Roscoe’s Chicken and Waffles is an iconic brand in Southern California and because of popular culture, a well known brand around the world.
However, thanks to a recent judgment a few weeks ago in favor of a former employee, the seven restaurant chain food provider is going to be filing for bankruptcy protection to fend off a devastating jury award.
The company was sued by a former employee for discrimination and, right or wrong, Roscoe’s was found to be liable by a superior court, now costing the business $3.2 million in damages and its own attorney fees of $500k (unverified estimate).
So why is Roscoe’s Chicken and Waffles unique from any other small business?
It’s not.
Any business in California is at risk of serious loss from employment lawsuits if it has not taken the necessary precautions. After spending years on investment and goodwill, even a profitable icon like Roscoe’s can be forced into bankruptcy by the current laws favoring employees over common sense.
“LAWS PROTECTING EMPLOYEES ARE NECESSARY”. I wrote that in caps to reiterate that I am not anti-employee. I am pro-fairness in the application of existing laws and the assessment of damages.
Unfortunately, the penalties that are applied to employee protection laws are putting businesses out of business.
The result, 1 ex-employee gets rich; 1 law firm gets very rich; 1 business goes under; 40 other employees lose their jobs. The math doesn’t work.
Prevention is Key
In hindsight, most companies that find themselves in the situation of Roscoe’s, on the receiving end of a massive judgment, would likely agree that if they could do it over again they would have made preventative changes to avoid a lawsuit altogether.
And here’s the big takeaway for your business and others not yet affected – you have the ability to be preventative right now!
Good employees are your biggest asset and bad employees are your biggest risk.
Why?
First off, many small business owners like you are focused on building the business. And while focusing on sales figures and generating profits is obviously a primary goal, it can be blinding as well.
Risks happen both by accident and by intent. And the more success a small business has, the more likely it is that the company will eventually be an intentional target of one of the many unscrupulous lawyers looking for a soft target and one of your bad employees.
Don’t be a Soft Target
It really is a jungle out there. The lions (lawyers) are looking for the weak ones in the herd. Be the big strong water buffalo don’t be the baby calf, the easy kill.
So this is where prevention comes in.
If you do the following 7 things, your risk of losing a massive lawsuit will be reduced exponentially:
- Take the interview process seriously. Do background checks and online informational searches. Avoiding a bad employee is so much easier than firing one.
- Have written policies and procedures for every major issue related to employees (harassment, overtime, meal and rest periods, sick days, etc) and have employees sign each of these policies.
- Keep account of every minute every employee works, takes breaks, and takes time off.
- Use a payroll company. The cost is negligible compared to the risk of making a mistake doing it yourself. Put everyone on payroll. If they are not clearly an independent contractor don’t assume not knowing for sure is going to save your business.
- Keep a written record of every counseling you have to make and have the employee sign the record. It is the bad employees that will sue you and you need to have documentation of their issues if they claim you fired them for an improper purpose.
- Make sure there is a clear separation between owners/management and employees. Even in a small family style business, it is important that the employees understand the difference between you, the person that is taking all of the risk, and them, the people that are trading their labor for wages.
- Have a dispute resolution policy that includes a well written arbitration agreement with all employees. “Penny wise pound foolish”. Not all arbitration agreements will hold up if challenged so make sure your agreement is drafted by someone that knows the current case law on the enforceability of arbitration agreements in California.
The Wrap Up
California in general and Los Angeles County especially, favors the employee over the employer.
The awards given out in California for even the most minor of infractions are astonishing!
As an employer, you are guilty until proven innocent; likely personally liable if you are the direct supervisor irrespective of a corporation or LLC; and you will be responsible for the judgment, your attorney fees and the attorney fees of the employee if a judgment is entered against you.
As a small business, you may be lucky for long time and never face a damaging loss like that of Roscoe’s, but in California it’s a likelihood that increases both with time and the number of employees.
BE PROACTIVE AND PROTECT YOUR BUSINESS!
Sources:
Roscoe’s Chicken ‘N Waffles Files for Bankruptcy
Great post, John. This brings to mind a question for the legal community at large— what do you think of mandatory arbitration provisions in employment agreements? As a general counsel, I’m conflicted. My duty to the company is to avoid the time & expense of a lawsuit; with that said, I fundamentally disagree that an employee must choose between earning a living and her ability to access the judicial system.
Hi Daniel. I insist my clients use mandatory arbitration agreements even without an employment contract. There just isn’t anything else protecting employers from these horrendous judgments that are coming out of California. Most of the problem is in punitive damages and attorneys fees. Even if an employer does make a mistake, if the judgment puts the company out of business, I don’t see the benefit to anyone. The owner loses the business, the landlord loses a tenant, the government loses a tax payer, other employees lose jobs, the public pays more public assistance. Who wins here other than one employee and an attorney?
The system is broken and rigged against those that are creating the economy (I am a staunch liberal saying these words). Arbitration is a fair and expeditious way to resolve disputes. I would vehemently disagree with anyone that thinks the court system is working for the benefit of anyone.
Nice Article!