Employment Law Risk Management

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An Unorthodox Approach to Employment Law

Law firms generally focus on winning cases and solving problems. While we have no problem with winning, our aim is to avoid cases and problems altogether. We accomplish this by applying risk management techniques to the employment relationship. Following is a brief overview of some of the major employment law risks our clients face and the techniques we apply to manage them.

A.         Employee Claims

The Risk      The New York Law Journal reports that one in five law suits filed in the federal Courts is an employment case. The state courts, as well as the federal, state and local human rights agencies, are inundated with thousands more cases against employers. Win, lose or draw, an employer can incur many thousands of dollars in legal fees alone if a disgruntled employee decides that he or she has been wronged.¹

Managing the Risk      Management lawyers traditionally focus on winning these cases, or settling them out of Court to reduce the exposure to a large judgment and/or legal bill. Winning or even settling cases can be very expensive for employers. Our approach, on the other hand, emphasizes the avoidance of claims through various techniques, including:

  • Adoption and application of firm but fair Disciplinary Procedures.
  • Training management to deal with sexual harassment and other forms of illegal discrimination².
  • Carefully constructed Employee Handbooks and Employment Policies ³.

B.         Unfair Competition

The Risk      In many cases an employer’s most valuable assets are relationships with customers and its data base of customer information. When a former sales person or other employee becomes or joins a competitor, the employer is at risk to lose business. The sales person has often developed relationships with the customers; and with today’s technology he or she can easily download and use all of the employer’s key data (names and contact info for key people; purchasing patterns; product sources; pricing; etc.) to benefit the new competing business.

Managing the Risk      An employer can significantly deter employees from pirating customers and information through the use of Restrictive Covenants⁴ (sometimes referred to as “Non Competes”) and Confidentiality Agreements. These restrict employees from doing business with the employer’s customers for a reasonable period of time after the employment terminates and preclude the misuse of the employer’s proprietary information. Contrary to popular belief, these Agreements are enforceable in the Courts of New York and most other states, at least when they are skillfully drafted.

C.        Regulatory Compliance

The Risk      Every employer is faced with an “alphabet soup” of legal regulation: COBRA and HIPAA (Health Insurance); FLSA (Wage and Hour Laws); ERISA (Employee Benefits); FMLA (Leaves of Absence) and so on and so on! Claims by employees and audits by the Department of Labor and other agencies, which are quite common today, can be expensive in staff time and legal costs, not to mention significant assessments and penalties.

Managing the Risk      We regularly answer our clients’ compliance questions as they arise. A more systematic approach is an Employment Practices Audit. A friendly audit, tailored to the employer’s need and budget, will often uncover exposure to employee claims and/or government audits. We follow up by recommending changes to those practices to reduce the risk factor.⁵

© Richard H. Waxman 2004

 

 

 

¹ The law authorizes attorney fees awards to the prevailing party in employment law cases. However, fees are usually only awarded to employees. Even when the employee is awarded nominal damages, the Court may award attorneys fees that far exceed the damage recovery. In this system, the employer gets to pay its own lawyer in all cases and both lawyers when it does not obtain an outright dismissal!
² If you wish to learn more about avoiding the work place risk of sexual harassment, you may access our Newsletter on that topic by clicking on this link.
³ If you wish to learn more about Employee Handbooks, you may access our Newsletter on that topic by clicking on this link.
⁴ If you wish to learn more about Restrictive Covenants, you may access our Newsletter on that topic by clicking on this link.
⁵ In some cases this can lead to substantial cost savings! In one situation an employer was paying “time and a half” for overtime in situations where the applicable law did not require it. In several others, a review and subsequent restructure of a Group Health Plan led to significant premium reductions.