Perspectives

A well-structured performance management process is a vital tool for employers. Not only does it help align individual contributions with organizational goals, but it also boosts employee engagement, productivity, and long-term success. Here’s a guide for employers on crafting a performance management strategy that not only drives performance but also fosters a fair, supportive workplace.

Key Elements of an Effective Performance Management Process

1. Continuous Performance Development: Performance management is not a one-time event; it’s a continuous cycle of identifying, measuring, and developing employee performance. By consistently communicating expectations and offering opportunities for improvement, employers can create a culture of transparency and fairness.
   • Open Communication: Effective performance management starts from the hiring stage. Clearly communicate job descriptions, work rules, and performance standards. This sets the stage for employees to understand what is expected of them.
   • Timely Feedback: Provide employees with regular, constructive feedback. Don’t wait until a formal review; let them know where they stand and offer guidance on how to meet performance standards.
   • Documentation: Keep detailed notes of all discussions. Document the date, people involved, and a summary of the conversation. For instance, “On May 15, I advised Frank that his error rate for processing claims is 5%, which is above the acceptable range. We discussed strategies for improvement.”
2. Aligning Individual Performance with Organizational Goals: An effective process ensures that each employee’s performance aligns with the larger organizational objectives. This fosters a sense of purpose and accountability, empowering employees to understand how their role contributes to the company’s success.
   • Establish Clear Goals: Set measurable, achievable goals that align with the company’s mission. Employees who understand how their goals impact the organization are more likely to feel engaged and motivated.
   • Reduce Legal Risk: When employees are notified of performance issues before termination, they are less likely to file claims. Should a claim arise, written warnings are invaluable for demonstrating that the employer’s actions were justified.
   • Formal Evaluations and Continuous Review: Human Resources (HR) plays critical role in ensuring consistent and fair treatment. HR can review managerial decisions to confirm that they are aligned with the company’s policies and have been handled consistently across similar situations.

Key Components of a Performance Management System

1. Goal Setting: Setting clear and realistic goals is the first step in aligning performance with expectations. These goals provide a roadmap for employees, offering clarity on what they should achieve. When employees are aware of their targets, they are more likely to contribute effectively.
2. Continuous Feedback: Feedback shouldn’t be reserved for annual reviews. Regular feedback-both positive and corrective- helps employees stay on track and feel valued. It’s essential that this feedback is well-documented and timely.
3. Performance Appraisals: Conduct formal evaluations to assess employee’s achievements and areas for improvement. Performance appraisals provide an opportunity to discuss progress, reinforce goals, and address any concerns. Remember, consistency is crucial-similar performance issues should be addressed in a similar manner.
4. Development Plans: Growth opportunities keep employees engaged and motivated. Creating development plans for employees, including training, skill-building, or career advancement opportunities, can enhance loyalty and performance.

Compliance and Legal Protections

An effective performance management process is also a valuable asset for legal compliance. Regular documentation, written warnings, and clear communication can shield employers from potential legal issues. Here are some tips for maintaining a legally compliant performance management system:

• Keep Records: Ensure all performance-related documentation is securely stored in the employee’s personnel file. Notes from 1:1 meetings should be kept in a manager file, and electronic communications should be professional, as they may be discoverable in a lawsuit.
• Involve HR: HR provides an independent review of disciplinary actions, ensuring that they are fair and consistent with company policy.

Partnering with Legal and HR Professionals

Navigating performance management can be challenging, especially when disciplinary action or termination is involved. To manage this process compliantly, work with trusted legal counsel and HR professionals. These experts can guide you in implementing performance management strategies that not only improve productivity but also help you minimize legal risks, fostering a productive and legally sound work environment.

Partial-day absences for exempt employees can create confusion for employers. The Fair Labor Standards Act (FLSA) has strict rules on salary deductions, and understanding these rules is essential to avoid costly compliance issues. Let’s examine a common scenario to highlight the right approach for managing partial-day absences in a compliant way.

Case Study: Partial-Day Absence Deduction

Scenario: Maria, an exempt employee, takes a half day off for a medical appointment. Her employer deducts four hours of pay from her weekly salary to account for this absence.

Impact: This deduction reduces Maria’s salary based on the hours worked, which is a violation of the FLSA. Exempt employees, under the FLSA, must receive their full salary for any week in which they perform any work, regardless of hours worked, with limited exceptions.

Correct Approach: Maria should receive her full weekly salary despite her partial-day absence. If her employer has a Paid Time Off (PTO) policy, they are permitted to deduct the four hours from her PTO balance instead. If Maria’s PTO is exhausted, her salary should still remain unaffected by the absence.

Key Takeaways for Employers and HR Professionals 

• Understand the FLSA Rules on Salary Deductions for Exempt Employees

Exempt employees are generally entitled to their full weekly salary if they work any part of the week, with very limited exceptions. Partial-day deductions from an exempt employee’s salary are typically prohibited.

• Implement a Clear PTO Policy

A well-defined Paid Time Off policy allows employers to manage partial-day absences in compliance with FLSA guidelines. Employers can deduct partial-day absences from an exempt employee’s PTO balance without affecting their salary.

• Avoid Salary Deductions After PTO Exhaustion

If an exempt employee has used up all available PTO, you still cannot reduce their salary for a partial-day absence. It’s important to communicate this rule clearly to managers and payroll teams to prevent inadvertent violations.

• Train Supervisors and Payroll Staff

Ensure that your HR, payroll, and supervisory staff understand how to handle partial-day absences for exempt employees. Training them on these guidelines can help prevent misunderstandings that lead to compliance issues.

Applying This Lesson to Your Business

Consider conducting a review of your PTO policies and payroll practices to confirm compliance with FLSA standards. Are partial-day absences being managed correctly for exempt employees? Do supervisors and payroll staff know the rules and understand the correct procedures? Making adjustments now can protect your business from potential penalties down the line.

Consult Legal Counsel to Ensure Compliance

Handling partial-day absences for exempt employees requires a clear understanding of FLSA rules and your own company’s policies. To ensure full compliance, consult with experienced legal counsel who can review your policies and help you implement best practices. Reach out to our team to discuss how we can assist you in navigating complex employment laws and maintaining compliant, fair practices in your workplace.

Filing a lien is a powerful tool for securing payment, especially in industries with complex credit transactions like construction, manufacturing, and large equipment leasing. However, errors during the lien filing process can invalidate your claim and put your payment at risk. Avoid these common pitfalls with our checklist to keep your lien rights intact.

1. Understand Your State’s Deadlines: Lien laws vary by state, and missing deadlines can void your claim. Familiarize yourself with each state’s specific timeline for filing a Notice of Intent, the lien itself, and any additional notices.
2. Send Preliminary Notices: Many states require you to send preliminary notices before filing a lien. Ensure you send these on time, or your lien claim may be invalid. Even when not required, a preliminary notice can remind customers of payment obligations.
3. Files Against the Correct Party: Identify the property owner and parties in charge of payments. Filing against the wrong party can delay the process or invalidate your lien.
4. Double-Check Contract Details and Amounts: Include accurate information in your lien claim, including contract amounts, dates, and any unauthorized changes. Overstating or misstating your claim amount can raise legal issues, jeopardizing your lien.
5. Prepare Complete Documentation: Gather all supporting documentation, including contacts, change orders, and proof of delivered services or goods. Detailed records not only strengthen your lien but are crucial if your claim goes to court.
6. Avoid DIY Errors-Seek Legal Help for Complex Filings: Liens in specialized industries may require additional steps or filings. Partnering with legal professionals who understand industry specific nuances ensure compliance and strengthen your lien rights.

By following this checklist, credit, and finance professionals can mitigate risks and increase the likelihood of successful lien filings, ultimately protecting your company’s cash flow and ensuring timely payments.

As artificial intelligence (AI) becomes more integrated into employment processes like screening and hiring, it offers potential efficiencies but introduces new legal challenges. Employer are now navigating complex anti-discrimination laws that apply equally, whether decisions are made by humans or AI tools. This post covers key concerns for employers and how to mitigate the risks of AI-driven employment decisions.

Discrimination Risks in AI-Driven Hiring

AI tools can unintentionally lead to discriminatory outcomes, even when used with the best intentions. One concern is the potential for disparate impact-when seemingly neutral criteria disproportionately affects protected groups. For instance, if an AI system screens candidates based on years of experience, it may inadvertently discriminate against older applicants or recent graduates, violating federal or state anti-discrimination laws.

Moreover, the “black box” nature of AI means that decision-making processes are often opaque. When faced with claims of discrimination, employers may struggle to prove that their AI system made decisions for non-discriminatory reasons, posing a significant legal risk.

Privacy and Data Security Concerns

When using AI tools in recruitment, privacy issues must also be addressed. Employers should ensure compliance with data protection regulations like the EU’s General Data Protection Regulation (GDPR) and U.S. laws concerning password privacy and biometric data. Additionally, tools that analyze physical characteristics, such as eye movements or voice tone, could violate laws like the Employee Polygraph Protections Act, which restricts lie detection practices in employment.

Wage and Hour Considerations

AI tools that monitor work activities, track employee time, or auto-populate time records could lead to wage and hour violations under the Fair Labor Standards Act (FLSA). For example, AI that tracks keystrokes may miss compensable work activities, or it may not accurately track break times that must be compensated under the FLSA. Employers must oversee AI’s’ wage calculations to ensure compliance with regular and overtime pay rates.

AI and Disability Discrimination

Employers should also be aware of the risk of unintentional disability discrimination. AI systems that assess speech patterns, facial expressions, or physical movements may misinterpret characteristics associated with disabilities. For example, an AI system could penalize a candidate with a speech impediment or a disability that affects facial expression, even though they are fully qualified for the job.

States like Illinois are taking steps to regulate AI in employment through legislation such as the Artificial Intelligence Video Interview Act, which requires employers to notify candidates and obtain consent before using AI in video interviews.

Layoffs and Worker Protections

When automation leads to layoffs, employers must ensure compliance with the Worker Adjustment and Retraining Notification (WARN) Act and state-specific laws that require advance notice before mass layoffs. Employers should also take care to avoid age discrimination in layoffs, as older workers may be disproportionately affected by automation and must be offered the same retraining opportunities as other workers.

Staying Ahead of State and Local AI Regulations

Several states and cities are leading the charge in regulating AI in employment. In New York City, for example, the Automated Employment Decision Tools Law requires bias audits for AI hiring tools and mandates that employers notify candidates when AI is being used. Similarly, Colorado’s Senate Bill 24-205, effective in 2026, will require “reasonable care” from employers deploying high-risk AI systems to prevent algorithm discriminatory outcomes.

As AI continues to transform hiring and employment practices, staying compliant with evolving laws is essential to protect your organization. Working with experienced legal counsel can help you navigate complex AI-related employment regulations, keep your policies up to date, and ensure your hiring practices are fair and legally sound. Don’t wait for compliance issues to arise-proactively safeguard your company and foster a workplace that values equity and transparency. Contact our team to review your current practices and build a robust compliance strategy that supports your organization’s growth. 

The National Labor Relations Board’s (NLRB) General Counsel, Jennifer Abruzzo, recently issued a memo declaring that many stay-or-play provisions in employment contracts, which often take the form of Training Repayment Agreement Provisions (TRAPs), likely violate workers’ Section 7 rights under the National Labor Relations Act (NLRA). These provisions, designed to recoup costs like training or sign-on bonuses if an employee leaves their job within a specified period, have long been used by companies- but are now under heightened scrutiny.

Why Stay-or-Pay Provisions Violate Section 7 Rights

At the heart of the issues is the way these provisions restrict employee mobility. TRAPs make it financially difficult for employees to resign, effectively coercing them into staying in roles they might otherwise leave. This can discourage employees from engaging in activities protected under Section 7, such as organizing, advocating for improved working conditions, or seeking new employment.

The NLRB’s General Counsel argues that these provisions interfere with worker’s rights by increasing the fear of job loss if they engage in protected concerted activities. Employees might be reluctant to quit or challenge workplace conditions if doing so would trigger a significant financial penalty, making it harder for them to exercise their legal rights.

Types of Stay-or-Pay Agreements Covered

The memo covers a wide range of provisions beyond traditional TRAPs, including:

• Educational reimbursement or repayment agreements
• Quit fees or liquidated damages clauses
• Sign-on bonuses or relocation stipends tied to a mandatory stay period

These provisions typically require employees to pay back costs or face penalties if they leave their job voluntarily or are terminated for reasons other than cause within a certain period.

What is Still Permissible?

The NLRB memo does not ban all forms of stay-or-pay agreements. Employers can still use repayment provisions, but they must be narrowly tailored to avoid interfering with Section 7 rights. Specifically, agreements are more likely to be considered lawful if they meet the following criteria:

1. Voluntarily Entered: Employees must freely choose to enter the agreement, with no undue financial or employment consequences if they decline. For instance, repayment terms tied to optional training or benefits, like elective educational opportunities, are generally permissible.
2. Reasonable and Specific Repayment Amount: The repayment amount must reflect the actual cost to the employer for the benefit provided. If the amount is higher than the actual cost, the provision is likely intended to restrict employee mobility, making it unlawful. Further, the amount of the repayment must be clearly communicated to the employee at the time the agreement is entered into.
3. Reasonable Stay Period: The length o f the required stay should be proportional to the benefit. For example, if the employer provides a costly relocation stipend, the stay period might reasonably be longer than than it is for less expensive benefits, like a sign-on bonus.
4. No Repayment if Terminated with Cause: Employees should not be required to repay amounts if they are terminated without cause. Otherwise, they might fear engaging in protected activities, worrying they could be fired and forced to pay.

60-Day Deadline to Modify Nonconforming Agreements

Employers currently using TRAPs or other stay-or-pay provisions should note that they have a 60-day window from the memo’s issuance to modify any nonconforming agreements. This essentially creates a December, 6, 2024, deadline to comply. Failure to do so could result in enforcement action by the NLRB, including the rescission of the provisions and potential financial liability for any financial harm caused to employees. It is critical for HR professionals and management to promptly review and revise any existing agreements to ensure compliance with the new guidance.

What this Means for Employers

Employers should carefully review their contracts and policies involving TRAPs or other stay-or-pay provisions. While the goal of retaining talent is valid, these provisions cannot come at at the cost of violating worker’s rights. HR teams and company management should ensure that any stay-or-pay provisions comply with the criteria stated above. Businesses should take note of these developments and ensure their policies are compliant within the 60-day window, focusing on creating retention strategies that respect employees’ legal rights and promote a healthy, motived workforce.

In light of these developments, it’s essential for employers to stay ahead of compliance issues by reviewing their stay-or-pay provisions and ensuring they align with the NLRB’s guidance. By taking proactive steps to modify agreements and protect workers’ rights, businesses can mitigate risks and foster a positive workplace culture. For tailored advice and support in navigating these changes, we recommend reaching out to your trusted legal advisor or contacting the Employment and Labor team at Wagner, Falconer & Judd to ensure your policies are fully compliant and designed to protect both your company and its employees.

In light of recent extreme weather events, it’s crucial for businesses to ensure their contracts include a Force Majeure clause. This provision protects parties from liability or obligations when unexpected events beyond their control prevent the fulfillment of contractual duties.

What Does Force Majeure Cover?

A Force Majeure clause typically applies to situations such as:

• Natural Disasters: Hurricanes, floods, wildfires, or other severe weather events.
• Government Actions or Regulations: Unexpected regulations, travel bans, or other state-imposed restrictions.
• Labor Strikes or Civil Unrest: Disruptions in operations due to strikes or protests.
• Pandemics or Public Health Emergencies: Events similar to the COVID-19 pandemic that impact business operations.

Why Force Majeure Clauses Matter?

Including a Force Majeure clause in contracts is essential for businesses to mitigate risks, provide flexibility, and avoid breach of contract when unforeseen events occur. Here’s why:

Mitigates Risk: A Force Majeure clause reduces potential liabilities by freeing parties from obligations when events beyond their control-like natural disasters or pandemics-disrupt operations.

Provides Contract Flexibility: This provision allows for the adjustment or suspension of obligations during disruptive events, ensuring businesses can adapt without facing penalties.

Avoids Breach of Contract: By acknowledging the impact of unpredictable events, a Force Majeure clause helps prevent breaches and protects relationships between parties.

How This Plays Out in Practice

In real-world scenarios, Force Majeure clauses are invaluable when dealing with:

Supply Chain Disruptions: When extreme weather or other factors interrupt supply lines, the clause provides relief from penalties.

Service Interruption: If a company cannot perform services due to uncontrollable circumstances, it avoids liability by invoking the Force Majeure provision.

By including this clause, businesses can protect themselves from undue risks and financial burdens when events outside of their control occur. It’s a proactive step that provides flexibility and helps manage unforeseen disruptions effectively.

If you’re looking to strengthen your contracts or need guidance on incorporating Force Majeure clauses, our legal team at WFJ is here to assist.

Strong contracts are the foundation of every successful business relationship. Without proper protections, businesses can face significant financial risk, disputes, and the possibility of non-payment. To minimize these risks, it’s essential to include specific provisions in every contract. Here are the key clauses that should be present in your contracts:

Payment Terms

What: Defines payment schedules, methods, penalties and consequences for late payment.

Why: 

• Ensures Cash Flow
• Reduces Financial Risk Against Late or Missed Payments
• Sets Clear Expectations

Key Elements:

• Payment Terms
• Late Payment Penalties
• Security Interests
• Dispute Resolution

Limitation of Liability

What:

• A contract provision that caps the amount and types of damages one party can recover from the other.
• Protects businesses from excessive claims and financial exposure in the event of disputes or equipment failure.
• Sets a maximum financial responsibility for the business.

Why: 

• Avoid exposure to excessive damages from customer claims.
• Help dealers estimate and manage their potential liability in worst-case scenarios.
• Protects businesses from liability from unseen circumstances.

Examples:

• Monetary Cap
• Exclusion of Certain Damages
• Time-based Limits

Indemnity Clauses

What: Contract provision where one party agrees to compensate the other for certain damages or losses.

Why:

• Mitigates Financial Risks
• Avoids Liability from Damages Caused by Misuse
• Coverage for 3rd Party Claims

Key Elements:

• Scope of Indemnity
• Types of Claims
• Geographical & Temporal Limits

Insurance

What: Contract provision requiring one or both parties to maintain specified insurance coverage.

Why:

• Transfers Risk from the dealer to an Insurance Company
• Ensures Financial Protection for Both Parties in Case of Loss or Liability

Key Types: 

• General Liability
• Property
• Product Liability
• Worker’s Compensation

Price

What: Cost for goods/services-protects against misunderstandings, unauthorized discounts and potential financial losses.

Why:

• Avoids Disputes
• Adjustment Clauses (Price Adjustment Mechanisms for Raw Material Price Changes or Fuel Surcharges.)
• Escalation Clauses (Allows for Gradual Price Increases.)

Key Components:

• Fixed vs Variable Pricing
• Payment Terms
• Currency & Exchange Rates

Performance Dates

What: Deadlines for:

• Delivery of Equipment
• Completion of Service
• Payment Milestones

Why:

• Establishes clear timelines to avoid misunderstandings
• Holds parties responsible for meeting their contractual obligations
• Prevents delays that can lead to operational disruptions or financial losses

Key Protections:

• Delay Clauses
• Extension Provisions
• Force Majeure

Security Agreement & Repossession

What: Legal document that grants a lender a security interest in the equipment sold, ensuring the right to repossess the equipment if the buyer defaults.

Why:

• Reduce risk if buyers fail to meet obligations
• Provides strong negotiation power if a customer defaults or requests an extension
• Outlines precise legal remedies available to the dealer, ensuring smoother enforcement

Key Components:

• Collateral Identification
• Obligations of the Buyer
• Default Conditions
• Right to Repossession

Warranty

What: 

• Contractual promise by the seller regarding the condition, performance, or lifespan of the equipment sold
• Express Warranties: Assurances made about the product
• Implied Warranties: Automatically applied under the law

Why:

• Limits Disputes

Strategies:

• Define Terms Clearly-specify duration, coverage limits, and conditions for repair
• Exclude Certain Warranties-use disclaimers to avoid unintended implied warranties
• Set reasonable limitations

Force Majeure

What: 

• Contract provision that frees parties from liability or obligation for events beyond their control
• Natural disasters
• Government actions or regulations
• Labor strikes or civil unrest
• Pandemics or public health emergencies

Why:

• Mitigates risk
• Provides contract flexibility
• Avoids breach of contract

In Practice:

• Supply chain disruptions
• Service interruption

By including these key provisions in every contract, your business can reduce financial risk, avoid disputes, and protect itself from non-payment. Ensuring that contracts are thorough and well-structured is essential for long-term business success. If you need assistance drafting or reviewing contracts, working with experienced legal counsel is a proactive way to safeguard your business interests.

If you have questions about contract provisions or need legal support, contact WFJ today. Our team of experienced attorneys can help you create robust contracts that help protect your business from risk and ensure your financial stability.