It may seem obvious to most, but neglecting your organization’s human resources function can lead to innumerable problems, which can have a costly impact on businesses. Two primary areas of documentation are critical to have in place – the individual employment agreement and the employee handbook. Additionally, the appropriate liability protection in the form of Employment Practices Liability Insurance should be considered.
The individual employment agreement is one of an organization’s most important documents. All employees should have one in place regardless of whether they are full-time, part-time, fixed-term, at-will, hourly, or salaried. These agreements should be signed when employment commences and updated as the work evolves or as otherwise needed.
This means providing the written agreement to the candidate before their start date and requiring a signature before the employee commences work. If the agreement is not signed before the employee’s start date (including existing employees), you can consider making it conditional on receiving some additional benefit, such as a signing bonus, promotion, new bonus plan, salary increase, etc.).
Here are a few things to keep in mind when drafting an employment agreement:
- Establish the terms and conditions of employment and the obligations that survive the employment relationship, such as confidentiality and non-solicitation.
- Significantly limit an organization’s exposure to costs upon termination.
- Contain variable costs, which will enhance the business’s perceived value to prospective buyers.
There are many things to consider when drafting an employment agreement. Getting it right from the start goes a long way toward reducing unnecessary legal exposure and risk. These include:
- The type of relationship (full-time, part-time, at-will, or fixed-term)
- Start date
- Duties of the employee
- Hours of work
- Vacation entitlement
- Overtime entitlement
- Termination and resignation
- Post-employment obligations.
An effective employee handbook clearly outlines the organization’s policies and procedures to answer employee questions and avoid confusion – it contains legally required policies and recommendations. It reduces the risk of legal disputes or litigation, sets clear expectations for employees and managers, and communicates organizational values.
The employee handbook should reflect your organization’s culture and applicable employment standards, health and safety, and human rights legislation in the locations (foreign and domestic) where the organization operates.
All staff should be provided with a copy of the handbook or access to an electronic version. The handbook should contain an acknowledgment that the employees sign. The handbook should also be updated regularly to ensure compliance with legislative changes. Managers and supervisors should receive regular training on the policies to ensure they are implemented correctly and effectively.
Employment Practices Liability Insurance (EPLI)
The number of lawsuits filed by employees against their employers has been rising. While most suits are filed against large corporations, no company is immune to such cases. EPLI covers businesses against claims by workers that their legal rights as employees have been violated. Depending upon the policy, allegations such as the following, among others, may be covered:
- Sexual harassment
- Discrimination claims
- Wrongful termination
- Wage claims
- Breach of employment contract
- Negligent evaluation
- Failure to employ or promote
- Wrongful discipline
- negligent or intentional infliction of emotional distress
- Mismanagement of employee benefit plans
Recognizing that smaller companies now need this protection, some insurers provide this coverage as an endorsement to their Businessowners Policy (BOP). An endorsement changes the terms and conditions of the policy. Other companies offer EPLI as stand-alone coverage.
While many small businesses may not see the need for an HR department, it’s a necessary and valuable asset, especially as your business grows. Not only can establishing an HR department early on help keep your company organized, but it can handle internal issues that are bound to crop up when you least expect them.