How Small Business Owners Can Minimize Risk of Litigation When Disciplining Employees

Business owners make dozens of business decisions all day, every day. In some cases, these decisions involve how to address an employee’s poor performance, misconduct, or a violation of company policy. Disciplining employees is the least enjoyable aspect of being a business owner for many people, but consistently enforcing company policies and quickly addressing problems in the workplace are critically important to keeping a small business running smoothly and efficiently.

Keep in mind, however, that dealing with troublesome employees can also lead to costly legal trouble if not handled properly. In particular, any owner who engages in selective enforcement or disciplines employees differently for the same offense, could face a costly claim of employment discrimination.

Under federal law, it is illegal to discriminate against employees based on certain protected characteristics (e.g., race, gender, religion, national origin, disability, and age). Most states have their own laws that outlaw discrimination on those and other grounds, such as sexual orientation or gender identity.

Federal anti-discrimination laws typically apply only to employers with 15 or more employees (or 20 or more employees for age discrimination). So if your business is very small, these federal laws may not apply to your employees. But this doesn’t necessarily give you a free license to discriminate—the Virginia Human Rights Act applies to Virginia companies with as few as six employees.

While most employers don’t intentionally discriminate, the risk of accidentally discriminating against employees is very real. Even the appearance of discrimination in the workplace can lead to trouble. Problems can easily arise when employers impose discipline inconsistently or arbitrarily. For example, suppose a business owner warns three male employees for being tardy. The owner then decides to fire the next employee who comes in late to set an example. If the next employee to arrive late for work happens to be female, she could claim that she is the victim of gender discrimination because she was disciplined her more harshly than the male employees for the same offense. As is often the case, outcomes are very dependent on the facts and circumstances of the particular situation.

Follow these tips to reduce the risk of discrimination claims and other legal disputes with employees:

• Develop a clear discipline policy. Every small business should have a written disciplinary policy—either as part of an employee handbook or as a stand-alone written policy. The policy should clearly state that the company will discipline employees for performance, misconduct, and other violations of company rules. Consider including a description of the types of discipline that may be imposed—for example, a verbal warning, a written warning, suspension, and termination—as well as examples of offenses. However, always clarify that employment with the company is at will, that the company may discipline for other offenses, and that employees can be terminated without receiving prior discipline.
• Communicate the policy to employees. Distribute the policy (and any other company policies), explain it clearly, answer any questions, and ask employees to acknowledge receipt of the policy in writing.
• Consistently enforce the policy. Consistency in disciplining employees is critical. This does not necessarily mean that an owner has to apply the exact same discipline and follow the exact same procedures in every situation. An owner simply needs to exercise common sense to make sure that similarly situated employees receive similar discipline for similar offenses.
• Document disciplinary actions. Creating a paper trail to back up terminations is one of the most important things a business owner can do to reduce liability risk in the context of an employee termination. Through effective documentation, a business owner can more effectively demonstrate that an employee was terminated for poor performance or misconduct rather than discriminatory reasons.
• Have a process for internal complaints. A company should provide employees with a process for making complaints within the company, which can be as simple as having employees report their questions or concerns to the owner or their immediate supervisor. If employees are concerned about unfair treatment, a business owner can often remedy the situation in a fair and efficient manner before the situation escalates into a lawsuit or EEOC complaint.

A final, but very important tip is to NEVER retaliate against a worker for filing a complaint or raising a work-related concern in good faith. The same laws that prohibit discrimination also prohibit retaliation against employees who file a discrimination claim or otherwise exercise their rights under the law. Retaliation can take a number of forms, including demoting an employee, refusing to promote an employee, or giving the employee unjustified negative performance reviews. Even small things—such as changing an employee’s shifts—can be considered retaliation under certain circumstances. Be fair, be consistent, exercise common sense, and by all means do not hesitate to contact your attorney or HR consultant if you have questions.