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August 18, 2019Cart

Business

by Fairfield County Business Journal
by FCBJ

Unique labor and employment law issues facing family businesses

In this second installment of our discussion regarding unique labor and employment law issues family businesses face, we focus on family businesses when they are up and running. In Part I, we discussed issues family businesses face during formation.

RETENTION IS A REAL BEAR
Once the family business is beyond its formative stage, it is often comprised of a mix of family or nonfamily employees. For those employees who are not family, retention is a real challenge for the company. Nonfamily employees often believe they are unlikely to earn access to the upper echelons of the company because they do not have the right last name. This reality causes many nonfamily members to leave the company once they have obtained the highest position they can or gotten the training they need to move to another company. This leads to brain drain and is costly to the company because expensive training continually walks out the door.

To solve this problem, family businesses should first evaluate their needs. Do you need employees who will stay for the long term or is high turnover a part of the business plan? If long-term employees are needed, transparency is key. Employees who have hidden growth expectations waste your time and money as you will train them only to have them leave once the lack of growth becomes clear and a better alternative is found. This is also very disruptive to the business. You must find someone who will be satisfied with the job as is, even though growth is not offered. If turnover is part of the business plan, retention is not an issue and this hurdle is irrelevant for you.

ALLIANCES MAY DESTROY YOUR BUSINESS
When many family members are employed at the family business, there is not always a clear front runner for who will be the next leader of the company. This unknown causes employees to align themselves with the family member they believe will take over. It becomes the equivalent of alliances as made famous by the television show “Big Brother.” This may cause these employees to make decisions that are in the best interest of their chosen family member and not the company as a whole.

To avoid these acts of sabotage, the company should be transparent with employees regarding changes in the leadership team once it is clear that this is an issue. Employees must understand the family will remain united regardless of who gets the top designation. Helping one family member at the expense of the business will cost an employee her/his future and all the family members will support this position.

TRADITIONAL COMPLAINT PROCEDURE
MAY BE INEFFECTIVE AND UNLAWFUL
Unless you were living under a rock the last year, you are aware the nation is in the midst of the #MeToo movement. When a company receives a complaint of harassment or discrimination, it is legally obligated to investigate the claims and take appropriate action. While this is the law, it is also the right thing to do!

At a family business, the reporting procedure can be ineffective when the alleged harasser is a family member. In this instance, the company must make sure the person charged with investigating the allegations is not related to the alleged harasser. If this is not possible through internal staff, the company should hire outside counsel or human resources consultants to conduct the investigation. The investigation is likely to be dubbed a sham by the government or a jury if everyone involved has the same last name. If the accused is not a family member, normal procedures should apply.

EVERYONE MUST PLAY BY THE RULES
While family businesses have structures in place to manage employees, family members are sometimes not required to follow the rules. When the rules do not apply to a segment of the employees, even if they are family members, this causes resentment by the others. A lack of consistency in rule implementation also ultimately leads to lower productivity. If the daughter of the owner is the head of human resources but takes off two weeks a month, the human resources department only is operational half the time. If you need full-time coverage, this can’t be allowed. No other employee would be allowed to work half the year. If the company values this position, it must demand regular attendance for the daughter just as it would any other employee.

In our last installment, we will discuss the importance of succession planning for family businesses.

Katherine M. Bogard is an associate with Brody and Associates LLC. She represents employers in both labor and employment law matters. She can be reached at kbogard@brodyandassociates.com or 203-454-0560. Robert G. Brody is the founder and managing member of Brody and Associates LLC. He can be reached at rbrody@brodyandassociates.com or 203-454-0560.