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When most dentists think about protecting the asset value of their practices, thoughts naturally revolve around insurance — malpractice, general liability, and workers' compensation insurance. Each of these has a specific purpose and, therefore, provides coverage for specific issues.
Is this enough to protect your retirement? Maybe in the past, but unfortunately, today there is a big liability monster that now represents an even greater risk to you. This monster is the risk and liability associated with lack of employment compliance, and it is putting more practices in financial jeopardy than you may realize. Importantly, the above–mentioned insurance is no help.
More and more, we see headlines that relate stories of employers suffering serious financial setbacks due to losing lawsuits and claims in employee disputes. The Equal Employment Opportunity Commission (EEOC) is the federal agency that enforces the laws protecting people from discrimination, harassment, and retaliation in the workplace. Here are some trends occurring with the EEOC, and the number of claims filed for fiscal year 2008 vs. 2007:
- Americans with Disabilities Act = charges up 10%
- Age Discrimination in Employment Act = charges up 29%
- Harassment = charges up 20%
- Pregnancy discrimination = charges up 12%
- Race–based discrimination = charges up 11%
- Sex–based discrimination = charges up 14%
As for the monetary benefits, the EEOC alone (not counting other federal agencies or states) collected $274.4 million from disputes. OUCH!
In the area of employment compliance protection, many strategies have been used over the years to minimize risks.
These strategies include:
- “At–will” prerogative
- Incorporation
- Arbitration
- The very popular “just don't put anything in writing”
Another common, though not very effective, strategy has been burying one's head in the sand and hoping for the best.
As you will see, in today's employer–employee environment, even these strategies don't provide the protection they once did.
“At–will” employment. All too often employers believe that “at–will” is the key to setting them free from liability when it comes to employee–employer issues. After all, under this common law principle, employers can fire an employee at any time with or without reason and with or without notice. Unfortunately, there are actions by employers that erode “at–will” prerogatives, not to mention the many laws in place now that supersede “at–will.”
How do employers undermine “at–will”? They unknowingly and inadvertently create contracts with their employees that take away the flexibility to discharge “at–will.” The two most common forms are “implied” and “express oral” contracts. An example of this is poorly written policy manuals that have progressive discipline policies or promises of termination only for “just cause,” or telling an employee that “employment will continue as long as the performance is adequate or satisfactory or as long as the employee does the job.”
Furthermore, language such as probationary period, permanent employee status, long–term employee, career employee, tenure, etc., both verbally or in writing, may create a contract and undermine “at–will” prerogatives.
As far back as 40 or more years ago, laws have been systematically added that protect employees in the workplace from discrimination. These federal, state, and/or city/county laws set up what is commonly referred to as “protected classes” and limit the “at–will” prerogative.
As a result, an employee may very well file a claim against the employer alleging the action the employer took was illegal under any of the many laws in place. A myriad of roadblocks can come into play during the course of an investigation that will result in a loss by the employer.
The moral of the story is this: “at–will” employment is no longer what it once was. Employers will not be able to play that card without potentially facing some challenges and consequences.
Incorporation. Incorporating, whether that be PC, LLC, S, or C, is designed to separate you and your personal assets from those of the business entity — your practice — in the event of judgment against you, the theory being that even if your corporation takes a liability hit, you personally will be safe. Unfortunately, the “line” between you and your corporation is commonly blurred (auto expenses, vacations, supplies), making it easy for an attorney to “pierce the corporate veil” and join you personally with your corporation.
The moral: while it is good tax planning to personally benefit from incorporating, your corporation may provide little protection for personal assets from labor–related claims.
Arbitration. The advent of arbitration for resolving disputes was an attempt to solve problems in a more amicable manner, and without the protracted legal expense involved to fight claims such as wrongful discharge, discrimination, harassment, and the like.
As a dispute resolution procedure, the outcome is determined by a neutral third party. This dispute resolution procedure is usually to submit to final and binding arbitration pursuant to the provisions of the existing Labor Arbitration Rules of the American Arbitration Association.
If handled correctly, arbitration can benefit the employer and employee:
- Arbitration proceedings can often remain private between the involved parties — and out of the press.
- Normal litigation can take months if not years to arrive at a final verdict.
- Arbitration is less costly and time–consuming than the more formal process of seeking redress through the courts.
Because of these benefits, arbitration policies have been commonly included in many standard policy manuals. As a result, many employers require employees to sign mandatory binding arbitration agreements, meaning the arbitrator's decision is binding and typically is not subject to appeal.
Once an arbitration agreement is in place and an employee attempts to seek resolution through the courts or the labor board, employers think: “You can't do that because we have a mandatory arbitration agreement in place and you signed it!” Sounds reasonable, but is it accurate? Today it seems it may not be.
One mistake that employers make regarding arbitration is thinking that it covers all disputes, which it doesn't. Furthermore, employees can file discrimination charges with the EEOC without availing themselves of the mandatory arbitration agreement since the agency is not bound by any agreement between an employer and its workers. The Supreme Court has upheld the EEOC's right to pursue victim–specific judicial relief, even when an employee has agreed to submit discrimination disputes to arbitration.
Thus today it appears that arbitration doesn't fully protect you anymore. Let's see how the last reason holds up under scrutiny.
The “Just Don't Put Anything in Writing” Mistake. Unwritten policies can often result in inconsistent treatment of employees, which can lead to charges of discrimination. In this situation, employees begin questioning why others received something different, in most cases more beneficial, than they did. When they cannot conclude that the inconsistent treatment was based on legitimate reasons, they conclude it had to be based on discrimination and may think the remedy is to file a claim against the employer.
Charges of discrimination and disparate treatment (i.e., members of a protected class are treated differently than others) can be costly and time consuming, and can be prevented with the use of a policy manual. For an employer, having a policy manual means having a reference guide to ensure policy administration consistency.
What if a claim is filed? A worst–case scenario for an employer is to find him/herself in a situation that is “he said; she said.” Statistically speaking, when this happens, the employee wins the fight 87% of the time. In general, it seems the odds of prevailing in a lawsuit are stacked against the employer, so it is to the employer's advantage to be able to provide as much proof as possible to defend his or her case.
Finally, a court or a government agency will generally expect the employer to have a personnel policy manual in place and will request, among other information and documentation, to review it. Being able to supply an up–to–date policy manual provides some evidence of good faith on the part of the employer and greatly enhances the employer's defense. Failure to supply the policy manual can easily be interpreted as proof that the employer did, in fact, treat employees differently.
What about the risks associated with having a policy manual? The risk does not come from having a policy manual in place, that in and of itself is not precarious. In most cases, the liability is the employer's own making and stems from poorly written materials, a failure to adhere to the written policies, or a failure to keep the policies updated.
Conclusion
Reliance on past strategies does not offer much protection today. There's a new reality and most, if not all, of the reasons you thought protected you have holes in them. They aren't the quality security blanket once generally believed. It takes more than these old ideas about asset protection in today's employment climate to secure the future of your practice. This leaves you with only one choice — the best asset protection is to get into and stay in employment compliance.
Tim Twigg is the president of Bent Ericksen & Associates, and Rebecca Crane is a human resource compliance consultant with Bent Ericksen & Associates. To receive a complimentary copy of the company's quarterly newsletter or to learn more about the company's services, call (800) 679–2760 or visit the Web site at www.bentericksen.com.
