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Employment Law: What Is Your Risk Tolerance?

By Community Manager posted 04-20-2023 02:27 PM

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Business leaders face risks of all types in their daily operations. Every leader chooses to manage the risks associated with their employees a bit differently. Sometimes a trusted human resources professional is available to assist them, sometimes not.

HR professionals may find themselves faced with leaders and managers who ignore employment laws or doubt the need to take certain actions to comply and reduce risk. For business leaders and HR professionals alike, it is essential to understand and be aligned on the risk tolerance level within the organization. One way to evaluate this is to consider a spectrum of risk tolerance.

High vs. Low Tolerance

On one end is a higher tolerance for risk, characterized by the following:

Leaders resent and actively resist compliance with employment laws, adopting a “what you don’t know can’t hurt you” attitude.
Managers take quick and decisive action; for example, employees are quickly terminated without any documentation or discussion.
Front-line supervisors handle employee relations and leave requests inconsistently, often based on manager temperament and what employee is favored or more convincing.
There is no employee handbook, and new hires receive little formal orientation to the company protocols.

Employment decisions are frequently made on the fly by various managers, with little consideration of high-risk consequences (claims of harassment, wage violations, etc.)

The other end of the spectrum is a lower tolerance for risk. The following behaviors illustrate this approach:

Leaders acknowledge and accept the importance of compliance with employment laws and seek guidance on strategies to mitigate employment risks.
Managers are informed about organizational practices and policies and seek assistance from HR.
Front-line supervisors consistently apply policies to employee situations and seek support and assistance from HR and management.

An employee handbook is updated regularly, new hires are oriented to the policies, and managers and supervisors are trained by HR on the importance of daily interactions with employees.
There are defined processes in place to manage employee situations (absences, leaves, illness, complaints, etc.), so there is consistency in the application of company protocols.

Potential Costs

What are the costs to consider on the risk spectrum?

If there is a high tolerance for risk, the case can be made for allocating no resources toward risk mitigation – in other words, dealing with HR risks (non-compliance, negative consequences) as they happen. This strategy may avoid costs, so long as there are no objections from employees or government agencies. However, if there are objections, the following outline of bottom-line costs associated with risks in the workplace is instructive:

Fines/penalties: Non-compliance with state and federal laws can be in the many thousands of dollars of direct and indirect costs, potentially even punitive actions such as forced business seizure and closure; responsible individuals may face significant fines and, in some cases, incarceration.
Litigation: In addition to any fines or penalties, discrimination claims and related investigations can lead to damages that cannot be anticipated. There are cases where employers refused to settle for $10,000 or $20,000, and the jury returned a verdict of over $1 million for willful neglect and violation of employee rights. Even if the case settles, the employer may have attorney’s fees of $100,000 or higher.
Reputation: Harm can be done to an organization’s reputation if it violates employment laws, and this can impact recruiting, retention, and business relationships. Potential high-performing employees value a workplace where employees are well-treated and have ways of learning which employers are not respectful of employee rights.

How to Lower Your Risk

Risk is a part of doing business, and there are ways to mitigate the costs. One way is to have a lower risk tolerance by increasing awareness and professional capacity. Seeking legal and human resources advice and assistance, consulting with various government agencies, engaging with chambers of commerce, and subscribing to news sources are among the options.

Employers Council provides members with the knowledge to assess risks associated with making business decisions, so employers know what they can do as well as what they cannot do. This information comes to you in a variety of ways, including the following:

Resources: whitepapers, sample policies, checklists, forms, etc.
Expertise: legal advice and consultation from experienced attorneys and HR professionals to evaluate risk
Training: classes to expand awareness and understanding of employment laws and scenarios
Services: additional pay-as-you-go services for workplace investigations, audits, and HR support

Leveraging membership serves to mitigate risks and include that in the business planning decisions of any organization, small or large, high tolerance and risk averse like. For assistance with the risks in your workplace, contact us at info@employerscouncil.org.