Navigating Employment Law Responsibilities as your Company Grows
Essential Steps for Founders and CEOs Before and After Reaching the 10-Employee Threshold
Authors: Bianca Chera (Head of Employment) at Andronic and Partners
Abstract: This article provides actionable guidance for managing legal responsibilities in growing companies. It offers practical advice for Founders and CEOs to implement at different stages of their company’s development, ensuring compliance and protecting the business. Before reaching the 10-employee threshold, companies should focus on establishing employment documentation, implementing internal policies, and meeting reporting requirements. Once the business surpasses 10 employees, new legal obligations arise, such as mandatory collective bargaining, harassment prevention, and accurate tracking of work hours. Additionally, as the company grows even more, it becomes crucial to address potential conflicts of interest and ensure proper documentation for restructuring or terminations. By adopting a proactive approach to employment law, Founders and/or CEOs can safeguard their company, maintain a positive work culture and employees’ retention, and minimize legal risks as the business grows.
As a Founder and/or CEO, one of your most important responsibilities is ensuring that your company is built on a solid legal foundation. As your business grows, especially as you approach and surpass the 10-employee threshold, the legal requirements and obligations become more complex. Understanding what you need to do before and after hitting this milestone will help you protect your business, maintain employee satisfaction, and avoid costly legal pitfalls.
Before Reaching 10 Employees: Laying the Groundwork for Compliance
1. Build Strong Employment Documentation from Day One:
Before you hire your 10th employee, it's crucial to establish relevant employment documentation. This includes ensuring that all employee contracts go beyond just the basics. Consider adding provisions that protect your business, such as:
• Intellectual Property: Define who owns the work created during employment. This helps protect your company’s innovations which is often one of the most important assets in a technology company.
• Confidentiality: Ensure that employees understand the importance of protecting trade secrets and sensitive information as these are also among the most valuable assets in a technology company.
• Non-compete Clauses: Tailor non-compete clauses to suit the specific roles within your company and the specific industry segment you operate in.
• Equipment Usage and remote work: Specify how company-provided tools and technology should be used to prevent misuse or any security incidents.
2. Implement Internal Policies and Regulations Early:
Within the first 60 days of your business operations, make sure you implement a set of internal regulations covering:
1. Employee Rights and Obligations: Outline what is expected from both you and your employees.
2. Working Hours and Rest Periods: Establish fair and transparent policies on working hours, overtime or on-call periods.
3. Occupational Health and Safety: Ensure that safety protocols are clearly defined to protect your workforce.
4. Anti-discrimination and Performance Management: Develop fair procedures to manage performance and prevent discrimination.
3. Ensure Compliance with Reporting Requirements:
As the CEO, you’re responsible for ensuring your company complies with employment reporting requirements, starting with your first employee. Register and report employee changes through the General Register of Employees (REVISAL) in a timely manner. This is mandatory and should be handled either internally or by your third-party provider to avoid fines or penalties.
After Reaching 10 Employees: Adjusting Your Strategy to Meet New Legal Obligations
Once your company reaches the 10-employee mark, several new legal obligations come into play. You may have postponed the implementation of certain legal requirements (such as policies on harassment prevention), which you now need to revisit in the light of employees’ number growing. As a Founder and/or CEO, it’s critical to shift your focus to comply with these new regulations and set your business up for continued success:
1. Mandatory Collective Bargaining:
At this point, you’ll need to invite employees to elect representatives and engage in collective bargaining. This requirement is an opportunity to foster a collaborative environment and create agreements that benefit both the company and your employees. Make sure you’re prepared to navigate this process effectively. From our experience, relationships with employees’ representatives are easier to handle than those with trade unions.
2. Workplace Harassment Prevention and Reporting Systems:
Formal systems to prevent harassment in the workplace become a must. This includes, among others:
1. Internal Reporting Mechanisms: Create a clear and confidential process for employees to report harassment.
2. Designate Staff to Handle Complaints: Appoint individuals responsible for managing and resolving complaints.
3. Regular Training: Schedule training sessions for all employees to prevent inappropriate behaviour and create a respectful workplace.
3. Accurate Work Hours and Overtime Tracking:
As your company grows, accurate documentation of employee work hours becomes even more important. Ensure that work hours, overtime, and time off are recorded properly. This helps protect the company from costly overtime claims, as employees may claim compensation for overtime worked within the past three years.
4. Communicate Employee Rights:
Revisit and update your company’s policies to ensure employees are well-informed about their rights. This includes policies on working hours, rest periods, anti-discrimination measures, and how performance will be managed. Clear communication helps maintain a positive work environment and reduces the risk of disputes.
As your business expands, your employment related needs will also evolve in other key areas, including the need for procedures to identify and manage potential conflicts of interest, parallel professional activities (including employees working for company’s competitors), as well as addressing aspects related to streamlining processes, reshaping structures and responsibilities, restructuring or eliminating roles. In an upcoming piece, we will delve into how these issues should be managed. It's essential that documentation, such as job descriptions, internal regulations, and performance management processes, remain as accurate and legally compliant as possible. Proper documentation is key to ensuring smooth terminations and minimizing the risk of disputes.
The Risks of Neglecting Legal Obligations: Compliance, Financial, and Operational Consequences
Neglecting these obligations does not just create compliance issues – it can lead to lawsuits, fines, operational and reputational damage:
• Fines applied by labour authorities. As far as the mandatory documentation is concerned, labour inspectors may apply fines depending on the type and severity of the breach. For example: (i) RON 50,000 for failure to implement internal provisions prohibiting acts of discrimination and harassment, or (ii) RON 20,000 for failure to initiate collective bargaining.
• Exposure to court actions. Claims related to overtime, unlawful termination or discrimination/moral harassment are the most common in employment disputes. These often result in legal costs, reputational damage, and financial penalties, including moral damages. While specific amounts vary depending on the severity of the case and judicial discretion, moral damages may reach significant amounts (e.g., EUR 100,000, imposed on the employer by Cluj Court of Appeal, for acts of moral harassment).
• Increased unionization risks. Recent legislative changes have made unionization more accessible, by reducing to 10 the minimum number of employees required for the establishment of a trade union. Lack of clear communication, including via internal policies and procedures, usually creates general dissatisfaction and encourages employees to collectively advocate for their rights. This may lead to increased labour costs, operational disruption and reduced managerial flexibility due to the mandatory involvement of unions in the decision-making process.
• Operational disruptions. When expectations are unclear, the company’s ability to control and sanction misconducts is severely hindered. Clear communication of employees’ duties and responsibilities is crucial.
• Inability to implement terminations or organizational changes.
Conclusion: A Proactive Legal Strategy for Founders and/or CEOs
Reaching the 10-employee threshold is a significant milestone for your company, but it also brings new legal responsibilities. As a Founder and/or CEO, taking proactive steps to ensure compliance with employment law—both before and after reaching this threshold—will protect your business, foster a positive work environment, and reduce legal risks. By carefully planning and implementing clear policies and documentation, you’ll be better prepared to navigate the complexities of employment law as your company continues to grow.