Management Law 101
by Maria C. Rodriguez

Pick up just about any business consulting book, and you will learn that information and human capital are a company's most important resources. Every company can positively impact its bottom line by paying attention to its management law issues, since management and human capital have a long-standing symbiotic relationship. Technology and emerging start-up companies may be particularly vulnerable to litigation in this area as they tend to be more business-model and bottom line focused in their initial stages of development.

So what does it mean to address or analyze management law issues? Every company must assess its wage and hour practices, employment policies (including sexual harassment, discrimination, employee coaching and counseling), employee performance and development practices, documentation practices, hiring and firing policies, disability issues, leave policies, employment contracts and more.

Currently, the most litigated issue in employment law deals with wage and hour practices. In the last year or so, juries have returned verdicts against numerous companies, such as, Farmers Insurance, Starbucks and several retail chains, for tens of millions of dollars. These verdicts are based on companies' improper classification of employees as exempt from overtime pay when indeed their employees did not fall under any exempt classification under the law. This topic is so highly visible and presents such a pervasive problem that management attorneys are giving up their large law firm jobs to become plaintiffs attorneys and sue companies rather than defend them.

A simple wage and hour violation of this nature yields liability not only for the backpay owed the employee but also for penalties and attorneys= fees. Indeed, in most of the major cases cited above, employees filed class action lawsuits or pseudo-class action lawsuits under Business and Professions Code '17200 which provides a vehicle whereby employees can sue and recover as a group without having to endure complicated class certification issues. As a result, verdicts are astronomical. But these issues do not just affect large companies. Every company of any size is impacted by these laws. In fact, smaller companies with fewer resources have the most trouble absorbing liabilities that result from these lawsuits.

Courts are also plagued with a high volume of employment law cases involving wrongful termination, sexual harassment, discrimination, disability or failure to accommodate issues, leave of absence violations and breach of contract claims. The most common lawsuits seem to be based on a termination or adverse employment action where an employee walked away angry from an interaction and simply found grounds to sue B whether those grounds were valid or not. For example, it is not rare that a company is surprisingly served with a complaint that involves causes of action for wrongful termination, discrimination, sexual harassment and breach of contract claims. In the meantime, the company merely terminated the employee for poor performance. Inevitably, however, the employee=s manager did a poor job of coaching the employee and documenting the poor performance. Typically, the employee had no idea his or her job was at risk and the termination, in the employee=s mind, came out of nowhere. That employee left the company feeling angry and upset. An employee either immediately approaches an attorney (it seems that all employees have lawyers these days) or elicits advice from friends who inspire the employee to take action. Low and behold, a company that could have avoided a lawsuit is required to spend time, money and resources fighting a battle instead of allocating those resources to productivity.

Most management law conflicts can be avoided through a thorough analysis of management policies and practices. Any company can minimize its risk and indeed create more productive human capital.

Some basic ways a company can audit its management policies and practices follow. A company should create job descriptions for every position. These job descriptions must then be reviewed with employees actually performing the work to ensure they are accurate. Then, job descriptions for each classification of employee should be reviewed and analyzed as they relate to the exemptions delineated in the applicable wage order. Management must beware however. Exemptions in the wage orders have been expanded upon, interpreted and molded by case law. Therefore, it is not always apparent whether an employee is exempt or not exempt. For example, under an executive exemption, an employee is exempt if he meets the wage and duty requirements and supervises at least two employees. But California case law has made it clear if an employee is a working manager and is engaged in the work of her subordinates at least 51% of the time, she is not exempt. Therefore, you are strongly urged to seek counsel with respect to wage and hour issues. In this analysis, a company is far better off allocating resources to prevention than litigation.

Further, a company must assess its approach to management and coaching. All managers should understand their company=s philosophy and any progressive discipline plan the company utilizes. Managers should be coached in demeanor and sensitivity. Managers should keep employees apprised of the company's expectations and their performance. Every company should provide at least annual (if not semi-annual) reviews along with consistent feedback. If an employee is not meeting expectations at the outset of their employment, management must respond immediately with appropriate counseling. Every problem employee should receive a performance improvement plan, which clearly delineates the company=s expectations and a deadline by which the employee must meet those expectations. When an employee is in danger of losing her job, a company should immediately advise her in writing. Employees who are performing well should be praised for their performance and further developed. Prospering employees typically want to continue to grow, and a company serves itself and its employees by engendering growth.

Every company regardless of its size should have an employee handbook that outlines its policies. California law requires that certain policies be published, distributed to all employees and include certain language (e.g. sexual harassment and discrimination). Both California and Federal law require that companies of different sizes adhere to certain laws (e.g. certain disability rules under State and Federal law apply to companies with 5 and 15 or more employees, respectively). In addition, certain company practices, such as disciplinary policies, should be carefully crafted to ensure employee awareness and communicate consequences. A company will also be well served by publishing benefits and policies that reflect Afringe benefits@ to motivate employees and create incentive.

In short, an ounce of prevention is indeed worth a pound of cure. Every company, regardless of size, is well served by auditing management law issues. In doing so, a company can generate confidence, create a productive workforce and avoid risk and liability. All of these actions will yield a positive impact on your bottom line.