THE SCIENCE OF COMPLIANCE

Avoiding Lawsuits

Businesses, even the smallest businesses, function in an extraordinarily complex and convoluted legal environment. Law libraries have hundreds of thousands of volumes. Computerized legal research systems have proliferated and become a practical necessity because it has become virtually impossible to find, let alone know, the law that applies in particular situations through conventional techniques.

And, yet, the most basic principal of Anglo-American jurisprudence - "ignorance of the law excuses no man" - is as true now as it was 200 years ago.

In important respects, it may be completely unfair to penalize a business executive for not knowing about a legal requirement that only a legal specialist can comprehend. It's like trying to obey the speed limit when the speed limit signs aren't always posted, and even when they are they're impossible to understand. But the alternative is to render the law meaningless: picture a society in which, for instance, a competing business can violate your rights and put you out of business, but escape liability merely by contending that they did not know any better.

So what do you do? Call it "the science of compliance." As detailed in prior issues of Avoiding Lawsuits, instead of trying to be a lawyer, you should focus on trying to learn the most important "red flags" and danger signals that will alert you to the need to consult with a lawyer, before it's too late. And instead of trying to learn everything, abide by the "90-10 rule" - 90% of the problems you are likely to run into are governed by 10% of the law, so focus on that. Stated another way, approach the problem in two steps: first, learn what you need to know to stay out of trouble, not what you need to know to be a legal scholar; second, don't sweat what you don't need to know.

Of course, finding out what you really do and don't need to know is the real science, and providing that sort of practical know-how is one of the primary goals to which our firm and Avoiding Lawsuits is dedicated. Typically, a business that wishes to get serious about avoiding lawsuits will commission what amounts to a "legal audit," a service we provide to our clients. We analyze the company, identify the risks that are most directly in play, and apply preventive techniques. One of the first things we do in that effort, however, is something you can do yourself.

There are many criteria that determine what laws apply to what businesses and what situations, but a very important criterion in the employment law arena is the number of employees a company has. Federal statutes, in particular, often apply only to companies that have a certain minimum number of employees - if you don't meet the threshold, you should be worrying about something else. Here is a table of important federal employment laws, arranged by the minimum number of employees a company must have before the statute will apply. We strongly recommend that you use this list to highlight what does, and what does not, apply to you.

0-14 employees

Consumer Credit Protection Act of 1968
Employee Polygraph Protection Act
Employee Retirement Income Security Act (ERISA)
Equal Pay Act of 1963
Fair Credit Reporting Act
Fair Labor Standards Act (FLSA)
Federal Insurance Contributions Act of 1935 (FICA) (Social Security)
Health Insurance Portability and Accountability Act (HIPAA) of 1996
Immigration Reform & Control Act (IRCA)
Labor-Management Relations Act (Taft-Hartley)
National Labor Relations Act (NLRA)
Occupational Safety and Health Act
Uniform Guidelines of Employee Selection Procedures
Uniformed Services Employment & Re-employment Rights Act of 1994

11-14 employees

Occupational Safety & Health Act (OSHA) (maintain record of job related injuries and illnesses)

15-19 employees

Civil Rights Act of 1964 Title VII, Civil Rights Act of 1991 Title I
Americans with Disabilities Act of 1990 (ADA)

20-49 employees

Age Discrimination in Employment Act (ADEA)
Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA)

50-99 employees

Family and Medical Leave Act of 1993 (FMLA)
EEO-1 Report filed annually w/EEOC if organization is a federal contractor

100 plus employees

Worker Adjustment & Retraining Notification Act of 1989 (WARN)
EEO-1 Report filed annually w/EEOC if organization is not a federal contractor

So, for example, if you only have 18 employees, you won't have to worry about the Age Discrimination in Employment Act or the FMLA. Are you an employer with less than 20 employees who frets over COBRA notices? If so, reconsider your policy, because you are not a covered employer. But at the same time, had you heard of the Fair Labor Standards Act and the National Labor Relations Act? Do you know, even generally, what these laws require and prohibit? These statutes can have devastating effects on some businesses, and you need to know what the practical effect might be on your business.

It's always more effective to drive these points home with an example borne of someone else's misery...

In a recent case decided in federal court in Philadelphia, three employees sued their former employer, alleging that they should have been paid overtime under the Fair Labor Standards Act. The employer argued that the employees were exempt from overtime because of the amount of independent discretion the employer had given to the employees. As most employers generally know, this can be a key factor in deciding who gets overtime. However, without realizing the significance of its actions, the employer had been paying the employees on an hourly basis, not a salaried basis. Under the law - which the employer had never heard of - no matter how much discretion the employees had, paying the employees on an hourly basis automatically made the employees non-exempt, and entitled them to overtime pay.

The employer, predictably, claimed ignorance of the law and good faith - how was the employer supposed to know about that little hourly pay versus salary pay wrinkle? Tough, said the Court, and it not only required the employer to pay retroactive time and one half, it added a penalty, essentially doubling the damages. The Court reasoned that it takes more than the subjective good faith of the employer to avoid liquidated damages - the employer has to show that it actually knew what it was supposed to do and made a real, good faith effort to comply. Good intentions by themselves do not count for much in the law; what counts is legal knowledge, combined with good intentions.

For those interested in preventive law, the "science of compliance" requires at least this: have your business procedures and routines audited, learn what the law requires of you, learn what you don't have to worry about, and institutionalize the procedures that will minimize your risks. Similarly, get professional training for your employees, especially your managers. You want to be able to put yourself in a position where you can show that you learned the law, and you made real efforts to implement it into the work place. That will count a lot when penalties and punitive damages become an issue.

You might not always come up with the right answer. But just like back in math class, you can get a lot of credit for showing your work.

Powell, Trachtman, Logan, Carrle & Lombardo, P.C. is a full service law firm with offices in suburban Philadelphia, PA, Harrisburg, PA and Cherry Hill, NJ. Powell Trachtman represents a variety of commercial enterprises, entrepreneurs and business executives in respect to their litigation, litigation avoidance planning, business formation, business transactions, estate and tax planning, and other needs. We are also approved defense counsel for numerous insurance carriers in matters pertaining to professional malpractice, products liability, employment practices, directors and officers liability, and many other fields. For more information, contact us at info@powelltrachtman.com and visit our website at www.powelltrachtman.com.

©Copyright 2003 CCG Properties LLC. All rights reserved, except that recipients hereof are permitted, for noncommercial purposes, to provide copies or excerpts, with full attribution to us, to other interested persons for their personal use. Avoiding Lawsuits is distributed for general informational purposes only. It is not a substitute for personalized legal advice from a competent attorney.