As employment law issues grow increasingly complex each year, CPA firms’ owners and managers are struggling to comply with state and federal laws.
As employment law issues grow increasingly complex each year, CPA firms’ owners and managers are struggling to comply with state and federal laws. Everyone’s goals are to reduce claims and liabilities, if not prevent them outright. But oftentimes it’s the most fundamental of issues that get employers in trouble with the law. In today’s economy where litigation has become commonplace for the slightest infraction, CPA firms’ human resources managers, company owners and other high-level management are advised to get ‘back to basics’ on the top issues that could cost their firms millions.
When looking at the basic employment law issues, the number one goal for every employer in the accounting industry should be to eliminate repetitive practices that could be found unlawful and could give rise to a class action lawsuit. Employers have the money and the power, and there’s an automatic bias towards them. Make sure every policy is followed through consistently and that everything is properly documented. Above all, firm leaders must look reasonable and fair.
CPA firms are advised to consider the following tips to help employers stay out of the courtroom and create fair work environments:
Employee handbooks — There are several misinterpretations about the purpose of employee handbooks. Some items absolutely have to be included, such as meal and rest periods, to ensure employees are aware of the rules and expectations. Without a handbook, it’s difficult to prove a policy was in place and understood by your professionals and staff members.
Compensation plans — Every employee who begins work for a CPA firm has an implied contract for compensation, and employers must share what their rate is before they start working. Such written policies are usually put in employee compensation plans, which detail specific information that must be in writing for them to be binding. In particular, CPA firms with a bonus offering must have compensation plans presented to employees. It’s actually just as important as the job application, but is often overlooked. Employers also must ensure modifications to compensation plans are in writing, and that employees understand that oral agreements are not valid.
Job applications — Applications are often outdated, asking questions that could trigger liability for firms. For example, if a college degree is an essential qualification for a certain position, in order to avoid a possible age discrimination claim, employers should ask candidates whether or not they graduated instead of asking when they graduated. Perhaps more importantly, many companies don’t require applications and instead opt for resume submissions—which are advocacy pieces in comparison to applications. With a well-drafted application, employers elicit "just the facts." In addition, applications allow employers to obtain approval to conduct various background checks. It’s also important that employers obtain a signature and affirmation from the applicant confirming that the information is accurate and complete. Doing so may provide grounds for termination if applicants misrepresent themselves. Employers should ensure the information submitted by the applicant is verified, consistently conducting background checks for every applicant to ensure discrimination claims are avoided. Finally, employment applications and a well-executed pre-hire due diligence program will help prevent and defend against claims for negligent hiring and negligent retention.
Arbitration agreements — It’s recommended that firms utilize a binding arbitration agreement as part of their employee handbook and personnel policies—and note that arbitration agreements are necessary for all prospective employees, not just those applicants that are actually hired at the company. For example, some applicants may claim that they were not hired due to alleged discrimination. Including an arbitration provision in all job applications ensures that those who are not hired by the company will have to arbitrate claims for "failure to hire." While some states like California require the employer to pay for the arbitration, it remains a smart strategy for CPA firms and could save big bucks in some instances.
Performance evaluations — It’s no secret that today’s reduced workforce has created packed daily schedules for both employees and their supervisors. With that in mind, many performance evaluations don’t take place at their scheduled date. But if employers don’t conduct performance reviews when they’re supposed to be done—or they’re skipped altogether—it will be difficult to terminate problem employees when there’s a lack of notice regarding issues that need to be improved, or if there are inconsistent patterns of providing performance evaluations (which could be perceived as a bias). In addition, performance evaluations, including self-evaluations for exempt employees, can prove helpful in preventing misclassification claims.
Exit interviews — If the firm decides to conduct exit interviews, they need to ensure that they are done every time a professional or staff member leaves the organization. Aside from providing information about the industry and market conditions, exit interviews can help companies defend a lawsuit if a disgruntled employee decides to sue. Specifically, if a departing employee signs an exit interview document saying everything was fine, it will be difficult for him to claim otherwise in support of a later lawsuit. However, exit interviews also pose their own risks sometimes the questions incentivize employees to make claims where there weren’t any. Thus, exit interviews have pros and cons, and firms need to make an informed business decision about whether they are appropriate for them.
Exemption issues for salaried accountants — Accounting firms or other employers who misclassify their work force as exempt could suffer significant exposure (sometimes in the million-dollar range) for unpaid overtime and other penalties. Some states take a very narrow view regarding what jobs qualify for the white-collar salaried employee exemptions, including jobs taken by trained accountants. Under California’s traditional professional exemptions, for example, a licensed accountant may qualify for one of the eight professional exemptions if they satisfy a few other prerequisites. Unlicensed accountants have been subjected to close scrutiny in California, although they may qualify for the learned professional, executive, or administrative exemptions depending on the accountant’s actual job duties and/or educational background. In Campbell v. Pricewaterhousecoopers LLP (2009, E.D. Cal) 602 F.Supp.2d 1163, the federal court, applying California law, denied an employer’s motion for summary judgment, holding that certain unlicensed accountants were entitled to overtime because they could not qualify for the administrative exemption under the test set forth in the Industrial Welfare Commission Wage Order. The court noted, among other things, that these jobs failed to require the regular performance of exempt functions, such as supervision or the regular exercise of discretion or independent judgment. This case provides a wake-up call to employers who may fail to carefully evaluate the job duties and functions of employees classified as "salaried exempt."
Timekeeping — It’s the employer’s obligation to track hours worked for nonexempt salaried or hourly employees, and these records are imperative to an employer’s compliance with wage and hour laws. Employers should document employees’ meal and rest periods in writing each day, including when they were taken, how long they lasted, whether they were waived, and if so, why they were waived. Additionally, at the end of every pay period, the total hours worked for each employee should be verified. One prominent problem facing companies is employees refusing to take their meal period. Employers must monitor those situations and ensure that these employees are taking and documenting the proper breaks to avoid class action lawsuits that can reach millions of dollars in settlements. Know your state’s meal/rest period requirements, as they differ state to state. "Stolen" hours from manipulated time cards is outright theft, and dishonest employees will take advantage if employers are not watchful. Create documents that are irrefutable in court, and be fair and respectful to your staff—they should return the sentiment. If supervisors and their staff trust each other, a level of integrity is much easier to maintain.
State and federal wage/hour laws — Although both state and federal wage/hour laws are operating simultaneously, the most favorable one to the employee always applies. Employers must understand the interaction between state and federal laws, and know when to refer to the appropriate rules. For example, there are exemptions from overtime under federal laws that don’t apply to certain states, which may have stricter exemption requirements. Both federal and state law may apply depending on the situation and locality. Firms can be sued for federal law in one state, and sued for the same thing elsewhere under a state law. Firms can also be sued in one court (state or federal court) for violations of both state and federal law.
Termination — Many CPA firms, in an attempt to save money, don’t seek the proper legal advice when terminating employees. One of the biggest mistakes employers make is to involve legal counsel after an employee has already been terminated. Sometimes it may just be a five-minute phone call to the qualified legal expert that saves the company from a lawsuit. Even at-will employment has its risks with termination. A poorly administered termination containing little or no documentation can present a very serious problem for employers who later seek to show that a termination was for legitimate non-discriminatory reasons. Specifically, an employer should document the reasons for the employee’s termination. For example, if the employer simply states "at will employment," the employee can allege whatever unlawful reason he chooses, and the employer may have a heavy burden to establish after the fact that the reason for the termination was not an unlawful one.
John K. Skousen and Christopher J. Boman are both partners with the management-side labor and employment law firm of Fisher & Phillips LLP (www.laborlawyers.com) in its Irvine, Calif., office.
This article was originally published in IOMA's monthly newsletter, "Partner's Report for CPA Firm Owners", and is republished here with the express written permission of IOMA, Copyright(c) 2010. For more information, visit www.ioma.com or for copyright permissions please call 212-576-8747 or email firstname.lastname@example.org.