Small companies most often scrape by with borrowed or invested funds, doing everything possible to grow and prosper with limited resources. So, it is like a punch in the gut when an employee makes a claim against the company for a perceived or actual but unintentional violation of a law or regulation. Or when a former employee strikes out with a suit claiming discrimination for one of a thousand causes.
One story just keeps reverberating through my mind after several years of hearing it from a fellow CEO. In brief, an employee with an alcohol problem that he took to work was fired after several warnings. He sued for age discrimination and was awarded $500,000 for his efforts. Small company; outrageous outcome.
Almost all laws dealing with employment are designed to protect the employee, not the company. Minimum wage laws, workplace safety, independent contractor tests, minimum hours required for benefits, overtime rules, discrimination protections, worker compensation insurance requirements and more are examples of such laws.
Notice that every poster that is required to be displayed in a company public area (usually the lunch room) is posted for the benefit of the employee to inform him or her of rights granted by law. To most entrepreneurs, this often leads to an event whose resolution by a governmental agency or even a court seems unfair and illogical. Issues that seem clearly based upon ineptitude morph into age or gender-related epic battles that most always end poorly.
So, my advice is simple. Recognize the realities of the times; and do all possible to protect the company by documenting behavioral or skill related problems to the employee file. Hold regular reviews for all your employees right to the top. (The chairman reviews the CEO, and if there is no separate chairperson, then the CEO should ask an outside board member to do so.) Encourage reviewers to be accurate, not just polite, in documenting areas of concern.
This is not to counter my previous advice: “Fire fast, not last,” since every CEO should shoot for “A” class employees and not tolerate underperformers over time. It is a balancing act, protecting the company while making sure all those who work there are “A” or “B” level contributors.