Running and growing a business is stressful enough in today’s economic environment without having to deal with personnel problems. Don’t let the technical requirements relating to employees and your obligations to them create added stress. There are several areas where sound planning and attention to detail can help business owners prevent many of the problems that can arise when dealing with employees.
Worker’s Compensation Insurance
All employers know, or should know, that they are required to provide worker’s compensation insurance coverage for their employees, either through an insurance company, a self-insurance group, or as a licensed self-insurer. Failure to provide such coverage exposes the employer to an immediate stop-work order and fines for each day that coverage is not provided, beginning on the date of the stop work order. The law’s bite doesn’t stop there: the employer, and if it is a corporation, its president and treasurer, are subject to criminal penalties of fines up to $1,500 and/or imprisonment for up to one year. Finally, an injured employee has a longer time to sue an uninsured employer for injuries on the job than a garden variety personal injury plaintiff, and the employer may not assert critical common-law defenses like contributory negligence and absence of negligence on the part of the employer. Obviously, the risks associated with failing to obtain worker’s compensation insurance are high.
Wages and Commissions
Failure to pay wages earned (which includes holiday and vacation pay) or commissions due and payable can also subject an employer (and the president, treasurer, or any agent charged with the management of a corporate employer) to criminal liability. For willful violations that are a first offense, fines can be as high as $25,000, and imprisonment can be for as long as one year. Even non-willful violations can fetch fines of up to $10,000 and imprisonment of up to six months for a first offense. Moreover, the employee may pursue a civil action against the employer (or personally against the president, treasurer, etc.) to recover unpaid wages or commissions, plus triple damages, costs, and attorney’s fees.
The bottom line is: if the wages or commissions have been earned (i.e., if the work has been done), pay them without delay.
Minimum Wage Regulations
On April 25, 2003, the Massachusetts Minimum Wage Regulations were significantly amended to bring them in line with Federal law on the same subject. These changes include:
- Exclusions to the computation of “regular hourly rate” for overtime purposes include (in addition to commissions, bonuses, and drawing accounts) gifts, discretionary bonuses, reasonable travel expenses, vacation, holiday, and sick pay.
- An employee is not “working while on-call” when he or she is “not required to be at the work site” and when he or she is “effectively free to use his or her time for his or her own purposes.”
- An employee who is required to be on duty at the work site for less than 24 hours is considered to be working even if the employee is permitted to sleep or engage in personal activities when not busy.
Recently, the statute of limitations period for filing discrimination claims with the Massachusetts Commission Against Discrimination (“MCAD”) was increased from six months to 300 days. Thus, an employee with a discrimination claim (valid or not) has 300 days from the date of the alleged discriminatory act to file a complaint with the MCAD. This increases the exposure time for an employer and emphasizes the importance of keeping accurate and legitimate personnel records (which should include a record of all disciplinary action) for all employees regardless of how loyal they are perceived to be.
In the Federal realm of the Americans With Disabilities Act (“ADA”), the United States Supreme Court recently held that physicians, who were directors-shareholders of a professional corporation, may be deemed to be employees for purposes of determining whether the business has 15 or more employees, thus exposing the business to ADA liability. The Court found that because the professional corporation is a new type of business entity with no exact common-law precedent, the common-law’s definition of the master-servant relationship (whether the master exercised control over the servant) provided guidance. Thus, the mere fact that an individual has a particular title – such as partner – should not be used to determine whether that individual is an employee. Given the Court’s feelings regarding professional corporations, the question is open whether the same would hold true for other business organizations, such as limited liability companies.
401(k) Fiduciary Duty
An emerging area of litigation involves alleged breaches of duty by fiduciaries involved in company-sponsored retirement plans. According to the Federal Employee Retirement Income Security Act of 1974 (“ERISA”), a person is a fiduciary to the extent he or she exercises discretionary control or authority over retirement plan management or management or disposition of plan assets for a fee, or has discretionary authority or responsibility in plan administration. Accordingly, a person can be a fiduciary whether or not he or she has been named as such, and even without knowing it. Contracting out these duties will not necessarily insulate the employer-sponsor from ERISA liability. Where an employer plays a role in the selection of investments, it must act as the prudent man in a similar capacity would act in a similar situation. Fiduciaries must also monitor the performance of the investments and investment managers they have chosen. Finally, fiduciaries must always act for the sole benefit of plan participants, not for the employer-sponsor or its principals.There are myriad laws and regulations dealing with employer-employee relations. Familiarity with them, while not the most glamorous part of running a business, is nonetheless critical to its success.
This newsletter is designed for general information only. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship. For further information please contact one of our attorneys. Information contained herein has been abridged from laws, court decisions and administrative rulings, and should not be construed as legal advice or legal opinions on specific facts. The enclosed material is provided for education and information purposes by MacLean Holloway Doherty Ardiff & Morse, P.C. to clients and others who may be interested in the subject matter.