For many, 2020 has been a year of pivoting and refocusing business plans. As you’ve adapted operations, have you also evaluated your business practices from a legal perspective?
You might be surprised to find that as you moved to work from home or made other adaptations, you forgot to revise recordkeeping to take into account a distributed workforce or never finished your succession plan. As you prepare for 2021, here are six common legal mistakes that should be corrected for the New Year.
- Failing to stay current on labor and employment laws –If you don’t stay on top of new laws and regulations as well as keep up with changes to current ones, you risk exposing your business to a claim or lawsuit. In 2020, the Department of Labor issued multiple new Covid-related guidelines for return-to-work, remote work, and wage and hour issues. In addition, the Supreme Court ruled sexual orientation and preference are protected characteristics under Title VII. While these updates captured headlines, there were a multitude of others. Human Resources needs to be informed, management appropriately trained, and the employee handbook regularly updated for new laws and revisions.
- No succession plan – Small- to medium-sized businesses often grow due to the hard work and enthusiasm of their founders. What happens when a founder decides to retire or can no longer run the business? It’s important to have a plan. The plan should take into account buyouts of original owners as well as legal transfer of ownership, be it through a will, employee/management buyout, or sale. You’ll need a business valuation and a terms of succession agreement, as well as plans for training the next generation of owners/managers.
- Using boilerplate or no contracts – Contracts protect your business relationships. They set out a legally binding agreement on parties’ responsibilities, payment, timeframe, renewal, and other terms. They should also have clauses for breach, extension, and renewal. Be leery of standard contracts found on the internet. A good contract should be specific to your business, industry, and locale. A boilerplate contract may include provisions that don’t apply to your company or exclude ones that are important to your business.
- Failing to protect intellectual property – First off, you should obtain copyrights, trademarks, or patents when applicable. Then all contracts, including vendor and employment, should include clauses protecting intellectual property and trade secrets. With many workers now remote, consider specific work-from-home policies about use and protection of confidential and proprietary information, including data and network security
- Inadequate recordkeeping – This applies to payroll, contracts, financial statements, tax records, sales, expenses, and more. Even if they’re virtual, you need to keep adequate records for a number of years. Recordkeeping also applies to employees’ time. With more distributed workforces, be sure to update recordkeeping policies for employees’ hours, sign-in and sign-out procedures, and sick and vacation leave.
- Misclassifying workers – It’s important that your workers be correctly classified as employees or independent contractors. Tax and other laws define an independent contractor relationship. If you are telling an independent contractor when and where to perform work, specifying which tools and equipment to use, or prohibiting the contractor from seeking other business relationships, you may actually have an employee. If you have misclassified an employee as an independent contractor, you could be liable to the employee for lost wages and benefits, as well as face trouble with the IRS and Department of Labor.
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Let our team proactively prevent legal exposure and operate as your in-house legal team by offering you a free evaluation inspection. To learn more about how the experienced attorneys at InPrime can help reduce your legal threats and limit exposure, contact us at 678-578-4321.
Disclaimer: The blog should not be used as a substitute for competent legal advice from one of our licensed attorneys.