Respect Employee Rights: 3 Lessons from Lawsuits Against Small Businesses

By: Anita Ann Babu on May 7, 2018


Note: This article is intended to inform our readers about business-related concerns in the United States. It is in no way intended to provide legal advice or to endorse a specific course of action. For advice on your specific situation, consult your legal counsel.


Respecting employee rights isn’t just a touchy-feely way to keep your employees happy—it’s the law. Businesses need to respect these rights to avoid being sued for workplace harassment, discrimination, pay discrepancies etc.

And it’s not just big companies getting sued for not observing employee rights laws—a recent study found that small businesses in the U.S. pay up to $133 billion a year for employee rights-related lawsuits.

More than 50 percent of civil lawsuits filed every year in the country are against small businesses. In most cases, small and midsize businesses (SMBs) can’t afford legal expenses or hire lawyers. And lawyers often recommend against lawsuits, because if you lose you have to pay for both the settlement and the legal expenses.

If movies have taught me one thing, it’s that one should always do what the lawyer says.

On International Labor Day, we’re taking a look at practices and behavior that could end in losing a valuable employee, or prompt a lawsuit.

Founders and CEOs of SMBs need to work closely with their HR staff to avoid similar incidents in their companies. Beyond that, SMBs can leverage technology, smart business strategies, empathy and employee support to foster a great work environment.

A History of International Labor Day

International Labor Day honors worker demonstrations and walkouts across America that resulted in the eight-hour day we enjoy today. In 1886, workers conducted mass walkouts in Chicago and other major cities to protest hazardous work conditions, child labor, exploitation and brutal 10- to 16-hour days.

Various laws have been passed since then to protect workers and ensure employer accountability. The U.S. officially celebrates Labor Day on September 3, but May Day is a global celebration of worker’s rights and a tribute to the people who sacrificed so much to fight for improved labor conditions.

In this article, we’ll look at three common ways businesses abuse worker rights, and show how SMBs can avoid these forms of mistreatment.

Here’s what we’ll cover:

Discriminatory Work Practices

Hiring Bias

Hostile Work Environments

What HR Managers Should Do Next

Discriminatory Work Practices

Despite federal antidiscrimination laws, discriminatory practices and behaviors can be found at many businesses, both large and small. If employers fail to take action as soon as a complaint is filed, these cases can turn into lawsuits.

The failure of internal checks and balances results in monetary loss and affects your market reputation. If you’re not already aware, here’s what can constitute as discrimination:

  • Discrimination based on race, skin color, religion, nationality or sex

  • Discrimination of pregnant employees

  • Difference in pay based on gender for the same work

  • Discrimination due to age

  • Discrimination against persons with disability

  • Discrimination based on genetic information that reveals an employee or their family’s medical history etc.

Example: Don’t Impose Preferential Treatment Based on Race

In February 2018, a Houston bar owner settled a racial discrimination lawsuit regarding denial of admission to non-white patrons.

The bar agreed to stop imposing cover charges or dress codes on people of select races. It had refused to let the plaintiffs enter the premises without paying a $10-20 cover charge, while white patrons were allowed entry free of charge.

As a result of the settlement with the Justice Department, the bar agreed to train its employees, monitor their behavior and ensure compliance to the agreement.

What You Can Do

Business owners and HR managers should foster an anti-discrimination culture among the employees. Start from the top and ensure that your message trickles down to the very bottom.

Discriminating against a minority population is illegal. Just look at all the lawsuits against major Silicon Valley companies such as Google, Twitter, Uber and Microsoft.

To help you be a fair employer, here are some steps you can take:

  • Train your managers and employees about the need to be sensitive to everyone—colleague, client, candidate, customer or vendor.

  • Set an example for your employees by highlighting the impact of discrimination against people based on any criteria.

  • Implement policies and measures that prevent discrimination of any forms within and outside the workplace.

  • Make diversity a cornerstone of your company culture. Hold workshops about the effects of unintentional bias within the workplace, and how bias can reduce productivity, lower morale and go against the company’s culture.

How Technology Can Help You

Getting rid of inherent discriminatory behavior isn’t easy and takes a lot of motivation, encouragement and learning. Our biases often come in the way of our actions.

One way to ensure that this doesn’t happen often (because we cannot completely get rid of it), is to use the assistance of the “unbiased” technology around us.

Here are software options that your HR team can use to discourage discriminatory behavior:

Learning management systems (LMS): This is the first step to prevent biases from turning into discrimination. Some vendors allow you to create your own courses, while others allow you to purchase existing courses or create courses on your behalf. Whatever you choose, opt for digital LMS for ease of training.

Digital LMS lets you make the course a part of an employee or new hire’s annual, quarterly or monthly training, which they can take any time they want. This way, your HR doesn’t have to get everyone together physically in a room.

You should use real-life examples in the courses to help your employees understand the impact of their actions, words or thoughts.

Some of the top vendors offering such compliance training for small businesses are TalentLMS, Evolve Learning Manager and eLeaP LMS.

Payroll processing: Many companies want to effectively remove the gender wage gap, i.e., when women earn only 83 percent of what men earn for the same job. Companies are trying to fix this, but they’re still adjusting.

When SAP found that female employees constituted 70 percent of its underpaid staff, it raised their salary to cover the gap and be more equitable.

Being a fair employer also depends on how you pay your employees. With a great payroll system, you can analyze the median wages based on each role, the factors behind difference in pay and then work out how to fix the gender wage gap.

This measure will make your business stand out in the market, which will help you get more applicants who are better qualified.

Namely, QuickBooks Full Service Payroll, Patriot Payroll and BrightPay are some payroll solutions that suit small businesses.

Career development management: This is crucial to ensure that all employees are given equal opportunities. With the help of software to track each employee’s career and progress, managers and HR can highlight instances when possible discrimination may have occurred.

Our “5 Predictions for the Future of Human Resources” report recommends using predictive analytics to find employee pain points. Identify high-value employees who are likely to quit, and offer them another role that makes use of their skills and potential.

Sephora promotes its female employees to technical roles even though they don’t necessarily have the skills. This helps them develop their skills, improves the gender gap and fosters an open culture where women feel motivated to pursue their goals.

Here are some of the FrontRunners of HR software that offer career development planning feature: Namely, Dayforce HCM, UltiPro and ClearCompany HRM.


Develop your competencies on Dayforce HCM (Source)

Hiring Bias

In our report for Women’s Day, female employees we surveyed said that questions about their plans for marriage and pregnancy were common during interviews with potential employers. Their answers influenced whether or not they got the job, even though it’s illegal to ask.

Having these biased thoughts while hiring—that women will get married or pregnant and then take long breaks—has led to the skewed gender balance that we see in most workplaces today.

But it’s not just women who face biases during the hiring stage. Our biases are also in areas like predominantly hiring African-Americans in football and basketball, white males in almost all leadership roles, Latin Americans as manual labor, Asians as masseuses and other harmful stereotypes.

Here’s an example of how the law responded when a company discriminated on the basis of potential employees’ citizenship status.

Example: Hire Qualified Candidates Despite their Nationality

A Colorado business was forced to pay penalties and back wages when courts ruled that the company had discriminated against U.S. citizens in favor of hiring foreign workers.

For the same role, it set stricter requirements for U.S. citizens (such as proficiency in English, background check and drug tests), while the same rules didn’t apply to the foreign hires. The lawsuit found that the company gave all the available jobs to foreign workers instead of qualified U.S. citizens.

As a result, the company paid more than $10,000 in civil penalties and over $18,000 as back wages to the affected U.S. workers. It’s unlawful for employers to intentionally discriminate against U.S. workers based on their citizenship.

If they are qualified and available, you cannot favor temporary foreign visa workers.

What You Can Do

The above examples highlight that employers should not let any biases influence the people they hire. Despite popular stereotypes, each employee is only trying to prove their worth and make a decent living, at the end of the day. And stereotypes cause more harm than good.

Here are some things you should always keep in mind when you’re hiring:

  • Set fair hiring goals that look at skills, potential, experience and growth plans of each candidate equally. Avoid falling for our inherent bias of awarding men for their potential but women for their achievements, as Sheryl Sandberg points out.

  • Give each candidate equal opportunity to show their abilities and potential, and don’t relegate men and women to different roles. For example, women are sometimes given customer-facing roles because they’re considered as soft-spoken, while men are given sales where you need to be aggressive.

  • Make diversity a business goal and review your numbers each year. Ask why you aren’t meeting the goals—is there a problem in the pipeline? Do female employees think the office is aggressively masculine? Do you support LGBTQ rights? Once you fix your internal issues, you should market your business as an open and inclusive workplace on social media, Glassdoor, LinkedIn and other channels.

How Technology Can Help You

Bringing about a sea change in your existing business strategy can be tough but is necessary so that you’re not vulnerable to lawsuits or campaigns against your company.

Gallup reports that unconscious biases result in managers not always making the right choice while hiring. Software can help remove the “filters” in their thinking that creates “a myopic, homogenous workplace.”

Here are three HR software options that can help you remove personal biases to ensure fair hiring practices and greater diversity in your business:

Job boards: The first step in hiring is identifying the need for a role or candidate to fill a role. That starts with creating a job description and identifying the best channels to advertise your posting. Job board software provide companies the tools to do this and run a custom careers page, which can attract candidates while showcasing your brand and values.

Check out the job board software buyer’s guide to find out why businesses need this technology to streamline their hiring process.

Some vendors allow integrations with third-party applicant tracking systems, recruiting software and core HR software. Some of the top solutions for small businesses are Jobvite, Newton, JazzHR and The Applicant Manager.


Custom careers page created on Jobvite

Applicant tracking (ATS): Include a culture fit assessment as part of the candidate’s evaluation, according to our guide, “How to Hire The Right Person, Not the Best Person.” In addition to the skills tests and interviews, this will help you see how well the person fits into your company’s culture.

This can be vital to determine whether they’ll stay on for long and how well they’ll collaborate with their teams.

While there are plenty of applicant tracking software in the market, here are some of the FrontRunners for applicant tracking tools that work well for small businesses: Greenhouse, ApplicantPRO, RUN powered by ADP and Recruiterbox.

Recruiting software: As our “3 Recruitment Strategies SMBs Can Use to Tackle Hiring Woes” report shows, hiring the right person is one of the top concerns of small and midsize businesses.

We recommend tackling this issue by setting a three-pronged approach—creating the right job profile, tracking the candidate progress and screening them before hiring.

With the right recruiting software, your HR managers can set these goals for themselves with checklists to mark off each completed stage of hiring. Some of the FrontRunners for HR software that offer recruiting as a feature or an add-on solution are BambooHR, ADP Workforce Now, Workday and Paycor Perform. All these solutions are suited for small businesses.

Hostile Work Environments

Americans are no strangers to hostile workplaces, with 20 percent of workers claiming that they’ve experienced harassment at work.

This includes getting yelled at by your manager, being constantly subjected to inappropriate jokes (based on your gender, sexual preference, disability or other characteristics) or pressure to follow certain religious practices.

Since 2017, we’ve seen high profile firings of prominent businessmen, TV personalities and company founders over harassment and creating a hostile work environment. With the #MeToo and Time’s Up movements, more cases are being highlighted each week and companies are taking action to reform offenders or remove them.

For small businesses and startups, getting involved in a hostile workplace lawsuit can mean certain death. It can stop your expansion and growth plans. Below is an example of the consequences that a small business had to face as a result of one such lawsuit:

Example: No Flashing Your Employees. Ever.

An Iowa-based small business opened itself to a lawsuit when a female worker reported that its owner had frequently flashed himself in front of female employees for several years.

The state’s Supreme Court ruled in her favor and allowed for a case of “sex discrimination based on a hostile work environment and intentional infliction of emotional distress.”

Though the company claimed they were protected by the Iowa Civil Rights Act, the Supreme Court ruled that incorporated businesses can’t escape civil rights actions. It ruled the owner’s behavior as “outrageous conduct” and allowed the case to move to a jury trial.

Based on the jury’s verdict, the business will be liable to pay monetary damages that could run into thousands of dollars.

What You Can Do

Many small businesses involved in such cases appeal that companies with less than 15 employees are protected from being sued under the Civil Rights Act. But that argument won’t always hold. Judges and juries will rule in favor of the plaintiffs if there’s enough evidence to prove harassment or discrimination.

To protect your business, here’s what you can do:

  • Schedule open hours for HR staff and managers where employees can highlight any and all of their grievances. You can then create programs that address common issues.

  • Listen to your employees instead of dismissing their claims. Companies that take this approach will see better productivity as employees will feel valued.

  • Create an anti-harassment policy and review it annually to assess the entire staff every year—from the CEO to the latest hire. This will also highlight any latent issues that could potentially be damaging at a later stage. Find such issues and fix them immediately.

How Technology Can Help You

The way to deal with hostile work environments doesn’t just lie in removing a few “bad apples.”

You need to ensure that your whole staff knows what constitutes a hostile workplace and takes steps to avoid creating such an environment. You can foster this thinking and ensure compliance to laws using the following HR software features:

Talent management: This involves developing your workforce and hiring new employees. Talent management overlaps with LMS, recruiting and ATS software, and it’s primarily used to successfully acquire and retain your talent. The talent management software buyer’s guide further notes that companies of all sizes usually request the software to improve their efficiency.

Some of the solutions that our advisors recommend for small businesses are Performance Pro, Trakstar, Reviewsnap and ApplicantStack.

Performance reviews: These rate the effectiveness of employees and provide an avenue to discuss the employer’s development areas as well. Small businesses should allow open and frequent communication on each employee’s strengths and improvement areas.

Based on these factors, encourage employees to set career paths that align with their goals and benefit your business in the long run.

Make this a regular process, instead of an annual review so that employees are always aware of their focus areas and actively work to improve their performance. As the buyer’s guide for 360 degree feedback software notes, feedback can also help HR teams create guidance or mentoring plans for employees.

Here are some of the top recommended performance management solutions suitable for small businesses: Zenefits, Salesforce, Threads Culture and PiiQ by Cornerstone.


Give employees frequent feedback with ThreadsCulture (Source)

What HR Managers Should Do Next

As HR managers, you act as gatekeepers and enforcers of the company culture to foster collaboration, inclusion, honesty and growth. All the cases discussed above involve disgruntled employees or customers who were in one way or another, wronged by the owners or people the companies had hired.

So, here’s a recap of the action steps we mentioned above:

  • Ensure fair hiring practices and give equal opportunities to all your applicants despite their race, gender, sexual orientation, age, nationality or any other characteristic.

  • Equip your HR staff or agency with the latest technology and HR software that ensures fair assessment of candidates based on their potential and abilities.

  • Prevent any inherent biases so that your employees treat each other with respect and create an inclusive workplace.

  • Address employee grievances early on so that they don’t escalate into complaints with the EEOC or into lawsuits.

If you’d like to know more about how HR software can help you deal with the above cases or any other issues, you can call our advisors for a free FastStart Consultation at (844) 387-8848. You can also read the HR software buyer’s guide for a better idea of the benefits of using software to improve your business.