Growing Pains: Duties Change with Business Expansion

In addition to leases, lines of credit, and accounts receivable, at some point all owners of growing businesses will have employees and the legal obligations that come with them. What some business owners don't realize is that as they add employees, there are additional state and federal statutes that apply. With additional employees come additional duties for employers. Failing to recognize the changing obligations as the business grows can lead to unnecessary costs and liability.

In Oregon, all employers are responsible for employee recordkeeping and time records, and with tracking employee time via time cards, time sheets, monthly employee reports or some other means. By state statute, once a business has one employee, that employee is protected from discrimination on the basis of race, religion, sex, national origin, age, marital status, pregnancy, and a host of other protected classifications.

Size Matters

Having just one employee subjects the business to requirements under state minimum wage law, the Oregon Occupational Safety and Health Act (Or-OSHA), Oregon workers' compensation, the Oregon Smokefree Workplaces Act, and Oregon Employment Insurance law. To have one employee for Oregon Employment Insurance requires only a payroll of at least $225 in a calendar quarter and at least one employee in 18 of the 52 weeks of the year. Under the federal law, employers with only one employee are subject to the Uniformed Services Employment and Reemployment Rights Act. All of these require the employer to give mandatory notices to employees of their rights under these acts, although this generally can be accomplished through the posting of standardized posters.

Unfortunately, determining which statutes apply is not as easy as saying "we have five employees, these statutes apply to us." Determining size can be a challenge. It may not be quite so simple to determine who qualifies as an "employee." In some instances a shareholder may be an employee, in others a shareholder may not. Even how the size of the business is applied or determined varies by the different statutes. In some cases, it is based on the total number of employees. In other cases, it is the number of employees at a particular location. In still others, application of the statute may be determined by the total number of employees within a set mile radius.

Different Businesses Have Different Obligations

The type of business engaged in can also determine legal obligations of an employer. For example, a business with only one employee that does not have sales or receipts over $500,000 annually is not subject to the federal Fair Labor Standards Act (unless it is a school, hospital, government agency, or the employee individually engages in interstate commerce). If the business is engaged in commerce, it is subject to the federal Employee Polygraph Protection Act and its posting requirements. Whether a federal statute applies is determined by whether the business or the employee engages in interstate commerce. (This is not a difficult test; buying supplies from across a state line will generally meet the interstate commerce requirements).

In other situations, legal obligations are determined by the customer. Those businesses who have contracts with the federal government may be required to have federal Drug Free Work Places Act and Equal Opportunity Employment policies. In addition to those requirements, federal contractors with over 50 employees may be obligated to implement an Affirmative Action Plan and federal reporting protocols.

Same Statute, Different Claims

In some cases, the statute may apply to the business from the beginning, but obligations change as the business grows. For example, all Oregon employers with one or more employees are subject to Oregon workers compensation law. However, the obligations for reinstatement are triggered at six employees for an injured worker who cannot return to their former job. Employers with 6 to 19 employees are required to return an employee to an available job after a workers' compensation-covered injury, while an employer of 20 or more employees may be obligated to return the released employee to the former position held.

Although many of the Oregon employment statutes parallel federal statutes, there can be some significant differences that create unforeseen traps. An employer who has 25 or more employees is subject to the Oregon Family Leave Act (OFLA), giving a qualified employee 12 weeks of unpaid medical leave. An employer who has 50 or more employees for 20 weeks during the year is also subject to the federal Family Medical Leave Act (FMLA). FMLA, like OFLA, gives qualified employees up to 12 weeks of unpaid medical leave in a 12 month period. Employers subject to the statutes have notice obligations and are required to communicate with their employees regarding whether a leave is covered, how it will be tracked, etc. However, employers subject to both statutes have to be careful. The employee leave rights under the two statutes are not identical. Some types of leave are not covered by both statutes. In some cases, the employee may even be entitled to an additional 12 weeks under one and not the other. Leave under each statutory scheme should be tracked separately. An employer needs to recognize when an employee has exhausted the 12 weeks of available leave under OFLA, but may still have medical leave available under FMLA, or vice versa.

Covering Your Bottom Line

With an ever-growing number of statutes and regulations that apply to the employment relationship, employers can find themselves in violation of statutory obligations they weren't even aware they had. One way to address this is to plan ahead and identify current legal obligations as well as new obligations that may be on the horizon. Employment policies and handbooks should be updated annually to address both changes in the law and any new legal obligations. This process can be extended to include issues that may be raised by the business plan as the company grows. An annual employment law audit that looks at the current state of the business and expected changes in the coming year can go a long way to minimizing the legal pains that can accompany business growth.

This article is intended to inform the reader of general legal principles applicable to the subject area. It is not intended to provide legal advice regarding specific problems or circumstances. Readers should consult with competent counsel with regard to specific situations.

BACK TO TOP | BACK TO ARTICLE INDEX | PRINTER-FRIENDLY PAGE