Employment contracts help clarify what companies expect from workers and what they intend to provide for them. Many small business owners and entrepreneurs assume that their employment contracts protect them from employee misconduct and litigation.
However, the contracts that they signed could very well be too outdated to extend appropriate protection. Employment laws constantly change, and businesses often need to renegotiate employment contracts in consideration of new legal standards. There have been a few significant changes to employment laws in the last few years that may make the review and renegotiation of employment contracts necessary for organizational protection.
Overtime pay rules
The federal government establishes a minimum salary that workers should receive to be exempt from overtime pay. If companies don’t offer that minimum salary amount or pay them for overtime hours, workers can potentially bring wage and hour claims. The minimum salary increases in July of 2024 and again in January of 2025. Companies may need to review compensation packages or scheduling practices to avoid violations.
Employee classification rules
Businesses generally have numerous financial obligations related to workers. One way they mitigate some of those expenses involves hiring independent contractors instead of employees. If a company has independent contractors on its payroll, it may be time to review misclassification rules. The government recently changed and clarified standards for determining whether someone is an employee or independent contractor. Misclassifying a worker could lead to a lawsuit and possibly even federal tax liability.
The new non-compete ban
Employers in a variety of different sectors have long used non-compete agreements as a way to prevent inappropriate employee conduct. However, they may have to change their practices and find new solutions. The Federal Trade Commission (FTC) implemented a ban on non-compete agreements in recent months that applies nationwide. The rule applies not just to new work contracts but existing employment arrangements. Companies can no longer enforce non-compete agreements and may need to renegotiate contracts with different protective clauses to minimize the risk of employee misconduct.
Taking time to evaluate and rework employee contracts can be a smart move for the leadership at an organization. The decision to regularly review and update contracts can help to protect companies from lawsuits and expensive statutory violations.