Attorney, Suit Up; HR, You’re on the Bench

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“I quit; when should I expect my commission check?”

“My employee is moving out-ofstate to work for us, his non-compete is still valid, right?”

“I’m going to deduct the value of the unreturned iPhone and laptop from his final wages.”

When your business clients catch wind of personnel matters like these, that’s typically their cue to call their human resources department. However, almost all personnel matters relating to wage payments, disciplinary decisions and terms of employment involve a significant legal compliance component. Failing to address legal risk leads to increased liability. HR, alone, cannot effectively prevent exposure to claims, audits, penalties and headaches – only a close partnership blending HR’s practical knowledge with employment counsel’s compliance expertise will effectively reduce your client’s liability.

Here are three common scenarios when an HR department needs assistance from an employment attorney:

Davis Miles Referral

No. 1 Wage Payments.

Ensuring wage and hour compliance should be a business client’s top HR priority as: (1) business owners and managers can be personally liable; (2) wage violations can result in double damages and attorneys’ fees awards; (3) wage complaints often lead to expanded government audits going back three years; and (4) there is minimal commercial insurance protection. Below are two common wage and hour scenarios that are often overlooked and that increase client liability risk.

Full Commission May Not Be Allowed.

Generally, there are few positions that are eligible for full commission pay (without additional base salary or wages). HR professionals should work with the client to prepare an appropriate summary of a job’s functions and the desired pay structure. Legal, however, should (1) assess how commission can legally be provided; and (2) draft a detailed commission plan to ensure clarity on how and when commission is earned and paid. Without a document specifying the pay agreement, clients may be obligated to pay out unintended commission payments to avoid legal claims.

Wage Deductions May Be Prohibited.

NC law significantly limits an employer’s ability to make deductions from an employee’s earned wages. In summary, employers may only make deductions if the employee voluntarily requests or authorizes the deduction or if the employer is allowed or required by law to make the deduction (e.g., taxes, court ordered child support, over-payment errors). Without proper documentation, deductions for missing or damaged equipment or property, loans or advances in unearned wages or PTO (vacation or sick), or employee training expenses may not be deductible. Even if allowed, there are limitations on the amount that can be deducted. Improper deductions can lead to employee complaints, audits and can impact an employee’s exempt classification status, thereby triggering overtime payments. HR professionals should coordinate the provision (and determine the reasonable value) of any equipment, training, and loans or advanced wages or PTO provided. Legal, however, should (1) identify what expenses can be deducted; (2) determine what amounts can be deducted; and (3) prepare loan documents and/or authorization forms to be signed by employees.

Lex Reception

No. 2 Disciplinary Decisions.

HR professionals advise clients on disciplinary matters using generally accepted “HR Best Practices” and policies. However, an HR Best Practice may not be required by law for some clients – especially small businesses – and simply may not be feasible for a client to administer effectively. For example, a standard progressive discipline policy requiring multiple disciplinary steps before terminating an employee may not be legally required, necessary or feasible for a business with 10 employees and no full-time HR manager. Handbook policies need to be reviewed by an attorney to ensure legal compliance under all applicable state and local labor laws where employees are working. HR professionals should prepare draft handbook policies based on client culture and preferences. Legal, however, should review and revise policy language to ensure compliance and, most importantly, provide guidance and suggestions to clients and their HR professionals on implementation of policy to avoid potential liability.

No. 3 Terms of Employment.

To reduce legal costs, HR professionals often provide clients with template employment- related contracts, such as employment agreements, severance agreements, non-compete agreements and confidentiality agreements, to cover specific terms of employment. However, as you know, contract terms should be analyzed by an attorney on a case-by-case basis to determine enforce-ability. Just as with a client’s HR policies, enforceability of any employment-related contracts should be evaluated under the laws of the state where the employee is providing services. For example, an employment contract executed by an NC employee may not be enforceable if that employee moves to CA to continue working for the client.

Ensuring that clients are operating under legally-compliant policies and procedures is the best way to get ahead of potential liability and avoid unnecessary HR risk. Reach out to your clients to confirm that their HR departments are meeting regularly with an employment attorney on these matters. Mimi Soule

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