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Hiring an Employee? Know What Can Go Wrong

4. June 2014 08:26

Woman shaking hands with new hire

If you’re a small-business owner looking to expand your operations, you’re going to need a little help. Perhaps you start by scouting possible talent on LinkedIn. Maybe you post a job listing on an employment website. Regardless of how you go about building your pool of candidates, one thing is certain: the process of hiring employees is like walking a legal tightrope. Make a misstep, and your business could be in serious trouble.

That’s because when you hire, fire, or promote employees, your small business must contend with federal Equal Employment Opportunity laws. The Equal Employment Opportunity Committee enforces these regulations, aiming to abolish workplace harassment and discrimination. However, the EEOC only gets involved when you have 15 employees. Your state, which has its own EEO laws, may take action if you have fewer employees, though.

But even if you only have one employee, you could be sued by past, current, and potential employees if they think you refused to hire them, compensate them fairly, or fired them because of their age, race, creed, color, national origin, sex, or disability.

Granted, discrimination laws are complicated. It can be hard to keep all the do’s and don’ts of hiring practices straight. And that’s why this is the first post in a series about how to protect your business from the high cost of employment practices lawsuits.

So let’s start with an overview. Read on to learn more about employment discrimination, equal opportunity in the workplace, and what you need to know when you hire new employees.

What Is Employment Discrimination?

Employment discrimination is illegal everywhere in the United States. That means you can’t reject potential hires or fire current employees based on their…

It is also illegal to…

As an employer, you should be aware that these laws apply to all types of work situations. So if you’re hiring, firing, promoting, training, or offering wages and benefits, be sure that you keep these regulations in mind. Should an employee claim you passed them up for a promotion because she is pregnant, you could end up facing a long court battle.

Read more about the laws enforced by the Equal Employment Opportunity Committee here: “Laws Enforced by EEOC.”

Equal Opportunity in the Workplace

Part of being an equal opportunity employer means understanding the laws that protect certain classes of people. These laws all protect applicants and employees from discrimination in hiring, promotion, termination, pay, fringe benefits, job training, classification, referral, and other aspects of employment. Let’s review them briefly:

Be aware of your state’s laws, too. Twelve states, over one hundred local governments, and the District of Columbia have statutes that outlaw discrimination based on sexual orientation. For more information, read the Department of Labor’s article “Equal Employment Opportunity is the Law” [PDF].

What Are Protected Classes?

Each of the laws outlined above are designed to shield “protected classes” from disenfranchisement. These groups include men and women who may experience employment discrimination on the basis of their sex, race, religion, color, or national origin. It also includes people over 40 and people with physical or mental handicaps.

Nearly every U.S. citizen is a member of some protected class and benefits from EEO laws. But it’s worth noting that Equal Employment Opportunity laws attempt to correct a history of marginalizing women and minority groups in the workplace.

The High Cost of Discrimination

Though employment discrimination lawsuits are some of the most rare liability cases an employer may face, they are also the most costly. According to a news release from the U.S. Department of Labor, Bank of America Corp. was ordered to pay $2.18 million to 1,147 black job applicants. It turns out the financial giant had a penchant for “unfair and inconsistent selection criteria” in hiring that kept qualified black candidates from getting jobs.

Even when you are perfectly fair and consistent with your employment practices, employees and applicants can still sue you for perceived discrimination. And a dismissed lawsuit can still cost you time and thousands of dollars in attorney’s fees.

Luckily, you can protect your business from these expenses with Employment Practices Liability Insurance. This small business insurance policy covers your business and its managers, officers, and directors against lawsuits brought by prospective, current, or former employees.

To learn more about this coverage and how to safely hire new employees, check out “Tips for Small Businesses That Plan to Hire in 2014.”

This post is part of an ongoing series on Employment Practices Liability Insurance, the high cost of employment discrimination lawsuits, and EEOC laws. Stay tuned for more on what can go wrong when hiring (and firing) employees.

know your business risks


EPLI | How to Grow Your Business | Risk Management | Small Business | Small Business Risk Management | Tips for All Small Businesses

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