Dealing with Employee Legal Disputes in Your Business

Starting and growing a company inevitably involves hiring employees. However, disputes with current or former employees can arise, often involving allegations of improper termination. These claims may relate to whistleblowing and discrimination based on age, gender, race, religion, or other protected categories.

Common Misconceptions About Wrongful Termination

Business owners frequently encounter allegations from disgruntled employees who claim wrongful termination. Surprisingly, most of these claims lack merit. Many employees, influenced by emotions and advice from family and friends, may exaggerate their experiences, leading to unfounded legal actions.

Legal Grounds for Termination

Generally, if an employee is not under a specific contract or union agreement, they can be terminated for various reasons, as long as the reasons are not discriminatory. It is illegal to fire someone based on protected characteristics such as religion, ethnicity, or age. Ensuring that your termination processes are free from discrimination is vital.

Protecting Your Business with EPLI

Employment Practices Liability Insurance (EPLI) is an essential tool for businesses to safeguard against legal claims from employees. This insurance covers a wide range of employment-related claims, including wrongful termination, discrimination, and harassment. The cost of EPLI is often outweighed by the potential expenses of defending against a single claim, making it a cost-effective measure for businesses.

Benefits of EPLI

  • Cost Savings: EPLI can significantly reduce the financial burden of legal disputes.
  • Experienced Legal Representation: Policies typically include access to specialized attorneys who offer services at negotiated lower rates.
  • Peace of Mind: Knowing your business is protected allows you to focus on growth and operations rather than legal battles.

Building a Strong Company Culture

Core Values in Hiring

One effective strategy to minimize employee disputes is to hire individuals whose values align with your company’s core values. During the interview process, ask questions that reveal whether candidates share these values. Instead of direct questions about integrity or honesty, present scenarios to understand how they have handled similar situations in the past.

Continuous Reinforcement

Once hired, reinforce these core values through regular reviews and daily practices. Consistent communication about your company’s values helps ensure all employees are aligned, fostering a cohesive and focused team.

Practical Steps to Prevent Disputes

  • Employee Handbook: Develop a comprehensive handbook outlining policies and procedures. This document serves as a reference for employees and a tool for managers to ensure consistency.
  • Standard Operating Procedures: Clearly define your hiring and termination processes. Regularly review these procedures with a business attorney to ensure compliance and effectiveness.

Conclusion

Employment disputes are a common challenge for businesses, but with proper precautions and a strong company culture, their impact can be minimized. Invest in EPLI, hire based on core values, and maintain clear policies to protect your business and keep your team focused on achieving your company goals. For more resources and guidance, visit aaronhall.com/free and explore educational materials tailored for business owners and entrepreneurs.

Video Transcript

Common Legal Issues with Employees

It is fairly common after you have started a company and hired several employees that you get some sort of legal dispute with either a current employee or an ex-employee, often a disgruntled employee, maybe who was fired, and now they are alleging something was done improperly. Maybe they are alleging that they were fired for an improper purpose, like a whistleblower, their age, their gender, their race, their religion, or some other protected category.

Handling Claims of Wrongful Termination

I don’t know how many times I have worked with clients, and they have called me and they said, “Look, we had this problematic employee. We got rid of him or her, and now they are alleging that we did something wrong, that this is somehow a coverup, or we are retaliating because they did something.” Well, I can tell you, I used to practice in representing a lot of employees. And when employees called me with claims of wrongful termination, 19 out of 20 of those claims were without merit. That means they weren’t even worth bringing. 1 out of 20 had something of significance. It was a legitimate, wrongful act.

Employee Emotions and Reactions

So, often, employees are really frustrated. If they get fired, it makes sense. It is a really emotional, painful experience. And often, when they tell family and friends, they recount the story, and they might even exaggerate some things. And friends and family who are trying to be helpful say, “You know what you should go talk to a lawyer. It sounds like what they did was illegal. That sounds like wrongful termination.”

Legal Grounds for Termination

Well, generally speaking, if an employee is not sub-hired by a contract and they are not a union employee subject to a union contract, they can generally be let go for all sorts of reasons or none at all. As long as the reasons are not discriminatory or part of a protected class.

Prohibited Reasons for Termination

So obviously you can’t say, “I am not going to keep you here. You are too Christian, you know. Or I have decided not to keep you here. You talk too much like.” And then an ethnic category is mentioned. Or maybe we are not going to keep you here because of your age. Those sorts of things.

Protecting Your Company

Costs of Legal Claims

So, when you are running into these sorts of claims, they can be incredibly expensive. Because not only are you paying an attorney to defend the case, but you are also often going to end up paying out a settlement. So one of the things that is really easy to do to protect your company is to get employment practices liability insurance. That is abbreviated EPLI.

Benefits of EPLI

So employment practices, that is what you do, the way you practice, and handling the employees. Liability is when you are liable or you are responsible for something. And this is an insurance policy that covers all of that stuff. So whether it is a wrongful termination or a whole host of different categories that a company might get sued for employment practices liability insurance can be very cost-effective.

Cost-Effectiveness of EPLI

For example, maybe it costs you $5,000 per year for 30 employees. Well, think about that. You get one claim in a year, and you have easily made that up. If you get one claim every three years, you have probably saved money with an employment practices liability claim. Another benefit of that is usually that policy appoints an attorney who is just defending these cases.

Expertise of Appointed Attorneys

So they are very experienced in this area of law. Usually, the attorney has negotiated a very low rate with the insurance company because the insurance company is giving so much business to that attorney. And the attorney knows he or she is entitled to get paid. Because the insurance company always pays they can have lower rates than they could with private parties.

Cost Savings for Companies

So as a result, insurance companies get much better rates with attorneys. And that means that these EPLI policies can be very cost-effective. So, that is step one, get a price from your commercial insurance broker on EPLI policies or employment practices liability insurance.

Hiring Based on Core Values

Importance of Core Values

Another thing you can do to avoid problems is hire based on your core values. Identify what your company’s core values are. Have questions in the interview process that extract from the job candidates whether they align with your core values or not. There is a real art in creating questions for the interview process that helps you solicit and learn about a potential employee’s core values.

Crafting Interview Questions

You want to see if there is an alignment in those core values or not. Now, here is the problem. A lot of times, people who want a job will say whatever it takes to get a job. They will be listening to a scenario and they are thinking, “What do you want to hear? I am going to tell them what I want to hear.” So, there is a special craft in identifying questions that don’t just simply ask employees, “What are your core values or do you believe in the core value of integrity or honesty?” Of course, they will say yes, but asking them about scenarios and how they have handled those in the past or how they would handle them in the future often can reveal what their core values are.

Future Content on Core Values

And there are a series of other questions, which I may do a video about it sometime. Mention in the comments if you would like me to do a video about the kind of questions I ask to assess core values. But hiring based on core values and then doing employee reviews based on core values, speaking about those core values all the time in the company, to the point where the employees even get sick of hearing about them, that is the way to make sure that your team is aligned and everybody is rowing the boat in the same direction. They are not causing conflict with each other, but instead, you have the right people in the boat. They have a clear understanding of what their assignments are, and they are moving forward with them.

Recommended Reading

A great book on this topic, and it is really cheap, $10 on Amazon, is called Traction: Get A Grip On Your Business by Gino Wickman. It gives an overview of how this works. There is simply one chapter in there that talks about hiring and reviewing employees based on your core values and how to do that. It is a fantastic book. I will add a link to it in the description below. I will make it an affiliate link, which means we get a few percent back. It doesn’t cost any more to you, but it is an outstanding book. I have bought hundreds, maybe thousands, of Gino Wickman books and given them away because they are so helpful for CEOs and business owners in figuring out the science behind running a thriving company.

Conclusion

Handling Employment Disputes

If you have encountered several employment practices, lawsuits, disputes, disgruntled employees, or demand letters from employees you terminated, know that you are in good company. This is par for the course. Statistically, if you hire a hundred employees, at least a percentage of them is going to be a little bit crazy or have some sort of problems.

Importance of EPLI and Core Values

So even the best companies can run into this, but employment practices liability insurance provides you a way to limit your financial exposure to those cases. Second, you can limit the number of problematic employees in a company by intentionally thinking about your core values, hiring them, reviewing on them, and making your core values an important part of your culture in the company.

Documentation and Legal Advice

If you don’t have a good employee handbook already, that is invaluable for documenting what your policies and procedures are for the employees. Often, it makes great sense to document your standard operating procedure for hiring and then review that all with an attorney. Having a business and employment attorney who can advise you, understand your business, and review what you have put together often can avoid real serious problems later.

Final Thoughts

The goal with this time upfront is that you save money, you reduce distractions, and you help everybody on your team stay focused on the company goals, not on the squabbles, infighting, and distractions that can occur when employees are focused on the wrong things.

About the Speaker

I am Aaron Hall. I am an attorney for business owners and entrepreneurial companies. If you found this helpful, you are welcome to subscribe to this channel for more educational videos for CEOs and company leaders. If you would like to learn more, go to AaronHall.com/free, and you can sign up for some free resources, PDFs, and videos that help you avoid some of the common problems faced by other CEOs and company leaders.