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

by Rayna Gokli February 13 2008, 21:15

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.

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