The Hidden Employment Law Risks That Could Cost You Six Figures
Business owners are focused on a lot: growth, clients, cash flow, hiring, payroll, and keeping the team moving. It is not that employment law does not matter. It is that it is easy for these issues to get pushed down the list until something goes wrong.
That was the focus of our May Skill Lab with Suzanne M. Cerra and Katherin Nukk-Freeman of Nukk-Freeman & Cerra, P.C. They walked through the employment law risks that often create the most exposure for growing businesses, including harassment and discrimination, leaves and accommodations, wage-and-hour issues, hiring practices, and termination challenges.
The biggest takeaway was clear: most employment law risk starts with everyday business decisions. A contractor is brought on quickly. A manager handles a complaint informally. A leave request is treated casually. A salaried employee is assumed to be exempt from overtime. A termination happens without enough documentation. Each decision may seem small in the moment, but the impact can be significant.
The Gist
1. Discrimination, harassment, and retaliation risk often start before there is a formal complaint
Suzanne and Katherin explained that discrimination generally involves an employment decision tied to a protected characteristic, such as race, religion, national origin, pregnancy, age, disability, or another legally protected category. Harassment can also create risk when conduct becomes severe or pervasive enough to affect the work environment.
One important reminder: the “workplace” is broader than many business owners realize. Risk can show up in emails, text messages, social media, personal accounts connected to colleagues, company events, conferences, dinners, and after-hours interactions.
Retaliation is also a major risk area. If an employee raises a concern and then experiences a negative employment action, such as being fired, passed over, disciplined, or treated differently, the business may face a retaliation claim.
What to do: Have clear harassment, discrimination, and retaliation policies. Train managers on what must be escalated. Do not wait for a formal written complaint before taking concerns seriously.
2. Managers need to know what to escalate
A policy is helpful, but it is not enough if managers do not know what to do when something happens.
If a supervisor hears about harassment, discrimination, retaliation, or other workplace concerns, the company may have a responsibility to respond even if the employee does not file a formal complaint. The speakers emphasized that managers should not try to handle these issues casually or quietly on their own.
What to do: Make sure managers know who to contact when an issue comes up. Their job is not to solve everything. Their job is to escalate the right issues to the right person.
3. Leave and accommodation requests can trigger more than one law
Some business owners assume that if they are not covered by FMLA, they do not have leave obligations. That is not always true. Other laws may apply, including the Americans with Disabilities Act, state leave laws, pregnancy-related protections, and the Pregnant Workers Fairness Act.
Employees also do not need to use specific legal language. If someone says they need time off for surgery, pregnancy, a medical condition, a family medical issue, or a change in how they work, that may be enough to trigger the need for a process.
What to do: Choose one person in the business to handle leave and accommodation requests. Managers should not ask for private medical details, collect documents casually, or make decisions on the spot.
4. Wage-and-hour issues are easy to get wrong
This was one of the biggest risk areas covered in the session.
Suzanne explained that wage-and-hour laws are technical, easy to violate, and often misunderstood by growing businesses. Paying someone a salary does not automatically make them exempt from overtime. The employee’s actual job duties and salary must meet specific legal tests.
The session also covered the difference between exempt and non-exempt employees, overtime rules, salary thresholds, minimum wage requirements, and the need to follow both federal and state law. State rules can be stricter than federal rules, especially in places like California.
What to do: Review who is exempt and who is non-exempt. Make sure non-exempt employees are tracking time. Do not assume a salary or job title is enough to avoid overtime obligations.
5. Contractor classification is a major exposure point
Many growing businesses use contractors because it feels flexible and simple. But calling someone a contractor does not automatically make them one under the law.
The speakers explained that if someone is working set hours, using company tools, reporting to a manager, and doing work similar to employees, the risk of misclassification increases. They also noted that 1099s can create audit risk, and government agencies often start with the presumption that a worker may be an employee unless the company can prove otherwise.
Misclassification can create exposure for overtime, back wages, taxes, penalties, workers’ compensation, unemployment insurance, benefits, bonuses, and other obligations.
What to do: Review every contractor relationship. If someone functions like an employee, get guidance before assuming the contractor classification is safe.
6. Hiring needs structure, not just good instincts
Hiring can feel casual in a growing business, especially when the founder is still close to every role. But interview questions, offer letters, job descriptions, and classification decisions all matter.
Katherin explained that interviewers should avoid questions that touch protected categories, including family, children, marital status, age, health, pregnancy, religion, national origin, or other protected information. These questions can create risk even when the intent is simply to be friendly.
They also emphasized the importance of offer letters. A strong offer letter should include clear at-will employment language, exempt or non-exempt classification, pay timing, applicable conditions such as background checks, and any required agreements.
What to do: Use a consistent interview process and offer letter template. Train anyone involved in hiring on what they can and cannot ask.
7. Termination is where weak documentation catches up
The session touched on termination challenges as one of the major areas of risk for employers. Even when a business has a valid reason for ending employment, risk increases when the documentation is incomplete, inconsistent, or created too late.
This is where everyday management practices matter. Performance conversations, warnings, policy violations, complaints, accommodations, leave history, and prior decisions can all become relevant if a termination is challenged.
What to do: Document performance and conduct issues as they happen. Before termination, slow down and review whether the decision is supported, consistent, and free from retaliation or discrimination concerns.
8. EPLI can be an important backstop, but it is not the first line of defense
Suzanne closed with an important reminder about Employment Practices Liability Insurance, often called EPLI. She described it as a last line of defense because even when a company wins a claim, legal defense costs can be significant.
EPLI may help cover certain employment-related claims and legal fees, depending on the policy. But insurance does not replace strong policies, training, documentation, and good decision-making.
What to do: Review your EPLI coverage. Confirm your policy limits, deductible, whether legal defense costs are included, and what types of claims are covered.
Why This Matters to Enterprise Value
Employment law risk is not just an HR issue. It affects the long-term value of the business.
If a business has misclassified workers, poor documentation, inconsistent hiring practices, weak policies, poor timekeeping, unclear leave processes, or untrained managers, the owner may be carrying hidden liability. That can show up later as legal fees, penalties, insurance issues, team disruption, culture damage, or problems during due diligence.
What we know to be true is this: a business that is cleaner, more consistent, and better documented is easier to grow, easier to transition, and more valuable over time.
Monday Morning Checklist
Here are a few places to start:
Review your harassment, discrimination, and retaliation policies.
Make sure managers know what issues must be escalated.
Confirm who handles employee complaints, leave requests, and accommodations.
Review every worker classification: employee vs. contractor and exempt vs. non-exempt.
Make sure non-exempt employees are tracking time.
Review your offer letter template.
Train anyone involved in hiring on what they can and cannot ask.
Check that performance and conduct issues are documented consistently.
Review your termination process before decisions are made.
Check your EPLI coverage and confirm whether legal defense costs are included.
Catch the Full Skill Lab Replay
For the full discussion and deeper guidance from Suzanne and Katherin, catch the complete Skill Lab replay here:
Final Word
Employment law can feel overwhelming, especially when you are running and growing the business at the same time. The goal is not to know every rule. The goal is to know where the risk lives, create simple processes, and get the right guidance before a small issue becomes expensive.
At Athena, we care about this because strong people practices protect more than compliance. They protect the owner’s time, the team’s trust, and the long-term value of the business.
