What to Do If an Employee Sues You

When you run a small business, it’s easy to feel like your employees are friends or even family members. But in a court of law, they are your employees — and, as their employer, you should take steps to protect yourself and your company in the event that one of them sues you.

The FLSA: Learn It, Know It, Live It

The most common type of lawsuit brought by employees is a “wage and hour” case, or a dispute over whether or not you’ve adequately compensated them for hours they’ve worked. The Federal Fair Labor Standards Act addresses these issues, although each state, county, and city may have their own additional rules.

Most cases begin when “non-exempt” (or hourly, part-time) employees are treated like “exempt” (or salaried, full-time) employees. “Exempt” means exempt from the FLSA. In other words, salaried employees may work overtime without being paid extra, whereas hourly employees must receive overtime pay.

“There’s a booming industry in these types of cases, where employees are not getting paid time and a half,” says Keith Gutstein, partner at Kaufman Dolowich Voluck & Gonzo. He adds that that restaurants, hotels, gas stations, car washes, landscapers, and other cash businesses are at greatest risk.

No contract can waive an employee’s right to be protected by the FLSA. There is often an agreement to work overtime without being paid time and a half, Gutstein says, “but the fact is, it’s illegal, even though employer and employee are happy. After termination, they often realize they can go back and get all the overtime that is owed to them.” In fact, the FLSA compensates workers for up to three years of back overtime — and some states award twice that. Also, if you’re at fault, the FLSA doubles the award and requires you to pay the plaintiff’s legal fees, too.

To protect yourself, keep pristine records of employee hours and pay. Without records, an employee could claim any rate of pay and hours. Also, if the government gets wind that you pay workers in cash, it will investigate to insure that it’s collected all the tax revenue it’s due. Many times, in fact, an employee unwittingly triggers an investigation by filing for unemployment benefits.

Discrimination and Harassment

Many other employee lawsuits derive from behavior on the job, and, as such, can be tough to defend against. The Equal Employment Opportunity Commission protects employees from discrimination if they are a member of a “protected class” based on gender, age, race, and disability. (Sexual orientation and marital status are not protected under federal law, but they are in many states.) The EEOC will even prosecute on behalf of claimants, so your employee does not even have to retain a lawyer to launch such a suit.

In order to file a discrimination or harassment complaint with the EEOC, an employee must prove four things: that she’s a member of a protected class, that she’s qualified and performing the job in a satisfactory manner, that she’s suffered an adverse action (such as lack of promotion or termination), and that the adverse action was the result of membership in a protected class.

If a court allows the suit to proceed, it doesn’t mean the employee has won, it just shifts the burden back to the employer to prove that the adverse action was based on legitimate business reasons, Gutstein explains. “You have to rely on documentation—counselings, warnings, write-ups,” he says.

Your most important tool, however, is your employee handbook, which should outline company policies about discrimination and harassment, your disciplinary process, and should make clear that there is an open door policy for reporting any and all complaints about discrimination and harassment. There also must be appropriate training around these policies.

Assuming that you have an employee handbook and such practices in place, you can fall back on the Faragher/Ellerth defense, which allows an employer to file for a case to be dismissed because there was an open-door policy for reporting discrimination and harassment that the employee did not use before filing suit.

Best Practices for Weathering Employee Lawsuits

1. Employee handbook. Have an employee handbook properly drafted or reviewed by an employment attorney, and make sure employees are trained in it.

2. Hire an attorney. Don’t neglect your state, county, and city laws when creating company policies. Do not simply download an employee handbook from the internet: They are not one-size-fits-all.

3. Know the law. Familiarize yourself with the FLSA and the EEOC.

4. Document, document, document. Keep tidy employee and payroll records on hand for at least a decade.

5. Never assume you’re too small. For the FLSA to apply, you only need an annual gross revenue of $500,000. For discrimination cases, liability is based on the number of employees — in some states, as few as four.

About Kayte VanScoy

Kayte VanScoy is a writer and entrepreneur based out of Austin, Texas. She's been writing about businesses small and large since 1996.
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2 comments
margarito
margarito

the first incident we had was after thanksgiving,this guy was always late for work.

margarito
margarito

one of my employees has treat me twice, claiming i owned him overtime not pay.he's on a salary base weekly.

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