Business owners: 3 expensive lawsuits you can avoid with good policies and follow-through. How do you measure up?

If you’re going to avoid the legal nightmares a typical I-don’t-need-a-lawyer-entrepreneur faces, then you should make sure you have a good employee handbook.

Your employee handbook is like anything else you need for your business: you can get it cheap, or you can get it right.  With more employee lawsuits being filed all the time, successful business owners know that investing in a handbook that complies with the law and sets the foundation and roadmap of how all team members will be treated is worth the time and effort.

Some business owners worry their handbook won’t cover all the problems an employee will throw at them.  Then they’re stuck revising the handbook before they can fire him.  That does stink.  No one likes to feel like their own policies are being used against them.

The real solution is to have a great handbook and to be guided by common sense and fairness.  That’s why I’ve put together this list of the top 3 problems your employee handbook should insure don’t become an expensive legal nightmare for your business.   (Plus, I decided to over-deliver with 9 extra).

1. It shows you which laws to follow.

Ever heard of USERRA?  That could be a big problem.  Especially if your employee joins the reserves or national guard and gives you last minute verbal notice he needs to miss work for military reasons.  Oh yeah, and he doesn’t know when he’ll big back.  You might think you can replace him or her.  Think again.  You’re almost guaranteed to be required by law to give him his same job back, plus raises.

You see how having a good USERRA Policy in your handbook could prevent the nightmare of breaking the law AND the bad PR of mistreating a veteran?

2. It shows you how to follow the HR laws close enough to stay out of trouble.

Not knowing the law can hurt you.  What if your manager doesn’t interview a qualified pregnant lady for a job because “who applies for a job when they’re six months pregnant?”  Wouldn’t it have been nice if your handbook said “we don’t discriminate on the basis of pregnancy”, instead of the only the standard “sex.”  Come on, how many entrepreneurs read the word “sex” and think “pregnancy”?  *wink*

Anyway . . . I’ve added “pregnancy” to more discrimination policies in handbooks than I can remember.  No, the law doesn’t say “it has to say pregnancy.”  But it’s safer to be clear.  Here’s why:

I’ve heard a manager say “she’s the best one, I wish she hadn’t told me she was pregnant.  Now I can’t hire her.”  I was in law school at the time, and this manager fought back with me.  “That can’t be the law, Melissa.  Everyone knows you don’t apply for job while you’re pregnant.”


So, just to be safe and protect all the unsuspecting business owners out there, I put “pregnancy” in every discrimination policy.

3. It immediately creates an awesome defense to most sexual harassment claims.

The only time it doesn’t create that awesome defense is when someone complains and you don’t follow the policy saying you’ll investigate and take appropriate action.  But you aren’t going to do that are you?

Of course not.

The US Supreme Court said way back in 1998-99 (going on memory here) that sexual harassment plaintiffs should be required to file an internal complaint with their employer before they sue.  Then, if the employer takes appropriate action, the employer gets an “affirmative defense” to the sexual harassment lawsuit.

The problem: if you don’t have a policy prohibiting harassment, telling them how to complain and telling them who to complain to if the person harassing them is the one that is supposed to receive the complaints, then you don’t get the defense at all.  In fact, your liability gets worse.

BONUS: this defense even “sort of” works for all other types of discrimination: race, gender, etc.

“WAIT UP,” you’re thinking.  “I thought you said 3?”  Well, how about I give you 12 instead.  My gift to you; just to keep you safe.

4. Your handbook proves that you told your employees your expectations.

Ever had an employee look at you like you’re crazy when you ask them if they’ve followed procedure?  “What? You never said that.”  Maybe it was not calling in sick and just staying in bed assuming you would know they must be sick.

(Seriously, do I have to tell them everything?  Isn’t anything common sense anymore?)

If do have a no-call, no-show employee, you’re going to be so thankful you wrote down that you told them they should call you when they’re sick, each and every day.  Even better if they signed a handbook acknowledgement.

5. Your handbook saves you time.

You can’t sit down and tell your employees all the common sense things you’re expecting of them.  If you have a good handbook, then onboarding becomes a lot easier.  Look at your table of contents, highlight the most important policies to you.  Smile and tell your new employee: “See these things I’ve highlighted in my handbook.  Please follow them.  We’ll get along a lot better that way.”  You can read over the names of policies, ask if they have questions, and then move on to telling them what their roll is in your company.

Boom.  You’ve just onboarded an employee without paying a fancy consultant.  When you’re a small company, it’s about getting the HR stuff good enough in the beginning.  I get it.

6. It proves you’re a good guy/gal/entrepreneur.

No law says that you have to have a policy against discrimination until you hit 15 employees. I teach business owners that until you hire your 15th employee, you only need to practice not discriminating.  Meanwhile, have a written policy proving it is your policy to follow the non-discrimination laws even though you aren’t legally required to follow them until you’re a bigger company.  You are doing that because you believe it is the right thing to do.

Then, if a pregnant employee steals from you and you fire her from stealing, but she calls the local tv station claiming you fired her because she’s pregnant, you have proof you’re “a good guy boss.”  Here’s my policy I don’t even have to have saying I will not discriminate based on pregnancy.  On deep background, I’ll show you my evidence she stole from me, then you can decide if you really want to run with the story.

WARNING: (OK.  So some states make these laws apply to smaller companies.  Plus, it’s also illegal to discriminate in the entire US based on immigration status as soon as you hire your 4th employee).

This good gal entrepreneur stuff also works when your employees read it, and when your employees start to complain to each other, instead of to you, about discrimination.  When you get wind of it, you can point out: the company has a policy against it that says to complain to me or (alternative person).  I’m going to look into this for you.  However, next time, I expect you to complain to someone who can fix it instead of just talking to your co-workers about it.

7. It gives your team a common goal.

I’m not just talking about a corporate values statement here. (I do believe in these.  If the top leader works to make it real, instead of lip service).  Your employee handbook should tell your employees: here’s why I founded this business and what I am working to accomplish. Be proud to work here.  We are working together to accomplish [building custom homes on time and on budget], [caring for the terminally ill and their families in the loving, respectful environment], or simply [our mission is to be the ____ of choice in this geographic area].

Every single person wants to be part of something bigger than themselves. Writing your bigger vision the employee will help you reach – on page 1 – immediately makes the employee feel part of something bigger.  This isn’t a J-O-B. You are part of something bigger that matters.

8. It documents your non-negotiables.

You might be worrying, but I haven’t even made a good list of what my non-negotiables are.  That’s fine.  You can change it later.  But I challenge you to set a timer for 5 minutes and think of the characteristics you expect of your team.

Here are mine I wrote down a few years ago. Maybe I’d change it now.  But it’s my habit to go over these 7 characteristics of all successful The Malcom Firm, P.C., employees within the 1st hour on the job:

  1. Honest and Truthful.
  2. Dependable
  3. Coachable
  4. Be Professional.
  5. Confidentiality is key. << See how this is specific to my business of the law.
  6. Communicate Professionally, and Like You Are Human.
  7. Produce Quality Work.

So what’s your list?

Please, swipe my list and make it fit your business if you don’t already have one.  Need to change it later?  Fine.  You can.  Just start.

While you’re at it, please just comment below and tell me what your required characteristics of successful employees.

Wouldn’t it be awesome to compile a list and learn from each other?

9. It tells juries, government investigators and would-be plaintiffs your values.

Remember that manager that discriminated against the pregnant lady?  If you owned that business, it would have been better if your policy included the word “pregnancy” in your discrimination policy. That way, if you got an EEOC charge of discrimination, you can say you had the proper policy in place, but she didn’t follow it.  That’s why you wrote her up when you found out about it.  If she does it again, she’s gone.

Even better, you can make sure you ask hiring managers “who was the best candidate and why?”  If anything seems a little off, pull out your policy and check it.  You’re worried that the best candidate on paper was in a wheelchair when they showed up?  Well, we don’t discriminate based on disability or handicap, so let’s hire the best person for the job.

10. You’re ready for the jury.

Has your business been sued yet?  Do you think your first lawsuit will come from a customer, a vendor or an employee?

Let’s say you’ve managed to keep your employees mostly happy by simply treating everyone fairly.  What can go wrong?

What if your employee had a car wreck while running errands for your business?  Or what if a customer slips and falls in your place of business, and actually gets hurt?

Imagine your employee handbook is read out loud to the jury.  “In case of an accident, don’t admit liability.  Do not apologize.  It might be misunderstood as a confession.  Call the office first.  1-800-jerks-r-us.  Take pictures of the accident, including your vehicle and the vehicle of the other person involved.  Get their insurance information,” etc., you get the idea.

Is that really how you want to come across to the jury or the parent of an injured child that your employee injured in an accident while reading a text from dispatch driving to a job site?    Nope.

You want to be human.  Encourage them to render aid, call 911.  Use common sense.  A good employee handbook might be read by a lot of potential audiences: an attorney suing your company, the Department of Labor investigating your pay practices, your manager making a decision while you’re on vacation, or your employee sitting at home distraught over an off-color joke or comment.

11. It reminds you when you need to start following another law.

I don’t know how business owners are expected to discover and keep up with all the laws that they need to follow.  (That’s the problem I’m working hard to solve by delivering answers to entrepreneurs before it’s too late.)

One thing I write into the employee handbooks I write (or the ones created with my Small Business Owner’s Employee Handbook Generator) is to put in black-and-white exactly when the business has to comply with another HR law.

Here’s something most business owners don’t know: besides overtime and minimum wage, the big, scary, employment laws that can get you into trouble generally begin to apply to your business when you hire your 15th employee.  Race, sex, disability, religious discrimination?  Your business is not legally required to follow those laws – and the EEOC does not have jurisdiction to investigate your business or take a charge of discrimination from a disgruntled employee – until you have 15 employees on your payroll.

BIG EXCEPTION: racial discrimination in contracting is always illegal under federal law no matter how small your business is.  But there aren’t many attorneys suing smaller businesses under this little-used law.  They’d rather spend their time suing a bigger fish, using a law and thousands of cases they’ve studied (and the attorney’s fees that have to be paid by the loser), than coming after a business owner who is too small to be sued under Title VII of the Civil Rights Act of 1964.

BIG EXCEPTION 2:  don’t forget about the court of public opinion.  If you’re too small to fall under the EEOC’s jurisdiction, any discrimination case that just plain smells wrong could make an excellent news story.

Back to my point:  If your business has less than 15 employees when I write your handbook, then your handbook will still prohibit all forms of illegal discrimination.  Plus, it will say you are doing it because it is the right thing to do, because you believe in not discriminating, even though you don’t legally have to follow those until you have 15 employees.

That way, when you hire your 15th employee, you don’t have to scramble to write a new handbook or publish new HR policies.  Likely that 15th person is hired without much “what does this mean legally” fanfare.  But, if there is a problem, you and your employees and your managers will see that your handbook says “if we do have 15 employees at the time you’re reading this, then it is law.  It’s been our policy for years, though.”

Instead of getting caught with your pants down, you’re covered.  Your employee is told who to complain to, what you’ll do about it (investigate consistent with the facts and circumstances), and that if they don’t complain to you before going outside the company, that their ability to collect damages might be adversely affected.  Whew!  Aren’t you glad it said to come to you first?

Anyway, there’s a few of these in my handbook: in Georgia, you have to start using e-verify when you hire your 11th employee.  Workers comp is mandatory when you hire your 3rd employee (5 in Alabama).  You have an employee in the military that needs time off, but can’t or won’t tell you when he’ll be back?  There’s a policy in there that will give you the basics of USERRA if you ever need it.  (And it’s one of those “how can that be the law?” statutes.)

Not 12. A good employee handbook won’t save you from being an idiot boss.

12. A good handbook will give you the confidence to stand up for yourself instead of worrying about violating the law.

A good employee handbook also can’t make you stand up for yourself.  But, when a business owner has a good employee handbook to remind them what is allowed, and is required or prohibited by law, then reticent entrepreneurs can start to set expectations and discipline with more confidence.

And we all know that we business owners and entrepreneurs have to be able to stand up for ourselves.

Until next time, make your mark on the world. And stay safe out there.

Thanks.  You’re awesome.  Keep being you.