Despite the ever-increasing demands placed upon businesses to adapt and evolve in response to current economic conditions, many employers are still well behind the times when it comes to proper hiring practices and procedures.
By Howard A. Matalon, Esq.
One of the more common mistakes that continue to be made by employers (particularly new businesses) involves their failure to develop a basic set of documents governing the employment relationship with new hires. At a minimum, these documents must include an offer letter outlining the basics of the position, compensation and benefits, a policy governing intellectual property, confidentiality and competition, and an employee handbook or policy binder detailing company practices and procedures, including workplace privacy. For businesses whose sales force is primarily commission-based, a commission plan is also necessary. Such employment documents can be developed in a very cost-effective manner and no employer can afford to build a business without them.
Indeed, the consequences of failing to develop employment-hiring materials can be devastating. Without appropriate intellectual property and confidentiality protections in place, businesses will find themselves without any means of protecting their most sensitive business information and trade secrets from literally walking out the door with a departing employee. Such protections must be coupled with a narrowly tailored non-competition agreement that prohibits employees who previously enjoyed regular access to confidential business information from being able to utilize that information upon termination for personal gain or for the benefit of competitors. National business journals are routinely filled with examples of employers suffering millions of dollars in damages as a result of the failure to protect their most valuable assets from employee defections.
Employment-hiring documentation can also serve as excellent protection from employee lawsuits related to compensation. Many states, including New York and California, require employers to place in writing all of the compensation terms and conditions for new hires. New York is particularly demanding on written wage notification. All New York employees are entitled each year to written notice of wage rates detailing the manner in which they are to be paid. In addition, all commission agreements must be in a writing signed by both the employer and the employee specifying how wages, salary and commissions are earned and calculated (particularly if a recoverable draw is involved), as well the payment of wages on termination of employment as to any earned compensation.
In fact, the New York Department of Labor recently cautioned employers that in the event of a dispute over the terms of commission-based wages where the terms of the commission agreement are not in writing, the employer will be presumed to have agreed to the terms of employment as presented by the commission salesperson. Such a presumption can be extremely costly for an employer given that the salesperson may overstate the commissions owed and the NYDOL can tack on significant fines and penalties as part of its findings with respect to any unpaid commissions (including up to 25% of the wages owed, which is routinely imposed). The NYDOL’s decision may serve as precedent to be followed by labor agencies and departments across the country.
For these reasons, all employers must take a methodical approach to their hiring practices and procedures and treat these processes as seriously as they would every other critical aspect of their business.
OlenderFeldman LLP is a full-service law firm providing customized business, financial, technology, privacy, intellectual property and litigation services. We work with diverse clients ranging from startups to multinationals, and can tailor solutions to fit your business needs. Read more about developments in employment law on OlenderFeldman LLP’s blog.