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HR Audits: An Ounce of Prevention
Not surprisingly, we at Wessels Sherman Joerg Liszka Laverty Seneczko P.C. don’t recommend a reactionary approach when it comes to employment law issues! Take some time to review your current policies and assure that you have the mechanisms in place to be proactive when it comes to employment law. Government agencies such as the Department of Labor and the Equal Employment Opportunity Commission have wide latitude to inspect records and interview employees in the event a complaint is filed against an employer. Employers should take preventative measures by identifying and correcting compliance problems and preparing proper documentation now.
Employment law standards and issues that should be addressed include:
- The differences between state and federal law – generally, employers must be in compliance with the stricter of two laws.\
- Whether job descriptions and exemption statuses reflect the actual duties being performed by employees.
- Time-keeping and pay practices, such as unapproved overtime and travel time.
- Record-keeping requirements, including confidentiality of records, Equal Employment Opportunity reporting and records retention.
- Immigration employment verification procedures (I-9).
- Employee selection procedures, including the application form, applicant drug testing, background and criminal checks, and interviewers trained in legal compliance.
- Harassment policy and reporting and response procedures; fulfilling the elements of an employer’s affirmative defense to sexual harassment.
- Family and Medical Leave Act (FMLA) policy, notification, approval, and tracking time off.
- Medical coverage continuation (COBRA) compliance, including communication with spouses and dependents, notification, and grace periods.
A comprehensive HR audit should cover the following areas:
Recruitment and Selection
- The hiring process can be subject to claims of discrimination and negligent hiring. Take a close look at your hiring practices:
- Are you required to develop and maintain an Employment Affirmative Action Plan? This includes having a detailed written plan, including statistical analysis, in addition to advertising and recruitment to reach a diverse applicant pool. If you haven’t already, develop a written plan.
- Is your employment application form legally compliant? Remove any questions that are not job-related, such as age, marital status, workers’ compensation injuries and disability. If you collect information on a separate form for affirmative action purposes (such as race, national origin, disability and veteran status), detach such information from the employment application immediately and file separately.
- Are hiring managers trained in interviewing? Comments which managers may label “small talk” could be construed as discriminatory. Assure that all interview questions are legal (e.g. no inquiries about children, childcare, living arrangements, etc.), all interviews are well documented and hiring decisions are legally defensible.
- Do you conduct criminal background checks? If so, compliance with the Fair Credit Reporting Act is critical. While this information can be helpful, be sure to determine whether an individual’s conviction (not arrest) record is job-related when making a hiring decision.
- Consider reference checks to avoid claims of negligent hiring. Find out how a potential employee performed in a prior position. As many employers limit the amount of information provided in a reference (to protect from defamation claims), consider a policy requiring potential key employees to provide you with a copy of their prior personnel file, which in most states, they have a legal right to obtain from their employer.
Compensation & Benefits
There have been several recent cases charging companies with overtime violations and resulting in multi-million dollar settlements, including Rite Aid, U-haul, and Taco Bell. Farmers Insurance Exchange faced a $90 million jury verdict when it was held that its insurance adjusters were misclassified as exempt from overtime pay. The Fair Labor Standards Act (FLSA) allows for “liquidated damages” (similar to punitive damages) and an employer may also be responsible for interest on back pay, attorneys’ fees, court costs and fines up to $10,000. How can you avoid wage and hour lawsuits?
- Assign classifications based solely on the job – don’t “award” exemption status to provide an employee with additional benefits or white-collar status, or to save the company administrative time and overtime expenses.
- Make sure exempt jobs fall correctly into one of the FLSA exempt categories (e.g. executive, professional, administrative, outside sales).
- Update job descriptions to assure that they accurately reflect the actual job tasks. Some employees may occasionally perform managerial duties, but this doesn’t necessarily mean that they are exempt employees.
- In addition, accurate job descriptions can guard against Americans with Disabilities Act (ADA) claims. Be sure that job descriptions include the essential functions and necessary knowledge and skills, as well as physical requirements.
- Closely examine middle-range job categories, such as account executives and various “knowledge workers” (e.g. retail managers, sales reps and engineers). These are the groups of employees whose status will be questioned in a DOL investigation or in litigation.
- Review payroll procedures to assure that exempt employees are not being docked pay for partial-day absences. The U.S. Supreme Court has held that such a practice will, in essence, take away the overtime exemption because the company is keeping track of hours worked.
- January is a good time to review time-off policies such as vacation, leaves of absence, Family & Medical Leave Act (FMLA) and sick days, especially if time off under these policies is tracked on a calendar-year basis. Were there problem areas in the past year that suggest policy amendments? Which policies allow carryover of available time off from the prior year? Are there employees currently on leave who became eligible for additional time off on January 1?
One area of employment law that employers must be aware of is wrongful discharge. To reduce the risk of a wrongful discharge claim, employers should:
- Maintain thorough documentation of the employee’s performance, evaluation discussions and the termination meeting. If a legal claim arises, documentation will hold greater weight than a manager’s recollection of events.
- Utilize a “one-plus-one” termination procedure requiring that an employee’s manager, along with a senior manager or human resources manager, review the situation together before making a termination decision. This procedure assures consistency between departments and lessens the chance of a wrongful termination occurring in the heat of the moment or based on personal feelings rather than objective employment criteria.
- Consider “suspension pending investigation” in any termination situation. This provides the employer with time to gather facts, research corrective action for similar infractions by other employees and conduct the 1+1 review of the situation.
- Always have a witness present at the termination meeting.
Policy Additions or Changes
When making any policy additions or changes, be sure to follow these guidelines:
- Develop a thorough, easily understood policy or amendment. If it is a significant policy change, consider having a focus group of employees review it so you can obtain a gauge of employee understanding and acceptance before it is disseminated.
- Review the policy with managers and supervisors before disseminating to employees. Answer questions and provide suggested language for responding to employee inquiries.
- Distribute the policy to all employees. Make sure the new policy or amendment is dated and require employees to sign and date an acknowledgement that they received the policy.
- If it is a significant new policy or policy change (such as sexual harassment or a new attendance policy), conduct a training session or town hall meeting to review the policy and answer employee questions. Consider such communications on an annual basis to review policies and assure employee understanding of policies and procedures.
If these guidelines have raised compliance concerns for your company, you may want to consider an audit structured as an attorney-client privileged investigation. By having an attorney conduct an audit, you can identify and correct problems timely and protect certain information that may otherwise be accessible to government investigators. Wessels Sherman Joerg Liszka Laverty Seneczko P.C. attorneys can also work with you to draft policies and/or amendments, or provide examples of well-drafted policies for your use.
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