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Legal Insights: How Laws and Policies Affect an Expanding Employee Roster


May 1, 2007

Read Time

4 minutes


By Steve Trusty

As your company grows, so does the need for keeping abreast of additional employment laws. Beginning at 15 or more employees, a firm is covered by certain federal anti-discrimination laws. At 50 employees, the Family and Medical Leave Act (FMLA) kicks in. At 100 employees, a business becomes subject to the WARN Act, which pertains to certain layoffs and plant closings. It is important to be aware of these thresholds long before you reach them.

As a company approaches the 100- employee threshold, there is more to be aware of than the employment laws," says Peter Donati, head of the Employment Service Group at Chicago's Levenfeld Pearlstein, LLC. "Policies and procedures need to be looked at for standardization. Also, the larger the firm, the bigger target it becomes for litigation. It is a new world that requires new thinking."

Smart Business talked with Donati for more insight on what owners and CEOs should be aware of as a company grows, especially as it reaches the 100-employee milestone.

How does the number of employees affect policies and procedures?

As the company becomes a larger organization, the owner/founder cannot continue to control all HR decisions. You need to look at more standardized rules and policies that will guide people as they run the business on a day-to-day basis.

Handbook requirements become more critical. It is important for a handbook to reflect the actual practices and priorities of the organization. Does it have what is needed? Does it contain items that should no longer be included? For example, if different departments have different tardiness policies, problems are created when employees converse with each other or are moved from one department to another. How can you explain differences in a valid way? Supervisors have a tougher time if they don't have guidelines to work within.

Also, compensation and evaluation policies need to be reviewed and standardized. Organizations need to tie evaluations and compensation decisions together in a way that is both fair and defensible.

Make sure that all employees are classified accurately as exempt or nonexempt. These are hot areas for litigation, and penalties can mount up very rapidly.

What are the key areas to be conscious of as a company approaches 100 employees?

Companies obviously need to be aware of the employment laws that will be applicable, and be ready for compliance before the threshold for coverage is reached. However, laws that may have been applicable to them as a smaller organization also take on greater importance.

When you have more employees, there is a greater chance of litigation. The government takes more interest in your organization. And lawsuits, particularly those involving multiple plaintiffs, present greater risks.

At some point between 50 and 100 employees, you are going to need to consider hiring an HR professional as opposed to non-HR-trained individuals wearing several hats. That person may have to be placed at the same level as other upper level management.

How can all this be approached holistically?

Bring in an employment lawyer or HR consultant to perform a compliance audit. Besides auditing wage-and-hour-law compliance, a comprehensive audit could include interviewing and hiring practices, how you deal with employees on the job, and what to do when they are separated. Also consider an immigration audit to make sure you are securing and storing I9s (immigration forms) properly and complying with all other aspects of immigration law.

Are there other areas to consider?

Review all your forms and agreements, including job application forms, employment agreements, and confidentiality and noncompete agreements. Some may have been developed early on and may no longer be applicable or compliant with changes in the laws.

Also examine your training policies, especially sexual harassment policies. Know what is permitted and what is not. Where do complaints go and how are they handled? What training is required of management and what is required for all employees? For example, California now requires two hours of training every two years for managers. Potential union activity is another area in which your managers should receive training.

How important is outside counsel for any of these issues?

Even if you have expert in-house counsel, you will want to have a good relationship with outside specialists for certain areas to assure compliance. Getting advice before you make a decision is much better than looking for an attorney when you have been sued by a group of employees. Incorrect decisions can set the company back for years. Get the best advice possible.

Filed under: Employment & Executive Compensation

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