy uniformly or consistently, and lead to potential problems with employee morale.
Is the company performing regular employee evaluations?
Employee performance evaluations are a vital personnel tool. Evaluations often are central to the defense of a layoff or termination decision. If done poorly, evaluations are meaningless and can actually create liability. If done properly, they can help to improve employee performance, aid human resources and managers in managing unsatisfactory performance, and increase the chances of successfully defending a lawsuit arising from an employment decision. Care should be taken to train managers and supervisors to conduct performance evaluations that will place an employee on notice of performance deficiencies and the standard for acceptable performance; provide you, the employer, with a valid basis for comparison in personnel decisions such as merit pay increases, promotions, transfers, and reductions in force; and provide the company with a defense against discrimination and wrongful dismissal claims.
Has the company adopted appropriate hiring and firing practices?
Appropriate hiring and firing practices are critical in avoiding potential litigation and defending against claims that cannot be avoided. Care should be taken to train all supervisors and other employees who will be involved in the hiring and firing process.
What is the best way a small business owner can protect personal wealth and assets from business risks?
Speak with an insurance broker and purchase insurance that covers you for personal actions or inactions related to the business. Also, meet with an estate planning attorney to discuss appropriate ways to protect assets.
What is the best way a small business can maximize its tax deductions?
Speak to a tax attorney.
What specifically are small business owners most confused about when you first meet with them?
The importance of operating documents for the company
How can quality legal services help a small business grow?
Quality legal services can get the business started on the right foot and able to grow without having to back track to address legal issues that arise down the line.
How can quality legal services help small businesses save money?
By avoiding litigation and costly disputes that may have been avoided with appropriate legal counseling.
How can small businesses maximize the value of their legal team’s services?
Spending money up front with good legal counsel will help avoid expensive and time consuming legal issues in the future.
Should business partners have the same amount of equity in a company? Why or why not?
It depends on a number of factors, including the relative contributions and commitments made to the company by the partners at that moment in time. There is no black and white answer to this question.
What are the top three things a small business owner should be aware of when purchasing an existing business?
Accurately determine the value, Review the business's tax returns to determine profitability and if there is outstanding tax liability, Due diligence reviewing customer lists, sale records, advertising materials, and employee contracts