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WHEN CORPORATE
GROWTH IS PERSONNEL - THE CRITICAL ROLE OF EMPLOYMENT LAW AND POLICIES
by Jeffrey L. Berger, Esq.
Jeffrey L. Berger
specializes in management-side employment and business law, and related litigation in
Washington, D.C., and nationally. Other articles are available at www.bergerlaborlaw.com.
While the
following scenarios are fictional, they are a composite of issues common
to growth companies in our dynamic region.
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The Start-Up
Phase.
After years with
a major IT services company, two engineers start their own consulting firm,
InfoSys-IT, with a friend who will run the business side as CFO. They
contribute capital, rent space, and bring on experienced subordinates and a
few customers. Two years later, the fifteen employees celebrate their
successful anniversary at the Tyson’s Palm. As the founders give
bonuses to the entire Info-Sys “family,” they discuss expansion into the
homeland security sector. With shared corporate vision, culture, and
success, no one at InfoSys is thinking about employment law or policies.
The Growth Phase.
After
InfoSys lands a DHS subcontract, its key commercial customer opens several
out-of-state facilities, requiring expanded personnel from InfoSys. Its
founders begin to recruit, set up satellite offices to serve their customer,
and quickly promote and hire new managers based on technical expertise. The
original employees are so busy they rarely interact, and few of the forty
new staff shares the corporate vision. The CFO, who reluctantly handled
start-up personnel matters, has no HR expertise. Nonetheless, she learns
that with more staff, InfoSys must comply with federal employment laws. The
new managers, without specific guidelines, each adopt practices from prior
employers for interviewing, hiring, and resolving HR issues for an expanding
staff, which includes women, employees born outside the U.S., and recent
college grads, whose collective presence creates unresolved social/cultural
issues that begin to affect productivity. Overtime and work hour
requirements are applied inconsistently, and employees are uncomfortable
with the stormy romance between a female analyst and her manager. At the
close of year three, employees are grumbling about overwork, sexual
harassment, overtime violations, and discrimination. The three founders
(without executive employment agreements) argue over the expansion, and the
founder tied to the key commercial client threatens to start his own
company, while the other two consider their options.
The New
Professional Services Model.
In contrast to
the old manufacturing industry approach, where the machines were critical
and employees fungible, our region’s private economy is driven by
professional services companies whose most valuable assets are employee
knowledge and experience. In this environment, the frequent lament of
business owners is that things would be easy if they did not need staff.
However, just as successful entrepreneurs approach new ventures with a
business plan integrating finance, production, distribution, and marketing,
the same principle applies to employee management. In major metropolitan
areas, there is a convergence of federal, state, and local laws that affect
most aspects of the employer/employee relationship, including between
corporations and their executives. Affected subjects range from the payment
of bonuses to the wearing of nose rings, and even include an employee’s
right to discuss these matters by email messaging. Most recently,
Sarbanes-Oxley has expanded whistleblower protection to employees who
complain about certain financial improprieties; and highly-paid employees
have become sophisticated in using employment laws to promote their own
agendas.
Strategic
Personal Management System.
Employers,
particularly those seeking rapid corporate growth, need a platform for
personnel growth and management aligned with strategic business goals and
employment laws. The process begins with recruitment and hiring, and ends
with protection of the company’s confidential information and customer base
when an employee leaves. Without policies and procedures, managers, who are
often promoted due to their technical rather than management expertise,
waste time attempting to resolve personnel issues by instinct rather than
through processes designed to promote the company’s business and protect it
from liability. Among the most disruptive forces on employee morale, and a
major impetus for discrimination claims, are personnel issues that are
resolved inconsistently or not at all. An effective antidote to the ad-hoc
approach is a centralized personnel management framework, whereby one
manager or human resources department is responsible for guiding all
HR/employment law decisions. Whether this authority resides in a COO, HR
director, or CFO, having a centralized authority responsible for
company-wide employment issues fosters multiple benefits of streamlining the
resolution process, creating company-owned expertise, aligning HR management
with business goals, and preventing internal inconsistencies that lead to
employment lawsuits. The company must also adopt a uniform set of policies
and procedures, distributed and well-communicated to each employee, such
that common issues never reach a supervisor or become a source of conflict.
Due to recent legal developments, there are “must have” provisions to
protect employers, e.g., employment-at-will, EEO, harassment, electronic
communications, family and medical leave, and whistleblower rights (Sarb-Ox),
on which the company should also provide employee and management training.
Likewise, as much of a services company’s value is in its employees and
customer relationships, there should be restrictive covenants agreements
prohibiting employees who leave from using confidential information,
soliciting customers and company employees, and, in some cases, competing
with the company. With critical issues covered, the employer is free to
establish policies on performance and salary reviews, bonuses, promotions,
leave, benefits, and employee responsibilities, to promotes its business
goals. Of equal importance, especially for companies with multiple
facilities or in rapid growth, is to empower supervisory staff with
management HR and legal guidelines and procedures to minimize time and
liability on such common functions as applicant selection, performance
reviews, discipline, discharge, overtime, discrimination, and harassment.
Similarly, companies should incentivize supervisors to succeed by including
employee management as a component in compensation reviews. A key element in
the “management system” is that personnel decision leading to liability be
made in consultation with HR management personnel, who in turn have the
discretion to consult employment law counsel for a preventive “reality
check.” Particularly for a company in a growth mode, employee disputes can
be costly distractions for management and staff, and can adversely impact
the ability to attract outside investment. Perhaps the most cost effective
advice employment law counsel can provide is the quick review of significant
personnel decisions to determine, for example, whether to discharge an
employee or first place him on a performance improvement plan to protect the
company. In the employment context, change can be the driver for success,
but can also create disruption and liability. Thus, while all companies in
the midst of growth should implement HR and employment law polices,
companies can be more efficiently served with less risk by managing staff
growth based on an existing personnel management system that is integrated
into the overall business expansion plan.
REPRINTED FROM:
ACG/WBJ CORPORATE DEVELOPMENT SUPPLEMENT - MAY 13, 2005
The Berger Law Firm, P.C. 1825 Eye St. N.W., Suite 400, Washington, D.C.
20006.
Phone: (202) 861-1361 Fax: (202) 861-1362
Legal advice is case specific and is not intended to be provided by this article.
The Berger Law Firm, P.C. may not be held responsible for any consequences
that may arise in connection with the use of or reliance on the information provided.
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