Common Employer Mistakes That Lead to Costly Lawsuits

Employee lawsuits can drain resources and damage your reputation. Therefore, it’s important to avoid employment law litigation at all costs.

Unfortunately, many employers unwittingly make mistakes that open the door to lawsuits and unnecessarily increase their risk of lasting reputational damage. These are some of the common missteps that an employer can make that lead to employment law litigation.

Misclassifying Employees

Classifying workers appropriately ensures that they are properly compensated for the work they perform. This is especially important in California, as the state has extremely strict worker protection laws. Misclassifying employees as independent contractors is a costly error that exposes you to serious risks.

When classifying workers, carefully evaluate the type and nature of their work. Make sure that their job duties align with the appropriate definition.

Remember, workers are contractors only if they control their own work processes, perform tasks outside of the company’s core business, and operate independently. When in doubt about the appropriate classification, consult with an employment law attorney.

Ignoring or Improper Handling of Employee Complaints

When one of your team members complains, you need to listen. It’s better to look into employee complaints and discover it is unfounded than to ignore a grievance until it escalates into something more serious. Pay special attention to complaints about:

• Harassment claim
• Discrimination claim
• Safety or lack of safety claim
• Disability Accommodations

These issues can quickly become lawsuits or lead to whistleblowing activity. With that in mind, you need to establish a clear and confidential reporting process.

Protect the identity of employees and investigate and close every complaint, even those that seem to be unwarranted. Demonstrating that you performed your due diligence will be instrumental during employment law litigation.

Inadequate Documentation

Poor recordkeeping undermines legal defenses. Encourage your management team to keep detailed records of performance, disciplinary actions, training, and policies that employees have signed off on. These records will provide valuable evidence if you are involved in employment law litigation.

Train your managers to document consistently and give them the tools they need to follow through. Digital recordkeeping solutions can help you create a detailed trail of important employee interactions, which is especially important when taking administrative actions against a staff member.

You’ll also need to provide these records to your attorney if an ex-employee files a complaint against the company.

Failing to Train Managers

Poorly trained managers are prone to inadvertently violating labor laws. For instance, an untrained manager may ask an employee to stay over without properly documenting the employee’s work for compensation purposes, or they may refuse to allow a reasonable accommodation for a disabled employee.

Another egregious violation associated with undertrained managers involves retaliating or discriminating against a whistleblower. Any of these activities can tarnish your reputation and lead to hefty fines.

Not sure where to begin? Survey your management team to assess their knowledge of compliance and harassment issues. Build a training program to address the gaps, focusing on areas like creating reasonable accommodations, documenting disciplinary actions, and avoiding activity that may be viewed as retaliatory.

Neglecting to Update Policies or Law Compliance

Outdated policies expose your business to lawsuits, especially in a heavily regulated jurisdiction like California. State legislators frequently update labor laws and employee protections. Your human resources department needs to keep up with these changes and revise company policies accordingly to make sure you’re following law compliance.

For example, failing to update leave policies to reflect new FMLA or CFRA requirements can lead to lawsuits. Review your policies annually with an employment attorney to protect your business. Having the right firm in your corner can drastically reduce the risk of compliance violations.

Skipping EPLI Coverage

Don’t buy into the misconception that your business isn’t at risk of employment law litigation. Even small companies can (and often do) face employee lawsuits. In 2024, nearly 40% of small business owners faced lawsuits from their employees.

To protect yourself, invest in employment practices liability insurance (EPLI). This insurance covers legal costs for claims like wrongful termination or discrimination. Without it, a single lawsuit can threaten the future of your business.

You’ve worked hard to build your company and develop a strong reputation. Use EPLI coverage to protect it.

Overlooking Wage and Hour Laws

Wage and hour violations, such as unpaid overtime, denying meal breaks or failure to pay the regular rate, are common grounds for lawsuits in California. The state’s strict labor laws include stiff penalties, many of which are assessed on a per-employee, per-day basis.

Unfortunately, many business leaders don’t catch these subtle violations until they are facing tens of thousands in penalties.

Make sure you have accurate timekeeping tools that adhere to California’s wage and hour laws. You’ll also need to perform regular audits to prevent costly mistakes and ensure your employees are compensated fairly for the work they do.

Mishandling Terminations

Sometimes, you have to part ways with an employee. While most terminations go relatively smoothly, they can sometimes turn ugly. How you handle these separations can mean the difference between a smooth termination and thousands in fines.

Before you fire someone, you must have a valid, documented reason for doing so. Avoid terminating people while they are engaged in protected activities, such as taking FMLA leave; a termination during such an activity may be viewed as a form of retaliation.

If you must terminate someone while they are engaged in a protected activity, consult with an employment attorney first.

Ignoring Accommodation Requests

Employees are allowed to request reasonable accommodations for disabilities or religious practices. Failing to honor these requests can lead to discrimination lawsuits.

Make sure your human resources department can quickly review and respond to accommodation requests. HR teams also need to document the decision-making process, especially if a request is denied. Explaining the reason for the denial will help protect your business from discrimination claims.

Protect Your Business From Employment Law Litigation

Making any of these mistakes can open the door to costly employment law litigation. Even if you win your case, the allegations can have lasting impacts on your reputation and your bottom line.

Don’t wait until you are embroiled in employment law litigation. Proactively partner with business attorneys who defend organizations from employees or ex-employees in order to create strong policies and avoid these common mistakes.