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October 13, 2022 Practice Points

Five Tips for Mitigating the Risks of Employment-Related Lawsuits

Practical risk management steps your clients should take now.

By Sima Ali

From the moment an employer hires its first employee, it assumes risks and potential liabilities, including the potential for lawsuits, employment-related disputes and compliance issues. The laws and regulations governing labor and employment relationships have complex implications. Of course, it is always better to be proactive rather than reactive. This is a practical checklist that applies to all employers regardless of industry. These recommended risk management measures will help employers mitigate exposure to future claims and help protect them and their owners.

1. EPLI Coverage

Every business should consider obtaining employment practices liability insurance (EPLI) coverage. Legal requirements can be overwhelming for employers, and what seems like the smallest mistake can expose a business to liability. Lawsuits involving employment-related disputes in fact occur frequently.

By purchasing an EPLI policy, a company’s legal costs and attorney fees would largely be covered if an employment-practices claim arises. Moreover, EPLI coverage can also minimize potential loss exposures, human resources-related expenses, and training costs.

2. Confidentiality Agreements, Non-Compete Agreements and Non-Solicitation Agreements

Restrictive covenants are beneficial legal tools to protect employers from exposure to legal claims and outline the expectations of employees and independent contractors. Restrictive covenants can help protect a business’s marketing strategies, proprietary systems, inventions, and customer lists from unauthorized use or disclosure.

The following are common restrictive covenants:

  • Non-compete clauses or agreements: These bar current and former employees from engaging in similar types of business in a particular geographic area for a specific amount of time during employment and after leaving that business.
  • Confidentiality agreements/Non-disclosure agreements: These prohibit current and former employees from disclosing information about the business during employment and after leaving the company. Among other things, they may cover trade secrets.
  • Non-solicitation clauses and agreements—of clients, employees, business partners: These prohibit a former employee or principal from attempting to engage in competition with a business by soliciting and taking its clients, employees, or business partners.
  • Non-disparagement clauses: These may prohibit a current or former employee from publicly writing or saying anything that is negative about a business or its practices.
  • Arbitration clauses and agreements: These can require an employee or former employee to arbitrate a dispute as opposed to filing a lawsuit.

3. Independent Contractor Agreements

Employers must properly classify independent contractors. An independent contractor agreement is a fundamental risk mitigation tool to achieve that goal. It should clearly delineate the essential terms of the independent contractor relationship, such as the work to be performed, payment terms, liability, and termination. By establishing these matters in a written agreement, the chance of a dispute is reduced. The agreement also helps ensure compliance with various laws.

4. Technology Policy and Agreements

Depending on the industry, employers may consider implementing a technology policy or use agreement. This should outline employee responsibilities and rights and set forth the company’s expectations of employees regarding technology in the workplace. A technology policy or agreement is also a good way to clearly articulate any restrictions regarding technology use on company property, such as the use of company computers or mobile devices for personal use. Finally, it can also help educate employees to identify and avoid potential cyber threats, which can mitigate risk to the business. Such policies or agreements are especially important given the increase in remote work and vulnerabilities in unsecured wireless networks.

5. Social Media Policies

It is likewise important for an employer to have an effective social media policy. A social media policy can limit the risk of potential claims arising from social media posts and their impact. It can also set clear rules for what employees can and cannot say on social media about the company. Likewise, it may also set forth rules for use of personal social media during work hours.

Key Takeaways

These measures are fundamental risk mitigation tools for employers. It is also important for employers to have current policies that set forth and prohibit impermissible conduct. Finally, these policies should set procedures for clear communications between company management and employees. Together, these measures will help foster a pleasant work environment while mitigating against the risk of employment-related claims and disputes.

Sima Ali is with Ali Law Group, PC, in Huntington, New York.

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