Labor and Employment in the Workplace: A Hiring and Workplace Guide for New Business Owners

I. Introduction

The process of starting a business that relies on outside employees
is time consuming and often confusing. However, with the aid of a
qualified attorney and the implementation of the proper procedures, an
entrepreneur may be able to safeguard himself against many of the risks
of bringing other people on board while reaping the benefits. This
article will first discuss the basics of hiring a qualified employee
and suggest an organization for a family run business. It will then
discuss the implications of non-compete agreements, existence of trade
secrets, and creation of pension plans. Finally, it will conclude by
discussing the implications of retaining an attorney to aid in the
employee hiring process.

II. The Initial Hiring Process

There are a few basic issues every employer should be aware of
before beginning the hiring process. [1] "Unless your business is a
'one-man show,' there are a wide variety of human resources issues that
should be considered during the process of hiring, managing, and firing
employees. [2] First, the new business owner should try to understand
exactly what qualifications or skills are essential in each employee
and know where to recruit employees with the required qualifications.
[3] Second, the owner should decide on proper wage levels and "methods
of motivating employees and maximizing productivity." [4] Finally, the
new business owner should request the aid of an accountant in setting
up a payroll schedule and payment tracking method that is both
numerically correct and understandable to the employee. [5]

A new business owner should be aware of the federal and state laws
that govern labor and employment practices. [6] "A non-exempt employee
is entitled to a minimum wage and overtime pay as well as other
protections." [7] Exempt employees are employees "whose job
responsibilities, more than 50 percent of the time, involve the regular
exercise of discretionary powers and can be characterized as"
executive, administrative, and professional. [8] Exempt employees are
required to receive a salary but do not necessarily receive the
benefits of minimum wage and overtime pay outlined in the Fair Labor
Standards Act (FLSA). [9]  Notably, the FLSA, the primary governing
federal law, may often conflict with state law. [10] The FLSA created
two classes of employees: exempt and non-exempt. [11] Generally federal
regulations trump state law but a new business owner should check with
their attorney or local chamber of commerce to understand which law
applies in relevant instances. [12]

III. Non-compete Agreements and Trade Secrets

A new business owner should also investigate the circumstances
surrounding a potential employee's previous employment. [13] "Under the
so-called inevitable disclosure doctrine, if someone has been exposed
to trade secrets at their job and leaves to work for someone else, and
if their responsibilities in the new job are sufficiently similar, some
courts will conclude that it's inevitable that they will use the
information that they had from the earlier position. They could face an
injunction prohibiting them from working for the new employer until a
number of months go by and whatever trade secrets they had are stale."
[14] Additionally, the owner should always check with a potential
employee's previous employers to ensure he will not be violating the
terms of his previous employment by working at the new business. [15]

IV. Structuring the Family Business

If the entrepreneur is starting a family business, he may also
benefit from structuring the organization of the business in such a way
that all members of the family, whether or not they are involved in the
business, have an opportunity to participate and give feedback. [16]
The family council structure recommends that the family meet
periodically to discuss the business, hold "family council meetings,
and write a "family constitution" that outlines the family's "policies
and guiding vision and values that regulate members' relationship with
the business." This structure allows all members of the family- even
those not directly involved in running the business- to give comments
about the governance of the business. [17] "Families in business need
to nurture members' feelings of trust and pride concerning the family
business as well as build a sense of teamwork to keep a family
committed and disciplined in its relationship to the business." [18]

V. Picking the Right Pension Plan

Attracting well-qualified employees may often rest upon offering
attractive pension plans. [19] A pension plan is a retirement plan that
is usually tax-exempt. [20]. The employer contributes a set amount
towards a pool of money that accrues for the employee's future benefit.
[21] There are two types of pension plans: defined-benefit plans and
defined-contribution plans. [22] "In a defined-benefit plan, the
employer guarantees that the employee will receive a definite amount of
benefit upon retirement, regardless of the performance of the
underlying investment pool." [23] By contrast, "in a
defined-contribution plan the employer makes predefined contributions
for the employee, but the final amount of benefit received by the
employee depends on the investment's performance." [24]

Some on-line databases report up to four years of financial history
of a company- information that should initially be filed with the
Internal Revenue Service- allowing the business owner and employees to
regularly check the status of the pension plan. [25] "A new user can
thus find such helpful nuggets as how much money his employer has been
contributing every year, whether the plan's retirees are starting to
outnumber its active workers, and whether the plan's investment income
has been covering expenses." [26]

VI. Conclusion

The issues discussed above are just a few of the major employment
concerns new business owners face. Retaining the assistance of an
attorney is always a good idea when undergoing a costly venture such as
starting a business. In addition to formal legal training, labor and
employment attorneys are also familiar with the laws that regulate the
governing of businesses and can provide the necessary assistance if an
employee files suit against the business.

[1] Stephanie Brown, Seven Skills for the Aspiring Entrepreneur, AllBusiness, March 7, 2007,

[2] Id.

[3] Id.

[4] Id. (Other employment issues include knowing the legal
and insurance issues surrounding employment, developing employee
training methods, and creating office-wide policies.)

[5] Id.

[6] Labor Regulations and Employee Pay, Sept. 30, 2005, http://www.entrepreneur/humanresources/employmentlaw.article80150.html.

[7] Id.

[8] Id.

[9] Id.

[10] Id.

[11] Id.

[12] Id.

[13] Constance E. Bagley, Top Ten Mistakes Made by Entrepreneurs, Harvard Business School: Working Knowledge for Business Owners, March 3, 2004,

[14] Id.

[15] Id.

[16] John Davis, The Three Components of Family Governance, Harvard Business School: Working Knowledge for Business Owners, Nov. 12, 2001,

[17] Id.

[18] Id.

[19] Mary Williams Walsh, Trying to Clear Fog From Pension Plans, N.Y. Times, Feb. Feb. 3, 2008.

[20] Investopedia: A Forbes Media Company, Pension Plan, (last visited Feb. 11, 2008).

[21] Id.

[22] 29 U.S.C. 201 (2000).

[23] Investopedia: A Forbes Media Company, supra note 20.

[24] Id.

[25] Williams, supra note 19.

[26] Id.