Counseling the HR Function - Documents, Systems and Compliance Programs


My last two posts have focused on working with the human resources (or "HR") professionals at your company and I've discussed what HR does and the legal and regulatory landscape for HR activities. In this last post in the series on counseling the HR function we turn to the "nuts and bolts" of your HR "tool kit".

Documents and Systems

While carrying out its various activities the HR function must prepare various documents and design and implement a wide array of practices and systems. A list of the systems and practices that might be implemented would include an HR information system; a company-wide e-mail system; an employee suggestion system; employment involvement programs, such as "quality circles"; background checks of prospective employees; employee orientation programs; job rotation programs; in-house training programs; regular company-wide meetings; and regular company-sponsored social events.

Compliance Programs

Compliance with employment laws and regulations is a demanding task and requires a real commitment from senior executives within the company's organization. An effective compliance program will have several components, including written policies and procedures, a regular auditing process and, of course, specific investigations which address particular problems that may arise among the company's workers.

Companies should consider putting together an interdisciplinary team to deal with employment law compliance issues. In larger companies, a committee consisting of the chief operation officer, general counsel, and the head of the HR department should be formed to guide the employment law compliance activities. In turn, specialists within the legal and HR departments should focus on particular compliance areas, including recruitment and hiring, testing, compensation, evaluation, promotion and demotion and termination.

Compliance Audits
An important part of any compliance program is a system of regular comprehensive audits of employment practices and procedures. The purpose of these audits should be to find out what policies and procedures the company is following and to identify any existing employment practices that might expose the company to liability.

As with any compliance audit, an effective employment law review depends on the development of a comprehensive investigation plan and solid information collection procedures. During the audit, a careful review should be made of all written policies and materials relating to employment practices. Specifically, the audit team should read procedural guidelines, manuals, and benefits booklets, and should review any standardized forms that might be used by the human resources department or line managers in dealing with employees.

Document review should be supplemented by interviews with supervisory personnel to determine their level of knowledge regarding the company's policies and the possible effects of employment laws and regulations on their dealings with workers. Interviews might cover recruitment procedures; applicant interview procedures; performance review procedures; steps taken to handle key life events impacting employees, such as pregnancy, illness, deaths in the family and religious holidays; and promotions, demotion, and termination procedures.

Employee Handbooks & Policy Statements

Elements of the report generated during the compliance audit can be used to assist the company in developing personnel-related procedures that can be distributed to employees and supervisors. Distribution may take the form of a formal personnel handbook. Alternatively, the company may simply collect the most important procedures and put them in the form of a memorandum or hand-out that is delivered to employees at the time that they join the company and then periodically thereafter.

A short-form document might also be posted on the company's internal intranet for easy viewing and revision. Policy statements and procedures can cover a wide range of issues and compliance areas and special requirements with respect to public companies must also be taken into account, although such policies might also be adapted for privately held businesses.

For example, under the Sarbanes-Oxley Act of 2002, public companies must adopt "whistleblower" policies that set out detailed policies and procedures regarding receipt, retention and evaluation of reports received by employees regarding instances of financial fraud within the company. Finally, companies are required to post, in a conspicuous location, a number of notices regarding employees' rights.

Independent Contractors

As you well know, companies often contract with third parties, rather than employees, to perform various services or complete specified tasks or projects. For legal and tax purposes, these non-employee service providers are generically referred to as "independent contractors".

Clearly, independent contractors have long provided significant advantages for companies, particularly an opportunity to access workers with specialized skills in a cost-effective fashion that minimizes many of the legal risks and additional costs associated with entering into an employment relationship. Also, use of independent contractors provides businesses with greater flexibility in dealing with turbulent markets. Moreover, technological advances have increased opportunities for accessing talented people who prefer to work outside of the traditional office environment or in a remote location.

There are, however, certain potential disadvantages, notably the need to surrender control over how the contractor performs the services in order to satisfy legal requirements, which should be considered before using an independent contractor. In addition, companies must carefully analyze the possibility that the relationship with the worker will ultimately be characterized as "employer-employee" by regulatory authorities, thereby resulting in substantial fines and penalties. In the course of this analysis, reference must be made to common law rules, court decisions, statutory definitions and industry-specific rules and guidelines.


Alan S. Gutterman is the founder and principal of Gutterman Law & Business (http://www.alangutterman.com), a leading provider of timely and practical legal and business information for attorneys, other professionals and executives in the form of books, online content, newsletters, programs, training and consulting services. Mr. Gutterman has three decades of experience as a partner and senior counsel with internationally recognized law firms counseling small and large business enterprises in the areas of general corporate and securities matters, venture capital, mergers and acquisitions, international law and transactions, strategic business alliances, technology transfers and intellectual property, and has also held senior management positions with several technology-based businesses including service as the chief legal officer of a leading international distributor of IT products headquartered in Silicon Valley and as the chief operating officer of an emerging broadband media company. All editions of the Business Counselor Advisor are compiled into Business Counselor Update, which is released monthly and available along with other publications by Mr. Gutterman on the West Web site or at Westlaw Next at Business Counselor. For further information on the topics covered above, see the chapter on Human Resources in Mr. Gutterman's Business Counselor's Guide to Organizational Management. In addition, Mr. Gutterman's Business Transactions Solutions included additional information and practice tools including examples of many of the forms and policies mentioned above. Mr. Gutterman can be reached at agutterman@alangutterman.com.