Avoiding the Legal Pitfalls of Hiring and Firing

Lawsuits over alleged discrimination in employment more than tripled during the last decade, rising from not quite 7,000 cases in 1990 to more than 21,000 cases in 1998, according to the U.S. Justice Department. Plaintiffs won only about one-third of all civil rights trials during the period, but the proportion of successful plaintiffs who won judgments of $10 million or more increased from 1% in 1990 to 9% in 1998. In other words, your chances of defending yourself in court against a charge of workplace discrimination are increasing, and even though you?re likely to win such a lawsuit, if you lose, your chances of paying a hefty damage award are multiplying. And win or lose, you?ll spend a lot of time and money defending yourself.

Avoiding discrimination in hiring. A host of federal and state laws prohibit job discrimination. Even if you don?t intend to discriminate, some actions can land you in legal trouble if their effect is to discriminate. For example, a seemingly innocent question during an employment interview??Do you think you?ll be starting a family soon???can lead to a discrimination complaint.

In terms of hiring, discrimination refers to actions and decisions that deny a job to a candidate based on the candidate?s race, color, religion, sex, national origin, age, or disability. There?s one key exception to prohibitions against discriminatory hiring: You may deny employment to a member of a protected group if your decision is based on a ?bona fide occupational qualification.? This refers to a trait or characteristic essential to performing the duties of a particular job. For example, you are not compelled to hire a female model to pose for photos used in ads for men?s jewelry. Race, however, is the exception to the exception?it can never be an occupational qualification.

The ad. Even a carelessly written want ad can lead to trouble. Wording that merely implies discrimination can leave you open to a lawsuit or be used as evidence against you at trial. ?Jewelry store looking for salesman? is an obvious blunder. ?Successful candidate must ?think young? ? is less blatant but just as hazardous to your legal health. Before you advertise a job opening, write a formal description for the position. It should include the position?s title, the manager to whom the employee reports, a job summary or general overview, the position?s duties and responsibilities, the tasks to be performed, the knowledge and skills needed to do the job, and the education and experience required. Use the job description as the basis for your ad and make sure every word in the ad relates to the job.

The job application. Your application form is another potential source of legal pain. Make sure it doesn?t include any questions about race, age, sex, religion, national origin, or disability. (That means it can?t ask for date of birth, a standard question not so long ago.) Details to avoid include marital status; maiden name; names, number, or ages of children; child-care arrangements; pregnancy; arrest records that did not result in convictions; affiliations other than professional ones pertaining to the job; military service unless the job requires it; union membership; status as a high school graduate (you may request educational history); and lowest acceptable salary.

To legally hire someone, you?ll need to verify that the candidate is a citizen or legal alien, but you may not ask, ?Are you a U.S. citizen?? Instead, ask if the candidate can verify that he or she is legally qualified to work in the United States.

The interview. Tom Tivol of Tivol Jewelers in Kansas City, Mo., compares effective interviewing to voir dire?lawyers? preliminary examination of prospective jurors to eliminate those who are unsuitable for a trial. ?Even forgetting about the legal issues, just to be able to conduct an interview is difficult,? he says. ?Most retail jewelers do not have the skill. We have to be trained.?

The cautions that apply to your application form also pertain to questions you ask during an interview. All questions should relate to the job and its requirements. Don?t ask anything related to race, age, sex, religion, national origin, or disability. Exception: You may ask, on an application or during an interview, if the candidate is able to perform the duties of the job in question, with or without an accommodation.

But you may not ask, ?Do you have a disability??

There are safe ways to obtain relevant information. For example, if your store is open on weekends, you may ask a candidate if he or she is ?willing to work on Saturdays or Sundays.? But don?t ask if a candidate?s religion prohibits working on Saturday or Sunday.

Make sure you ask the same questions of all applicants, and even if an interviewee happens to volunteer information regarding race, age, sex, religion, national origin, or disability, don?t write it down.

Firing. Every state except Montana operates under the doctrine of ?at will? employment, which means that in the absence of a legal employment contract (such as a union contract), an employer has the right to fire an employee for any or no reason. (In Montana, a termination must be for ?good cause,? which can include poor performance.) Nevertheless, firing an employee is more legally perilous than hiring one, and small family businesses may be especially vulnerable.

?With the family dynamic, the risks are even greater,? observes Jonathan Segal, an attorney who specializes in employment law. In a setting where family members are casual with one another, the lines between workplace formality and family informality can blur, producing a lax atmosphere that inadvertently affects the employer?s treatment of non-family members. ?The boundaries are looser,? says Segal. ?The lines are less clear, and when the boundaries drop, they also drop with non-family members. When non-family members are let go, and family members are not, they might bring a claim.?

Implied contracts. Besides issues of discrimination?federal and state laws bar an employer from firing on the basis of race, age, sex, religion, national origin, or disability?you court trouble if you inadvertently offer workers an ?implied contract.? These are typically created when an employer makes a promise during an interview or at any time thereafter (?If you?re good at selling, you?ll always have a job at XYZ Jewelers?) or when wording in an employee manual suggests some kind of agreement.

For example, if your handbook includes a list of ?firing offenses??especially if the phrase ?just cause? is used?a court might conclude that those are the only reasons an employee may be fired, invalidating employment at will. Therefore, make no promises about job security, and if you have an employee manual, include a disclaimer similar to this one:

?Nothing in this handbook constitutes a contract of employment. The employment relationship at XYZ Jewelers is at-will and may be terminated at any time, with or without reason, by either the employer or the company. The company also reserves the right to change these policies at any time with or without notice.?

Fairness. Unfair terminations constitute one of the greatest legal risks employers face, says Segal. And even when a termination is not unfair, ?a plaintiff?s lawyer can make it look unfair,? he warns. A mishandled termination can provoke an angry employee to take legal action. Terminations require not only attention to the law but also tact and sensitivity.

If your company has a written procedure for terminating an employee?for example, a series of verbal and written warnings and ?action plans??follow it to the letter and document every step in the process. ?Employers should have written job descriptions, conduct periodic performance evaluations, and document all constructive criticism and evaluations,? says John Michaels of Michaels Jewelers in Waterbury, Conn. ?The most important word is ?documentation.? ?

A termination should not be a bolt from the blue. An employee should be aware, well in advance of an actual discharge, that his or her performance is unacceptable and needs to be corrected. ?Give them a chance to improve,? says Segal. ?Don?t let someone go without telling them their performance was problematic.?

When you carry out a termination, do it in private and carefully explain the reasons. ?Be honest with employees. Don?t tell them they?re being laid off when they?re really being terminated,? Segal advises. The explanation should be objective and factual, not personal, focusing on performance and behavior, not personality. Allow the employee some dignity. Give him or her a written notice that details the circumstances leading to the dismissal, including any violations of company policy, but remain calm and courteous at all times, even if the employee doesn?t. Try to keep the meeting brief, and write it up as soon as possible afterward for your records. When you inform the rest of the staff, avoid defamatory language.

Finally, if you?re thinking about firing someone for whistle blowing, complaining about violations of employee rights, filing for workers? compensation, or reporting Occupational Safety and Health Administration violations, or because their wages are being garnished, think again. None of those reasons will pass legal muster.

Negligent hiring. Discrimination isn?t the only legal pitfall in hiring. Sometimes it?s not whom you don?t hire but whom you do hire that can land you in court. You may be held liable for negligent hiring if you employ someone who later injures a third party, and you knew or should have known that the employee had the propensity to commit such an act. ?Should have known? means the information was available, but you didn?t effectively screen job candidates or conduct proper background checks to get it.

?If you hire someone who?s an embezzler, and you don?t uncover it, and he steals your customer?s merchandise, you might get a lawsuit from the customer,? says Michaels. ?You need a proper job application that elicits the appropriate information, and you need to ask the right questions, especially related to gaps and discrepancies. If there are gaps in employment, it?s critical to understand them.?

Michaels says the most important question to ask a job applicant is, ?What would your prior supervisor say if asked why you left?? If the applicant responds with his or her own reasons for leaving, rephrase the question: ?What will your previous supervisor say was the reason you left when I talk to him?? When the implications of the question sink in, ?it?s like an epiphany,? Michaels says. ?They come clean, and you find out about their personality.?

When you do contact previous employers, you may find that many have policies restricting what they can say about a former employee. Begin by asking for verification of position held, dates of employment, and salary. Specific rather than general questions are more likely to yield relevant information. For example, asking a former employer, ?How was John Doe at selling?? might not elicit a useful response. But if you?ve asked the job candidate a specific question during his or her interview??How often did you meet or exceed your sales quota???then you can present the question to the former employer like this: ?Jane Doe says she met her sales quotas 95% of the time she was employed by you. Is that accurate??

Even if former employers offer little information beyond confirming a candidate?s position with the company and the period of employment, document the conversation, including questions you asked that weren?t answered. That way, if you ever find yourself in a courtroom charged with negligent hiring, you?ll at least be able to demonstrate that you tried to get the information.

Background checks. To avoid hiring an employee who might harm a third party?or, for that matter, your business?it may be necessary to conduct background or credit checks, also known as consumer reports. (See ?Background Checks Can Prevent Future Headaches,? JCK, September 1999, p. 88.) But using consumer reports can result in a trip to federal court, too, if you don?t follow the rules. The most important rule is this: You must notify a job candidate in writing that such a report may be used and get written permission from the candidate. For more information, visit the Federal Trade Commission?s Web site at www.ftc.gov or go to w.ftc.gov/bcp/conline/pubs/buspubs/credempl.html for an article titled ?Using Consumer Reports: What Employers Need to Know.?

When you don?t have an HR department. The legal pitfalls of hiring and firing can trip up even the most well-intentioned employer. ?I think most managers want to do the right thing,? says Segal. ?Litigation is the product of ignorance, not the product of evil motives.? ?It?s a complicated subject,? adds Tivol. ?It?s important to recognize the issues?it?s not knowing all the answers, but learning the issues.? He suggests that jewelers take management courses in hiring and other human resource functions or else hire consultants to develop one or two individuals into competent interviewers and HR experts. ?Retail merchants need to become volunteers in their own education,? he says.

Segal also recommends training. ?Common sense doesn?t always work,? he cautions. ?Some laws follow common sense, but others are counterintuitive. If an organization doesn?t have an HR function, it should at least make sure the manager has sufficient training. If you go solely on your instincts, you?re going to make a mistake.?

Both Segal and Tivol believe jewelers without human resources departments should consider outsourcing. ?There are organizations that can provide temporary HR, for example, one day a week,? says Segal. Tivol thinks jewelers should consider hiring a professional employer organization (PEO), either to perform HR duties or to train individuals in interviewing skills. (See ?A Better Way to Do Business?? JCK, March 2000, p. 100.) He suggests that anyone learning interviewing techniques not simply absorb information in an academic setting but conduct ?live? interviews, with the trainer present to provide feedback. These measures may seem expensive, but Tivol says they?re worth it. ?The fees disappear in a puff of smoke compared with what I call ?penalty dollars,? ? he says.

Segal says another option employers should consider is buying employer liability insurance. Small businesses without human resources departments will pay a high price for coverage, but Segal thinks it may be worth it. ?I look at employer liability insurance as catastrophic coverage,? he says. However high the cost, it pales into insignificance compared with the cost of a trial?even if you win.

Inexpensive Resources To Help You Stay Legal

Nothing beats having a good lawyer to advise you on legal employment practices, but the following organizations and agencies can help fill gaps in your knowledge or provide useful services.

  • The home page of the Equal Employment Opportunity Commission?s Web site (www.eeoc.gov) offers news and information as well as ?Quick Start-Employer,? which includes ?Small Business Information,? ?Mediation,? and ?Training.? EEOC experts conduct training seminars for employers (called ?Technical Assistance Program Seminars,? or ?TAPS?), which are offered in half-day, one-day, and multi-day versions. Half-day and one-day seminars are $75 and $235, respectively, and the site includes a schedule for 2000. Customized training is available on a limited basis.

  • The Society for Human Resource Management (www.shrm.org) and its 460 chapters offer educational services and a variety of conferences and seminars. SHRM?s member information center offers tips on complying with government regulations and laws. Although SHRM is intended primarily for HR professionals, others can become associate members. The membership fee is $160 per year. Call (703) 548-3440.

  • The United States Mutual Association (www.usmutual.com) provides employment screening services, mostly for department stores and high-volume retailers. It offers access to confidential reports on retail employees who were fired for dishonesty?even when there was no prosecution. Call (800) 860-0343.

  • The Jewelers? Security Alliance can refer you to private investigators with experience in conducting in-depth background checks for the jewelry industry. Call (800) 537-0067.

  • The Legal Information Institute (www.law.cornell.edu) is an online resource from Cornell University Law School. A search on the topic ?employment law? turns up 123 entries, including ?law about employment discrimination.?

  • The National Association of Professional Employer Organizations lists nearly 2,000 PEOs on its Web site (www.napeo.org). You can reach it at (703) 836-0466. The Institute for the Accreditation of Professional Employer Organizations posts a short list of 14 accredited PEOs on its site (www.iapeo.org). Call (501) 219-2045.