Cost-cutting can wind up being expensive

Almost everyone is trying to live a little leaner in this down economy, and many companies are grappling with the difficult decision of where to cut expenditures. However, just like individuals who forgo insurance in tough economic times only to find themselves in a worse economic position after a car accident, many companies unknowingly take cost-cutting measures that risk causing them more harm (and costing them more money) in the long run.

Many of these risks are either unnecessary or could be minimized with a little advance planning.

For instance, in the name of saving money, many employers hire inexperienced (but less expensive) human resource professionals or office managers. These employees are often the first line of defense in avoiding violations of state and federal employment law and associated penalties.

Even relatively technical violations of state and federal employment laws can cost employers huge amounts of money. For example, under federal law, if an employer fails to properly complete, retain and/or make available for inspection its Form I-9s (the Federal Employment Eligibility Verification form) as required by law, it may face civil penalties in an amount of not less than $110 and not more than $1,100 for each violation.

The New Hampshire Department of Labor also has taken the position that an incomplete or incorrectly filled out Form I-9 may constitute a violation under state law. Penalties for such violations may be assessed in the amount of up to $2,500 for each day of noncompliance. Fines for wage and hour violations also may be assessed up to $2,500. In some instances, criminal penalties may be imposed. And wage and hour violations can trigger payroll tax issues, meaning employers can face civil and criminal IRS penalties.

Benefits of training

While additional training may be the last thing on which employers want to spend money, having non-discrimination and sexual harassment policies in place is not enough protection for employers who want to avoid liability from sexual harassment and other discrimination claims.

In the 2008 case, Chaloult v. Interstate Brands Corporation, an employee sued her former employer under Title VII of the Civil Rights Act, alleging that she had been sexually harassed by a supervisor.

In ruling in favor of the employer, the First Circuit Court of Appeals (the federal appeals court that covers New Hampshire) reaffirmed the importance of providing harassment training.

The court found that by having written harassment policies in place, and holding trainings for employees on its policies and on how to make a complaint under its policies, it had taken appropriate steps to avoid the harassment.

Thus, training supervisors and employees on how to avoid sexually harassing behaviors, company policies and how to handle complaints of sexual harassment could be vital in the defense of a lawsuit in order to show that an employer exercised reasonable care to avoid harassment. Moreover, training your workforce on these issues and how to handle them could go along way to avoidance of a costly lawsuit altogether.

Employers concerned about the cost of trainings have several options. They can work with legal counsel to videotape a training that can be used in subsequent sessions, or they can put together training in-house. Additionally, some trade associations as well as the New Hampshire Commission for Human Rights have resources and training materials available to employers at little or no cost.

Many employers try to avoid layoffs by reducing employee pay. However, they can incur liability and monetary penalties if they fail to follow state wage and hour rules before doing so. This means that the employee must be apprised of the change before he or she performs any work at the new rate.

Employers contemplating any pay rate changes must plan ahead to make sure employees are properly notified in writing of any changes far enough in advance to avoid situations where employees are notified about a change to their rate of pay the same day it goes into effect — or worse, after it already went into effect.

Claims for unpaid wages can result in an employer’s liability for the unpaid wages, damages in the amount of the unpaid wages and reasonable attorneys fees. Failure to comply with notice requirements could result in civil penalties of up to $2,500 per violation.

Some employers also are changing vacation accrual policies or reducing vacation time altogether in an effort to save money.

They should use caution, however, because state law requires employees to post written notices about employment practices and policies with regard to vacation pay, sick leave and other fringe benefits. Therefore, when changes to these policies are made, the new policies must be posted and distributed to employees. Additionally, employers need to consider whether an employee’s entitlement to a particular benefit has already vested before making any change.

These are only a few of the common mistakes employers make when trying to cut costs quickly, and they have the potential to be far more costly than the savings that resulted from making the change.

Many of these mistakes can be avoided easily at little cost, and employers should consider the effect of cutting any preventive measures that could help them avoid problems in the first place.

Laurel Van Buskirk, a member of the Labor, Employment and Employee Benefits practice group at Devine Millimet and Branch, can be reached at lvanbuskirk@devinemillimet.com or 603-695-8565.