What small business owners need to know about employee rights

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The best way for your business to avoid costly employment practices lawsuits is to be familiar with employment discrimination laws.
Employer making an employee feel uncomfortable by placing a hand on their shoulder.

Most federal Equal Employment Opportunity laws apply to employers with 15 or more employees. However, many states have adopted their own EEO laws so that the state can intervene when small employers are accused of discriminatory practices.

Even if a government body doesn’t take up the discrimination case, your current, former, or prospective employees can always file a lawsuit of their own against your business. To help you comply with employment discrimination laws and avoid costly employment liability lawsuits, let’s explore equal employment laws in more detail.

Discrimination laws and small business owners

As an employer, you must take extra care when hiring, promoting, or firing employees. If you’re inconsistent in your practices, an employee or interviewee may question your motivations. Specifically, issues could arise if they feel your decisions were based on their age, sex, physical limitations, or race.

That’s because both federal and state laws provide legal sanctions for “protected classes” of employees. Protected classes are groups of men and women who may experience discrimination based on their sex, race, religion, color, or national origin. Here are a few of the laws designed to protect them:

  • Title VII of the Civil Rights Act of 1964: outlaws discrimination against a person for their skin color, race, religion, sex, or nationality
  • Age Discrimination in Employment Act (ADEA): outlaws discrimination against people over the age of 40
  • Equal Pay Act (EPA): states that men and women with the same skills performing the same work at the same establishment must be paid equally
  • Americans with Disabilities Act (ADA): outlaws discrimination based on a person’s physical or mental disabilities
  • Family and Medical Leave Act (FMLA): entitles employees to 12 weeks of medical leave or maternity leave without risking their job security
  • Genetic Information Nondiscrimination Act (GINA): prohibits discrimination based on a person’s medical history

In some states, these laws are expanded to outlaw discrimination based on sexual orientation, marital status, and weight. Many states also adapt their laws to hold smaller employers accountable, too. For instance, California law prohibits employers with five employees or more from treating employees unfairly because of their race, color, religion, nationality, age, sex, pregnancy status, marital status, sexual orientation, or gender identity.

 To find out what your state’s employment discrimination laws are, check out Nolo.com’s page "Employment discrimination in your state."

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Common employment discrimination lawsuit triggers

Regardless of how many employees you have, you should take care to respect their rights and treat them fairly. Here, we’ll discuss some hot-button issues in the workplace that can lead to employment practices liability lawsuits.

Interview questions

There are certain things employers can’t ask job candidates. For example, you can’t ask a potential hire their age, religious affiliation, or nationality. Though you can’t ask an interviewee if they have a disability, you can ask if they are able to perform functions essential to the job with or without a reasonable accommodation.

Accommodating disabilities

Whether or not you’re legally obligated to accommodate employees with disabilities depends on several factors, including:

  • The size of your business
  • The nature of the employee’s work
  • The nature of the employee’s disability

On the federal level, you must have 15 employees before the Americans with Disabilities Act applies to your business (though your state’s laws may kick in at a lower threshold). Also, your employees must be qualified to carry out the essential job functions with or without reasonable accommodation.

You may be required to accommodate an employee’s disability if they have a physical or mental limitation that affects significant life activities, but doesn’t impede the essential functions of their work. Reasonable accommodation might involve:

  • Changing their work schedule
  • Modifying equipment
  • Improving the accessibility of their work area

However, the law doesn’t demand that you accommodate disabled employees if the change will be too difficult or costly (in relation to your resources).

Maternity and medical leave

The Family and Medical Leave Act (FMLA) ensures employees can take up to 12 weeks of unpaid leave without risking their job security. That means you can’t fire or demote employees for taking time off work to:

  • Attend to their serious health condition
  • Care for an ill family member
  • Give birth
  • Adopt a child

However, employees must meet certain criteria to qualify for this legal protection. Know that you’ll have to extend this protection to your employees if:

  • They have worked for you for a total of one year and have worked at least 1,250 hours during the preceding year.
  • You employ at least 50 workers within a 75-mile radius.

Sexual harassment

Sexual harassment – the unwelcome sexual conduct of a supervisor, coworker, or client – is a form of illegal discrimination. Naturally, if your employees think they have been subjected to sexual harassment, they can sue your business.

Be aware that the following actions can be viewed as sexual harassment in the eyes of the court:

  • Sexually suggestive comments
  • Pressure for sexual favors
  • Inappropriate or unwelcome touching
  • Subjecting employees to sexual jokes or degrading images of women or men

Also, know that there are two forms of sexual harassment:

  • Quid pro quo harassment. This happens when a supervisor offers a work benefit in exchange for sexual favors.
  • Hostile work environment harassment. This case involves an atmosphere of sexually-based conduct that is so pervasive and unwelcome that it harms someone’s ability to work. The employee doesn’t have to be the target of the conduct to file a hostile work environment claim.

To reduce the likelihood of these lawsuits, be sure you take measures to educate and train your staff on your small business’s sexual harassment policy.

Disciplining and firing employees

In almost all states, the law permits you to suspend, demote, or fire your employees at will. You don’t have to provide a reason, unless your employment contracts require a good or just reason for termination.

However, there are several exceptions to this rule. For instance, you can’t demote or fire employees based on age, race, religion, disabilities, nationality, and other personal characteristics. To do so would be considered discrimination.

You also can’t fire or demote employees for reporting your business to the Equal Employment Opportunity Commission or for filing a claim about safety violations. You also can’t retaliate against employees who missed work for jury duty.

Protecting your small business from employment discrimination lawsuits

Though employment practices liability insurance can’t prevent a discrimination lawsuit or EEOC investigation from happening, the policy can give your business the financial assistance it needs to weather the legal storm. When you are sued for wrongful termination, sexual harassment, or discrimination, this coverage can pay for your small business’s…

  • Attorney’s fees
  • Settlements
  • Judgments
  • Court expenses

To learn more about EPLI, check out our post “Do small businesses need employment practices liability insurance?

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Mike Mosser, Content Specialist

Mike spent several years as a reporter and editor covering politics, crime, and the world financial markets. He’s worked for several newspapers, a financial newswire, and a monthly magazine. As a copywriter, Mike has produced SEO-based content, marketing, public relations, and advertising work for a variety of companies.

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