Question

I have received a number of solicitations from attorneys and various consultants offering to conduct an audit of my employment practices. I have also seen articles in magazines discussing the pros and cons of conducting an audit. Do you recommend that employers conduct audits of their employment practices and do you have any suggestions?

Answer:

I do recommend that California employers conduct periodic self-audits of their employment practices. This is because of the increase in litigation challenging even the most routine employment practices. There are financial incentives to attack an employer’s practices that violate the Labor Code even if those violations result in no financial harm to the employees. I recommend that these audits be conducted periodically because of the number of new laws and regulations that govern the employment relationship each year and because, without periodic audits, employers may inadvertently slip into illegal practices.

I also recommend that employers that conduct audits involve their legal counsel in the process. There are a number of reasons for this. The first is to assure that communications concerning the audit are protected by the attorney-client privilege. Audits often disclose violations that subject the employer to legal exposure. It is important that communications regarding these violations remain privileged so as to avoid having to disclose them in subsequent litigation. In addition, the involvement of legal counsel is helpful in identifying the scope of liability for the violation and identifying constructive changes to avoid future liability.

The audit itself should focus on areas including, but not limited to, the wage and hour requirements set forth in both the Labor Code and the applicable Wage Order, compliance with leave of absence and time off laws, equal employment opportunity requirements, a review of personnel policies and the employee handbook and a review of independent contractor, volunteer and other alternative employment relationships. Depending upon the type of business and the number of employees the business has, there are a number of other areas that might be appropriate for an audit.

Employers that conduct an audit must be careful in how they structure their response to any findings of noncompliance. Any remedial action taken in response to an audit should take into consideration the employers’ possible legal liability as well as employee morale on a go-forward basis. Formulating this game plan is most often best accomplished by the employer’s management, human resources department and legal counsel working together towards the common goal of compliance with the law.
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