You didn’t go into business to be sued, but too often litigation consumes a major part of a business executive’s days (and nights). While nothing can guarantee the avoidance of a lawsuit, there are five documents every business should have to lessen the risk. Let’s walk through the employment process and learn what those documents are.

Job Description

So you’re looking to hire someone? Congratulations! Did you know the job description is a critically important document? Ideally it describes the tasks, duties, functions, and responsibilities of a position, in particular its essential functions. Defining essential functions provides one of the best ways for evaluating an employee’s request for an accommodation for a disability, potentially avoiding a disability discrimination lawsuit. A job description should also include clear language stating whether a position is exempt from state or federal overtime laws, and also language that clearly supports that exempt/nonexempt classification. Employees and their supervisors should sign a receipt acknowledging they have received their job description.

Offer Letter

So you know who you want to hire? Congratulations again! Put some thought into your offer letter. It’s another way to outline clear expectations for incoming employees. An offer letter should include an employee’s start date, job title, pay rate, the name of the employee’s manager, and what benefits the employee is eligible for (if any) and when. It should also state if a position is exempt or non-exempt from state or federal overtime laws. New employees should sign an acknowledgment that they have received their offer letter. We also recommend that you check to see if your state’s law requires you provide certain forms to a new employee.

Commission Agreement

What if the new hire is coming in on a commission basis? It’s not only a good idea for companies to develop written commission agreements, in California it’s the law. Specifically, California law requires that commission agreements be in writing; set forth the method by which commissions will be computed and earned; employers must provide employees with a signed copy of the commission agreement; and employers must obtain signed receipt of the agreement from the employee acknowledging both receipt of, and agreement with, the commission program. Converting these deceptively simple requirements into a legally compliant commission agreement can be a significant undertaking. Doing so, however, minimizes confusion about when and how commissions are earned, which reduces the risk of a legal dispute over a commission, particularly how to pay departing employees.

Employee Handbook

So now your new employee is ready to start work. You have an employee handbook for him or her to read, yes? If not, crafting one and ensuring all of your employees are familiar with it is a top priority. An employee handbook provides a central location for your company’s core policies. Employees know what to expect from management. They know what steps they can take if they have concerns about possible harassment, discrimination, and retaliation. There will be no confusion on your leave of absence policy and the benefits you provide. A handbook is also where your business would comply with state or local laws requiring employers to provide to employees certain policies in writing. For example, California law now requires employers to provide their employees with a written policy against harassment, discrimination, and retaliation. You’ll want to update your employee handbook at least once a year, with employees signing a receipt of acknowledgment with each revision. It should be clear by now why we recommend your handbook should be drafted, or at least reviewed, by someone with employment law experience.

Severance Agreement

Not all of your preparation is on the front end of a hire. The termination process is often when a former employee decides whether or not to become a future plaintiff. Research has shown that employees who feel disrespected during the termination process are much more likely to sue. A well-crafted severance agreement provides a soft landing for someone who is about to enter a time of uncertainty in his or her life. You’re helping that individual feel respected, and that makes them much less likely to consult a lawyer and/or sue. Severance agreements, however, are not without traps for the unwary. For example, federal law provides employees over the age of 40 with certain rights that must be codified in a severance agreement. There are also certain types of claims that an employee cannot waive as a condition of accepting a severance payment. No employer should present a severance agreement to an employee that has not first been vetted by an attorney familiar with employment law. Of course, no severance agreement can completely inoculate your company from a lawsuit, but a solid severance agreement sends a very clear message that you and your attorneys will not be a pushover in litigation.

You care about your business, and you care about your employees. Putting the up-front effort into producing these five documents so that they are clear and legally accurate will provide clarity for both management and employees. Working with legal counsel to ensure these documents are crafted properly will also save you a lot of money, and aggravation, down the road.