Advisor: Prof. Lee.E.Hargrave

Course: 2084 Steingold on Human Resource Law

Student: Shyamala Sathiaseelan

Credits: 2

Word Count: 8440

The purpose of this paper is to assist me in knowing the legalities involved that I should know as a HR person.

• Understanding the legal guidelines for hiring employees, writing job descriptions, conducting interviews and investigating applicants.
• What to include in employee personnel files, employee handbooks, performance reviews and references for former employees.
• Learnt the ins and outs of wage and hour laws, retirement plans and health insurance.
• Workplace health and safety how to implement policies on smoking, drug and alcohol abuse.
• Discrimination – how to comply with laws prohibiting sexual harassment and discrimination based on age, race, pregnancy, sexual orientation and national origin.
• Terminations – how to avoid wrongful termination cases, conduct a final meeting and protect your business information when employees leave.

Most large companies maintain human resource departments and in-house lawyers to lead them through the intricacies of employment law. For small or mid-sized companies, this is an unaffordable luxury. It is more likely that they keep a close eye on legal expenses and calls a lawyer only when absolutely necessary.

Fortunately understanding and following the guidelines given below can avoid most of the legal perils of hiring employees:

• Avoid illegal discrimination
• Respect the applicant’s privacy rights
• Don’t imply job security – unless you mean it
• Protect against unfair competition
• Observe the legal rules for hiring young workers and immigrants
• Follow the IRS standards for hiring independent contractors

Federal and state laws prohibit you from discriminating against an employee or applicant because of race, color, gender, religious beliefs, national origin, physical disability, marital status, sexual orientation or age if the person is at least 40 years old. A particular form of discrimination becomes illegal when that characteristic bears no legitimate relationship to employment decisions. Anti-discrimination laws don’t dictate whom you must hire. You can exercise a wide range of discretion based on business considerations. You remain free to hire, promote, discipline and fire employees and to set their salaries based on their skills, experience, performance and reliability – factors that are logically tied to a valid business purpose. You only risk the law when you treat a person or a group differently for reasons that don’t serve a valid business purpose.

Some illegal practices are obvious – such as advertising a job for people ages 20 to 30, or paying lower wages to women than men for the same work. Other types of discrimination are subtler, but just as illegal.

To avoid violating anti-discrimination laws at the hiring stage

• Advertise job openings in diverse places so they come to attention of diverse people
• Determine the skills, education and other attributes that are truly necessary to perform the job so that you don’t impose job requirements that unnecessarily exclude capable applicants
• Avoid application forms and screening techniques that have an unfair impact on any group of applicants

As an employer the more information you have about job applicants, the better your hiring decisions will be. But your attempt to asses an applicant by gathering information about the past can conflict with his or her right to privacy and sometimes violate federal and state laws. To avoid the potential problem, obtain the applicant’s written consent before sending for high school or college transcripts and credit reports and before you contact a former employer. Also stick to getting only the relevant details, reports and transcripts.

Another privacy concern, for which the legal guidelines are less clear, is your ability to control what workers do outside of the workplace. It is best to avoid rejecting or firing a worker for off-duty conduct or lifestyle unless you can tie the actions to actual or highly likely business losses.

Traditionally, employees have had no job security. Employment has been an at will relationship. If there's no contract for a fixed term of employment, the employee works at the will of the employer and employee; the employer can fire the employee at any time for any reason – or for no reason at all. And the employee is free to quit at any time. That's still the basic law, although you can't fire someone for an illegal reason—because of the color of the employee's skin, for example, or because you prefer to put a younger person in the job.

The at will relationship gives you maximum freedom to fire employees, but preserving your legal right to fire at will can be tricky. Courts in many states have held that if employers are not careful about what they say during job interviews and in employee handbooks, they may lose that right. During the hiring process, don't give assurances that you may not be able to honor and that may give an applicant a false sense of security. This restraint can be difficult when you're trying hard to entice an attractive candidate to join your workforce. You'll have a natural tendency to say positive things about your business, the candidate and the future relationship. But those upbeat statements can be turned against you if the employee is later fired. Your best protection is to make sure your application forms, employee handbooks and offers of employment state that the job is at will – and to have the applicant acknowledge this in writing. Then you'll have an excellent chance of terminating the employment on your own terms and without legal repercussions.

Here's an example of language you may wish to include in your job application form:

Statements you make during interviews and when making job offers may later be treated as binding contracts. Employees often leave one employer to join another, or turn down opportunities, because a particular job seems to offer a greater chance for career advancement. To avoid claims that you misled an applicant about the nature of the work, stick to what you know the work will consist of rather than what you think the applicant may want to hear. Similarly, if your company is considering staff reductions in the near future—because, for example, a major account is about to move out of the state—disclose this to applicants. Otherwise, you may find yourself on the defensive end of a lawsuit, especially if the employee left a secure job elsewhere to come work for you.

The main reason to investigate an applicant's background is to make sure the person will do a good job for you and fit in with other employees on the staff. But sometimes there's an additional, equally powerful reason to make a thorough investigation. When you hire someone for a position that may expose customers or others to danger, you must use special care in checking references and making other background checks. Legally, you have a duty to protect your customers; clients, visitors and members of the general public from injury caused by employees you know or should know pose a risk of harm to others. If someone gets hurt or has property stolen or damaged by an employee whose background you didn't check carefully, you can be sued for negligent hiring. Doing a background check can be a delicate matter, since laws also require you to respect the applicant's privacy. If you hire people for sensitive jobs, you must investigate their backgrounds as thoroughly as possible without stepping over the line and violating their privacy rights. You can be faulted for not looking into an applicant's criminal convictions, but not for failing to learn about prior arrests that didn't result in convictions, since such arrest records are generally protected by privacy laws.

In doing background checks on applicants for sensitive jobs, check for felony convictions and also be diligent in contacting all previous employers. Keep a written record of your investigation efforts. Insist that the applicant explain any gaps in employment history. Consider turning over the pre-hire investigation to professionals who do this for a living. If you choose to follow this route, and can afford it, it can go a long way toward refuting later claims that you failed to use reasonable efforts to learn about the employee's history.

One risk you run in hiring people is that they'll later start a competing business or go to work for a competitor. If so, they may use information they gained at your workplace or contacts they made there to draw away business that otherwise would be yours. Employees who have access to inside information about product pricing or business expansion plans, for example, may pose competitive risks. The same goes for employees who serve valuable and hard-won customers, a salesperson, perhaps, who handles a $200,000 account.

You can help protect your business from unfair competition by asking new hires to sign agreements not to take or disclose trade secrets and other confidential information. You can also ask selected employees to sign covenants not to compete with your business, although such covenants must be carefully written so that a former employee has a reasonable chance to earn a living.

In hiring and working with employees, some business owners need to protect their unique assets from misuse. To qualify for trade secret protection, your business information must meet two requirements.

First, you must show that you've taken steps to keep the information secret, for example, by:

• Keeping it in a secure place such as a locked cabinet
• Giving employees access to it on a need to know basis
• Informing employees that the information is proprietary
• Having employees acknowledge in writing that the information is a trade secret

Second, the information must not be freely available from other sources.

In addition to the requirements that a trade secret must be guarded information that is somewhat obscure, judges sometimes look at how valuable the information is to you and your competitors and how much money and effort you spent in developing the trade secret.

To prevent an employee from competing with you after leaving your workplace, consider having him or her sign a covenant not to compete. In a typical covenant, the employee agrees not to become an owner or employee of a business that competes with yours for a specific time and in a specific location. The best time to secure a covenant not to compete is when you hire an employee.

The key to a legally enforceable covenant not to compete is to make its terms reasonable. In evaluating whether a covenant not to compete is reasonable, focus on three questions—each of which relates to the specific job and the specific employee.

• Is there a legitimate business reason for restricting the future activities of the particular employee? There probably is if you expect to spend significant time and money in training a high-level employee and plan to entrust him or her with sensitive contacts on lucrative accounts. Such an employee could easily—and unfairly—hurt your business by competing with you. This would motivate a judge to find that you have a legitimate business reason for the covenant.
• Is the covenant reasonably limited in time? A one-year limitation may be reasonable for a particular employee. A three-year limit might not be.
• Is the covenant reasonably limited as to geographical scope? A 50-mile limit may be reasonable for a particular employee. A limit spanning several states might not be deemed reasonable.

There are federal and state laws that restrict your right to hire workers who are under 18 years old. These laws limit the type of work for which young people may be hired and the hours they may work.

Federal law prohibits hiring undocumented aliens. You and each new employee are required to complete INS Form I-9, Employment Eligibility Verification.

IRS believes that many small businesses are labeling some workers as independent contractors instead of employees to avoid withholding payroll taxes, and that the agency is collecting less money than it's entitled to. Acting on this belief, the IRS is vigorously investigating and challenging how businesses classify workers.

Write a job description for each position. Listing the skills and attributes you're looking for in applicants will help make the hiring process more objective. It will also give you ready standards to measure whether or not applicants are qualified – and which ones are most qualified. Current employees can often help you write job descriptions. They know how the business operates and the kind of skills that are needed.

In writing job descriptions, be careful not to violate the laws that prohibit discrimination in employment and that seek to assure employment opportunities for people with disabilities.

Basically, you can't discriminate against applicants on the basis of their race, skin color, gender, religious beliefs, national origin, physical disability—or age if the applicant is at least 40 years old.

A well-drafted job description usually contains these components:

• Qualifications, such as necessary skills, education, experience and licensure. Be careful in setting requirements for education and experience. If set at an unnecessarily high level, your requirements may have the unintended effect of excluding a disproportionate number of women or applicants who are part of other groups protected by anti-discrimination laws.
• Essential job functions. The Americans With Disabilities Act (ADA) has forced employers to take a fresh look at job descriptions—and to decide what really is the core of each job. To help eliminate unfair discrimination against people with disabilities, the ADA seeks to make sure a person isn't excluded from a job simply because he or she can't perform some marginal duties listed in a job description.
• Nonessential job functions. You may wish to specify functions and duties that are desirable but not required for a particular job. Suppose you're seeking a receptionist. If you never or seldom require the receptionist to type, typing isn't an essential function. Listing an unnecessary or marginal skill such as typing would unfairly disqualify a person with a paralyzed or missing left hand from the receptionist job. You could, however, mention typing as a desirable function if you made it clear that it's not required.

Anti-discrimination laws recognize that in a few—a very few—instances an employer may have a legitimate reason to have job qualifications that normally would be illegal. These are called bona fide occupational qualification (BFOQ) exceptions. Religion, sex or national origin can be a BFOQ only if it's a reasonably necessary qualification for the normal operation of a business or enterprise—and it almost never is.

You may write a great job description, then get tripped up in summarizing the job in an advertisement. This can easily happen if you let someone write your ad who is not familiar with the legal guidelines. Nuances in an ad can be used as evidence of discrimination against applicants of a particular gender, age or marital status.

Probably the best way to write an ad that meets legal requirements is to stick to the job skills needed and the basic responsibilities. Some examples:

"Fifty-unit apartment complex seeks experienced manager with general maintenance skills."

"Mid-sized manufacturing company has opening for accountant with tax experience to oversee interstate accounts."

"Cook trainee position available in new vegetarian restaurant. Flexible hours."

Develop a standard application form to make it easy to compare applicants. Limit the form to job-related information that will help you decide who's the best person for the job. Consider seeking the following information and asking the following questions in the form:

• Name, address and phone number
• Are you legally entitled to work in this country?
• What position are you applying for?
• What other positions would you like to be considered for?
• Can you work overtime?
• If you are hired, when can you start work?
• Education—high school, college, graduate school and other (including school names, addresses, number of years attended, degree and major)
• Employment history—including name, address and phone number of each employer, supervisor's name, date of employment, job title and responsibilities and reason for leaving, and
• Special training or achievements.

In designing a job application, keep two legal principles in mind:

• It's unlawful for you to seek certain information.
• You can use the application to inform the applicant about employment terms and to get the employee's permission to gather background information.

Before you begin to interview applicants for a job opening, write down a set of questions focusing on the job duties and the applicant's skills and experience. Some examples:

"Tell me about your experience in running a mailroom."

"How much experience did you have in making cold calls on your last job?"

"Explain how you typically go about organizing your workday."

"Have any of your jobs required strong leadership skills?"

By writing down the questions and sticking to the same format at all interviews for the position, you reduce the risk that a rejected applicant will later complain about unequal treatment. It's also smart to summarize the applicant's answers for your files – but don't get so involved in documenting the interview that you forget to listen closely to the applicant. And don't be so locked in to your list of questions that you don't follow up on something significant that an applicant has said, or try to pin down an ambiguous or evasive response.

A good icebreaker is to give the applicant some information about the job – the duties, hours, pay range, benefits and career opportunities. Questions about the applicant's work history and experience that may be relevant to the job opening are always appropriate. But don't encourage the employee to divulge the trade secrets of a present or former employer – especially a competitor. That can lead to a lawsuit. And be cautious about an employee who volunteers such information or promises to bring secrets to the new position; such an employee will probably play fast and loose with your own company's secrets, given the chance.

Also, keep your antennae tuned carefully to the applicant who spouts a litany of complaints against former employers. Hire that person and your business may well become the next object of the applicant's invective. And employees with a ton of gripes also tend to have an appetite for litigation.

Give applicants plenty of time to answer questions. Make sure they understand your questions; ask them to let you know if something is unclear. And ask them if they have any questions about your company or the job for which they're applying. Finally, let them know your timeframe for getting back to them with a hiring decision so they won't bug you with premature phone calls.

The Rules of Etiquette once dictated that you avoid discussing sex, religion or politics in a social setting. While that standard has been relaxed, it still applies to job interviews – along with similar cautions about focusing on an applicant's age, ethnicity, birthplace and personal finances. In fact, such inquiries are not only bad manners; they're illegal.

During an interview, stay focused on job requirements and company policies. As with job applications, the focus of your interviews should be to find the best person for the job based on skill, experience, education and other qualifications needed to perform the job.

During an interview, you can obtain specific information about the applicant's ability to perform job tasks and about any needed accommodation. You'll be walking a fine line here, so take some time to avoid potential legal problems. Remember to focus on the ability of the applicant to do the job - not on disability.

Pre-employment testing – which includes skills testing, aptitude testing, honesty testing, medical testing and drug testing – is most common in larger businesses. But even if your business is small or mid-sized, you should know the legal limitations.

Most small businesses – especially new ones – operate on a slim profit margin and need to know that employees will be up to speed from day one. If you're hiring a typist, you may want to test the applicant for typing speed and accuracy. As long as the skills you're testing for are genuinely related to the job duties, a skills test is generally legal. It's courteous to let applicants know in advance that they'll be tested.

Some employers use written tests – usually multiple-choice tests – to get additional insight into applicants' abilities. Others attempt to probe the applicants' psyche. A multiple-choice aptitude test may discriminate illegally against minority applicants, because it really reflects test-taking ability rather than actual job skills. A personality test can be even riskier. Besides its potential for illegal discrimination, such a test may invade an applicant's privacy—by inquiring, for example, into religious beliefs or sexual practices. If you do decide to use aptitude or personality tests, proceed cautiously. Make sure that the tests have been screened scientifically for validity and that they are correlated to job performance. Review them carefully for any questions that may intrude into the applicant's privacy.

A psychological test or exam is considered medical if it provides evidence that can help identify a mental disorder or impairment. A test or exam is permissible if it measures only such things as honesty, tastes and habits. But if it helps identify whether the applicant has excessive anxiety, depression or a compulsive disorder, it qualifies as a medical test and is best avoided.

Lie detector or polygraph tests – rarely used by small businesses anyhow – are virtually outlawed by the federal Employee Polygraph Protection Act. With just a few exceptions, you can't require job applicants to take lie detector tests and you can't inquire about previous tests. The only private employers who can use lie detector tests to screen applicants are businesses that offer armored car, alarm and guard services or that manufacture, distribute or dispense pharmaceuticals—and even in those situations there are restrictions on which applicants can be tested and how the tests must be administered.

About the only time a typical employer can use a lie detector test is when an employee is reasonably suspected of being involved in a workplace theft or embezzlement.

Limit honesty tests to situations in which you have a legitimate business reason to be concerned about workers' honesty – such as in hiring workers who will be handling cash. Before using a test, ask to see scientific backup establishing the test's accuracy. And to protect yourself against charges of illegal discrimination, test all applicants for a particular job.

To avoid violating the Americans With Disabilities Act (ADA), don't ask the applicant about his or her medical history or conduct any medical exam before you make a job offer. You can, however, offer a job conditioned on the applicant passing a medical exam. If you do require such a post-offer exam, be sure you require such exams for all entering employees who are doing the same job.

If you withdraw a conditional job offer made to a disabled person based on results of an exam or inquiry, you must be able to show that:

• Your reasons were job-related and consistent with business necessity, or the person was excluded to avoid a direct threat to health and safety, and
• No reasonable accommodation could be made or such an accommodation would cause undue hardship.

To avoid claims that you discriminated against a person with a disability, carefully document all medical inquiries and the responses to them. If you reject the prospective employee, be prepared to show how the medical facts relate to the person's ability to perform the job or how the medical facts revealed a direct threat to health and safety.

You have a legal right to insist on a drug-free workplace. The only problem is that testing to weed out drug users may conflict with workers' rights to privacy. The Americans With Disabilities Act (ADA) forbids you from testing an applicant for drugs until you've made a conditional offer of employment.

If your state permits testing applicants or employees and you plan to do such testing, use the application form to inform applicants of this policy. When applicants are told up front about drug testing, it's harder for them to later claim that they expected more privacy on drug testing results.

Testing is usually permitted when employees have been in an accident or you've seen them bring illegal drugs to work. Your legal right to test at random and without prior notice is unclear – and questionable. In any drug testing, treat all employees consistently, being careful not to single out any one group. And consult with competent drug testing experts to assure that your test procedures are as accurate as possible.

Since some people give false or incomplete information in their job applications, it's a good idea to do some investigating to verify their application information. You might find out, for example, that an applicant doesn't have the work experience or occupational license that he or she claimed to have in a job application – or that the applicant didn't really leave the last job voluntarily. What's more, you might learn that the applicant has a history of violent behavior or even a criminal record that would disqualify him or her from a job that may put members of the public or other employees at risk.

Your need to investigate a job applicant is legitimate, but if left unbridled, can conflict with the job applicant's legal right to privacy. The best way to reduce the risk of an invasion of privacy claim is to inform the applicant in the job application that you will be requesting information from former employers, schools, credit reporting sources and law enforcement agencies. Ask the applicant to sign a consent form as part of the application process. This can either be a part of the application form itself or a separate document. The advantage of having the applicant sign a separate document is that you can easily photocopy it and send it to the people from whom you're seeking information.

Some job applicants exaggerate or even lie about their qualifications and experience. So be sure to contact as many former employers as possible to try to get the inside story. Former employers are often reluctant to say anything negative for fear that if they speak frankly, they may be hit by a lawsuit for defamation. They're hesitant to do anything more than to verify that the former employee did in fact work there and to give the dates of employment. The fact that some former employers may be more restrictive than they need to be makes it hard to get an accurate picture of an applicant's job history. It may be helpful to send the former employer a copy of the applicant's signed consent to a full disclosure of employment information.

In speaking with former employers, learn to read between the lines. If a former employer is neutral, offers only faint praise or over praises a person for one aspect of a job only – ''great with numbers" or "invariably on time" – there's a good chance some negative information is hiding in the wings. Ask former employers: "Would you hire back this person if you could?" The response may be telling. To help put the applicant in perspective, you might ask: "What are this person's greatest strengths – and greatest weaknesses?" Since no one is perfect, this may lead to a candid evaluation of the applicant. If a reference isn't glowing and doesn't take in all aspects of the job, check several other references – and perhaps call back the applicant for a more directed interview.

On-the-job experience generally is much more relevant to employment than an applicant's educational credentials. Still, you may have good reasons for requiring a high school diploma or college degree for some jobs. If so, you may want to see proof that the applicant really received the diploma or degree or took the courses claimed in the job application.

If you wish to see these records, ask the applicant to sign a written release acknowledging your right to obtain them. Most schools won't turn over the records without such a release—and many won't deliver them to anyone except the former student. This can, of course, complicate your verification, since it creates the possibility of forgery or tampering.

Credit information usually isn't relevant to employment, but it does come into play when you hire someone who will handle money. Someone with large debts may be especially tempted to skim money from your business. And an applicant who can't keep his or her personal finances in order is probably not a good choice for a job requiring management of your company's finances.

In most other situations, however, a credit check is an unnecessary intrusion into an applicant's private life. Assuming that you have a good business reason to order a credit report on a job applicant, be sure to get the applicant's written permission first. Also, before you turn down an applicant based on something you find in a credit report, you must give the applicant a copy of the report and a summary of the applicant's rights under the Fair Credit Reporting Act. The applicant is then free to follow up with the credit-reporting agency to make sure its report information is complete, accurate and current.

Asking an applicant about his or her arrest record or making a hiring decision based on that record can be a subtle form of discrimination that violates state and federal anti-discrimination laws. Many people are arrested and the charges are later dropped or found to be without merit. Asking about arrests can be particularly harmful to black applicants because blacks are arrested disproportionately to their population size. Very rarely is there a legitimate business reason to reject an applicant simply because of an arrest record.

Convictions are another matter. While it can be unlawful discrimination to automatically exclude every applicant who's ever had a conviction, anti-discrimination laws generally do allow you to inquire about an applicant's conviction record and to reject an applicant because of a conviction record that's job-related. If you were hiring a delivery truck driver, for example, it wouldn't violate the anti-discrimination laws to reject an applicant based on a conviction for drunk driving.

Be careful what you say orally and in writing when you make a job offer to any applicant. The positive statements you make to an applicant about long-term opportunities can come back to haunt you if you later fire the person. A judge or jury reviewing the firing may conclude that your glowing statements were actually a promise - a promise, perhaps, that the applicant's job would be secure for years or that he or she wouldn't be fired without good cause. You can protect yourself from such misunderstandings by using an employment letter such as the following one.

It's courteous to let unsuccessful applicants know that you've hired someone else for the job. You don't, however, owe them an explanation about why they weren't hired. If pressed, simply tell them that the person you hired is, in your judgment, more appropriate for the job.

There's no ideal way to give someone the news that he or she didn't get the job. The least painful way – which also presents the fewest legal difficulties – is to send a short letter informing the rejected applicant of your decision. Send the letter as soon as you've decided whom you're going to hire or when you've narrowed the field down to a few candidates. There's no need to let applicants twist in the wind. Quickly sending your rejection letter will cut down on the number of post interview calls you get from unsuccessful applicants – calls that are uncomfortable for everyone. Keep the letter simple and upbeat. And keep a copy in your files, along with the employment application and any information you gathered during the screening process. Lawsuits by rejected applicants are rare, but you can't predict in advance which ones might take that step.

Before you hire employees, you must get an Employer Identification Number (EIN) from the IRS—although if you're a sole proprietor, you have the option of using your Social Security Number. To obtain an EIN, file Form SS-4, Application for Employer Identification Number. Some states have similar requirements. When you hire an employee, have him or her complete Form W-4, the Employee's Withholding Allowance Certificate. This provides you with the number of dependents or withholding allowances the employee is claiming and the employee's filing status—single, married or married but withholding at the higher single rate. Keep a signed Form W-4 on file for each employee. If an employee doesn't complete a Form W-4, you won't know how much income tax to withhold. In that case, you must withhold tax as if the employee were a single person claiming no withholding allowances.

You needn't send the signed Form W-4 to the IRS unless:

• An employee claims more than 10 allowances, or
• The employee earns more than $200 per week and claims exemption from withholding.

Immigration laws, enforced by the Immigration and Naturalization Service (INS), prohibit hiring aliens who don't have government authorization to work in the United States. There are specific procedures you must follow when hiring employees – even those who were born and raised in the town where your business is located.

You and the new employee must complete INS Form I-9, Employment Eligibility Verification. This one-page form is intended to ensure that the employee can legally work in the United States and has proof of his or her identity.

You can avoid most legal problems in the workplace if you respect employees and treat them well. But no matter how caring you are, there will still be misunderstandings you'll be called upon to handle. Fortunately, the vast majority of job disputes can be resolved within the workplace if you listen patiently to what employees have to say and are prepared to make adjustments when legitimate complaints surface.

However, even though you treat workers fairly, there's always a chance a dispute will get out of hand and that an employee will sue your business for some perceived abuse of his or her rights. Or an unhappy employee may file a complaint with a government agency alleging that you violated a statute or an administrative regulation. If that happens, you'll have to prove to a judge, jury, arbitrator or investigator that you met your legal obligations to the employee. That can be harder than you think. Key paperwork may have been lost – or never prepared in the first place. And witnesses may have forgotten what happened or have moved on and not be locatable. To maintain a solid legal footing, establish good written policies and then maintain a paper trail indicating how they are implemented. Written policies will help you if you have to defend yourself in a legal proceeding – and, equally important, can nip misunderstandings in the bud before they turn into pitched legal battles. They provide a cogent point of reference when you discuss problems with an employee, increasing the likelihood of reaching an amicable resolution.

The first step for most workplaces is to create an employee handbook that clearly explains company policies and employee rights and benefits. Follow up by keeping records of key employee contacts, including periodic evaluations of how employees are performing their jobs.

Actions Speak Loudly, Too

You must start with sensible and fair policies and apply them with an even hand to all employees. A carefully developed paper trail is important, but if you've violated an employee's rights, the mere fact that you've created good paperwork won't normally shield you from the legal consequences.

Create a file for each employee in which you keep all job-related information, including:

• Job description
• Job application
• Offer of employment
• INS Form I-9 and supporting documents
• IRS Form W-4
• Receipt for employee handbook
• Periodic performance evaluations
• Sign-up forms for employee benefits
• Complaints from customers and co-workers
• Awards or citations for excellent performance
• Warnings and disciplinary actions, and
• Notes on an employee's attendance or tardiness.

Employee files can be a two-edged sword. They can provide valuable documentation to support a firing, demotion or other action that's adverse to the employee – but the employee, in turn, can point to indiscreet entries and use them against you. It would be a mistake, for example, to include unsubstantiated criticism of an employee in the file or comments about the employee that are unrelated to job performance and qualifications.

To err is human. To leave an error uncorrected is dumb. It can lead people to conclude that you're callous or unfair or both – not a good impression to leave on those empowered to levy a damage award or penalties against you. And to knowingly keep false information on hand increases the risk of a libel case being brought against you.

Keep employee files locked up. Make them available only to people in your company who have a legitimate business need to have access to the files – managers, for example, who must make decisions about promotions and discipline. Inform company personnel that the information in the files must remain confidential. While an employee or former employee may have a legal right to see his or her file no one else does unless they have a subpoena.

Special guidelines apply to medical information gathered in the workplace. The Americans With Disabilities Act imposes very strict limitations on how you must handle information obtained from post offer medical examinations and inquiries. You must keep the information in medical files separate from non-medical records, and you must store the medical files in a separate locked cabinet. To further guarantee the confidentiality of medical files, designate a specific person to have access to those files.

Many states have laws giving employees – and former employees – access to their own personnel files. Typically, if your state allows employees to see their files, you can insist that you or another supervisor be present to make sure nothing is taken, added or changed. Some state laws allow employees to obtain copies of items in their files, but not necessarily all items.

Generally, the law doesn't require you to voluntarily tell employees what's in their employee files. You need only disclose information when an employee makes an appropriate request under an employee access law. About the only exception is that laws in some states require you to tell employees if you're taking adverse action against them because of information in a consumer credit report. Still, it may be good practice to keep employees informed about what's going into their files. Otherwise, borderline employees may think they're doing fine and be justifiably surprised by a disciplinary action or firing. Admittedly, some employees can get demoralized if they're overwhelmed with negative information about their work, so some discretion is necessary in giving them feedback. But basically, letting employees know where they stand prevents surprises and can lead to improved performance. And if the employee doesn't shape up and winds up being fired, anyone reviewing the facts – a judge or jury, for example – will be more likely to side with you if you've given the employee fair warning about what was wrong.

If you have more than one or two employees, consider creating an employee handbook that clearly explains your employment policies.

An employee handbook can be of practical help in running your business. Once you give it to an employee, there can be no dispute over whether you gave the employee a list of paid days off or explained your vacation policies for new workers. It's all there in writing and everyone is getting the same information. Review the handbook and update it periodically to incorporate changes.

Beyond the practicalities, if your handbook is good, you get a bonus: a measure of legal protection if you are challenged by an employee in a court or administrative proceeding. A handbook that contains clear, reasonable policies – such as one stating that sexual harassment won't be tolerated in the workplace – is the critical beginning of your paper trail if problems develop later. It's an objective piece of evidence that shows you've adopted fair and uniform policies, and that you've informed your employees of exactly where they stand in their employment.

A good handbook should tell your employees how to let you know if they feel unfairly treated or are beginning to have a workplace problem. This in turn gives you a chance to react before a small misunderstanding erupts into a full-blown legal dispute. As another benefit, a well-written handbook may reduce the anxiety that some employees feel about their jobs. Employees will know what the rules and procedures are and where they can turn if they need to discuss an issue.

Here are topics to consider covering in an employee handbook.

• Introduction.
• Hours.
• Pay and salaries.
• Benefits.
• Drug and alcohol abuse.
• Sexual harassment.
• Job attendance.
• Discipline.
• Employee safety.
• Smoking.
• Complaints.
• Workplace civility.

Document that each employee received the handbook. This is also another good chance to reinforce to employees that the handbook isn't an employment contract, that it doesn't guarantee you'll continuously employ them and that you're not obligating your company to continue the current job benefits forever. To do this, include with your handbook two copies of a statement. Then ask each new employee to sign both copies to acknowledge that he or she has received the handbook and is familiar with its terms. Keep one signed copy of the Employee Handbook Acknowledgment in the employee's personnel file maintained by your business. The employee can keep the other copy. Have each employee sign a similar receipt each time you distribute significant revisions or updates of your handbook.

Most large companies review and evaluate their employees periodically. This is a sound management practice and one, which even small companies should consider – especially for new employees.

Evaluating employees periodically gives them a chance to improve if they're not performing well. If you later find it necessary to discipline or fire an employee, it won't come as a surprise to the employee. By putting your evaluations in writing and saving them in the employee's file, you normally have a credible history of documented problems you can use if an employee claims that he or she was fired for an illegal reason. Legally, you don't have to have a good reason or any reason to fire an at will employee, and you don't have to give notice in advance or afford the employee a chance to improve.

Evaluations have two common purposes – to help employees improve their performances and to protect employers from false claims by former employees. To achieve both ends, thoroughly and objectively evaluate each employee at least twice a year – and more often if an employee is experiencing serious problems. Take the evaluation process seriously and do a careful, conscientious job. In some states, employees have successfully sued employers who used poor evaluation procedures for "negligent evaluation" – the failure of the employer to review employees' work fully and honestly and to warn employees that they faced discipline or discharge if they failed to improve.

To keep the evaluation process as consistent and objective as possible, devise an evaluation form that you can use with all employees in the same job category. The form should focus on how well the employee has performed the various duties of the job.

Fill in the form before you meet with the employee. Consider these guidelines.

• Give a balanced picture of the employee's strengths and weaknesses.
• Use specific examples of where the employee has met expectations or has exceeded or fallen short of expectations.
• Let the employee know the areas in which he or she must improve. Set objective goals for the employee to meet.
• Where an employee's performance is substantially below par, set a date to meet again with the employee to review his or her progress.
• If the employee's failure to improve may lead to disciplinary measures or discharge, state this clearly in the evaluation.
• Leave space on the form for the employee to comment on the evaluation and to acknowledge receiving a copy of it.

Once you've completed the written evaluation, meet with the employee to go over it and to make sure the employee understands it. If you cringe at confronting an employee with criticism, try the sandwich approach: say something positive, something negative, then something positive.

Periodic evaluations can work hand in hand with another management strategy – progressive discipline – to keep employees fairly informed of how they're doing and when their jobs are at risk. Since losing a job can obviously be painful for an employee, some employers make it a practice to fire problem employees only after the workers have gone through a series of less drastic disciplinary moves. A system of progressive discipline may not be right for all businesses—particularly smaller ones. But if you do see fit to have such a policy in place, it can go a long way toward demonstrating your fairness if you eventually have to fire an employee and the employee sues you.

Among the steps you can build into your program are: verbal warnings, written warnings, counseling, probation, suspension and, finally, dismissal. A fired employee's potential wrongful termination claim will be weakened if you can show that the employee knew about the problems that eventually led to dismissal, but he or she muffed repeated opportunities to shape up.

Pay an employee at least the minimum hourly wage unless he or she is exempt from wage and hour statutes

Pay a premium rate for overtime work

Pay for all the time an employee works

Pay men and women equally for the same work

Follow special rules if you employ young workers

Observe legal limits on payroll deductions

For the most part, complying with wage and hour laws is simple and routine: You calculate wages using easy to understand formulas and you retain time and payment records for employees. There are, however, some legal subtleties that can affect your ability to carry out your aims.

Healthcare coverage is the benefit most employees covet. Medical treatment is expensive today and it's difficult for an individual seeking coverage to find some that's affordable. Of course, employees enjoy the greatest benefits if the employer foots the entire bill. But even if an employer pays none of the cost of coverage – or just a part of it – the employee benefits by being able to participate at relatively low group rates.

Retirement plans provide income to older people when they're no longer part of the workforce. If the plans you offer meet certain IRS guidelines, your contribution to the benefits qualifies as a business expense and is deductible from your company's gross income.

• Life Insurance
• Disability Insurance
• Educational Assistance Programs
• Dependent Care Assistance
• Adoption Assistance Programs

• Understanding the legal guidelines for hiring employees, writing job descriptions, conducting interviews and investigating applicants.
• What to include in employee personnel files, employee handbooks, performance reviews and references for former employees.
• Learnt the ins and outs of wage and hour laws, retirement plans and health insurance.
• Workplace health and safety how to implement policies on smoking, drug and alcohol abuse.
• Discrimination – how to comply with laws prohibiting sexual harassment and discrimination based on age, race, pregnancy, sexual orientation and national origin.
• Termination – how to avoid wrongful termination cases, conduct a final meeting and protect your business information when employees leave.