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Top 5 Most Common Errors in Small Business Employee Handbooks

businesscorpEmployee handbooks are an integral part of every small business’s “CYA” arsenal. They are intended to provide objective standards for employee conduct, expectations, and disciplinary procedures.

However,  the overwhelming majority of small businesses tend to rely on publicly available online forms  or policies borrowed from fellow business owners to prepare their employee handbooks, whether out of necessity, preference, or convenience.

In states like California where employment and labor laws are constantly being added or amended, it is worthwhile to review your company’s employee handbook from time to time to assess whether they are adequate or create unnecessary risk that, with a few tweaks and modifications, could be mitigated.  Complying with labor laws is a lot like keeping good  dental hygiene: an unpleasant and frequent annoyance but one for which  an once of prevention is worth a thousand pounds of cure.   Here is some guidance on the most common errors or mistakes in small business employee handbooks:

Mistake No. 1:   Failing to Document Each Employee’s Acknowledgment to the Policy and Handbook Documents  

Before employment lawsuits begin, they are often preceded by a request to the company by the employee’s lawyer for the employee’s HR file.  One of the purposes of making this request is so that the employee’s lawyer or law firm can determine exactly what the employee was asked to sign – to identify whether there are arbitration provisions, meal/rest period waivers, no-class action, and other documents that the employee may have signed at the start of the employment relationship or later on, materially affecting their rights.

One of the biggest mistakes that small businesses tend to make is failing to completely document employees’ acknowledgements to the company’s policies and handbook documents.  Handbooks should not simply be distributed to employees with a brief email that says “FYI” or left on their chairs or desks, where they will inevitably be stuffed in the back of a drawer or stored as a book-shelf topper collecting dust.  Handbooks should always have acknowledgement signature pages  that the employee must sign and return to acknowledge receipt.   Employees should be given a reasonable amount of time to sign the agreements, and their signed acknowledgments should be collected and put in their HR files.

It is extremely important for small businesses to follow through and make sure that all signatures are collected and memorialized properly in each employee’s files so it becomes a part of the company’s official records.   Missing, unsigned, or incomplete HR documents can in some cases make or break an employment case.


Mistake No. 2:   Assignment of Intellectual Property 

These days, employees frequently dabble in something on the side — whether it is a startup, incubator, shark tank, screenplay, record album, or other business venture. Naturally, employees involved in moonlighting tend to use office time to work on their pet projects, whether it is surfing for online opportunities, typing up and saving their work on company servers or storage devices, or using the company phone lines to make contacts, book gigs, or otherwise advance their moonlighting activities.

But problems arise when the use of employer resources make the new venture even possible and contribute to its growth during formative stages.  Problems of  ownership also arise if the employee’s venture is derived from an aspect of the employer’s business activities that is re-purposed by the employee and leveraged to somehow create income for the employee.   In some cases, an employee’s new invention can unknowingly reveal trade secrets or a company’s business model,  and  can even be acquired by competitors, potentially leading to  a catastrophic breakdown of  the company’s foothold in market-share.

Unfortunately, many small business employment policies are insufficient when it comes to addressing intellectual property developments and inventions by their employees that arise during the employer-employee relationship. Handbooks generally do contain confidentiality provisions, but have a policy requiring intellectual property ideas conceived by the employee during office time are assigned to the employer is something altogether different, and important.  Ensure that your company requires employees to assign all intellectual property derived by the employee during the employment-employee relationship to the employer or through use of the employers’ resources can avoid these problems.


Mistake No. 3: Your Reference Policy

What kind of reference information can you give for an employee that was fired or left on bad terms?  When employment relationships collapse, employees who depart or are fired, and later have trouble landing new jobs tend to suspect that the company is saying negative things about them to job prospects or has somehow blacklisted them to prevent them from gaining new employment.

In fact,  online reference-checking services exist by which a company, for a fee paid by the departing employee, will call an employer and pretend to be a prospective employer of the former employee, asking questions about the departed employee and trying to goad the company into saying very negative things about the employee.

In California, blacklisting an employee or providing false reference information can result in a lawsuit by the employee. The best way to avoid these problems is to have a policy clearly explaining what information is provided when prospective employers call and what reference information should be given.  Generally, this should almost always simply be limited to the employee’s name, title, last rate of pay, begin date, and end-date — and nothing further.  Generally, the absence of positive reference information implies that none such exists, which is a better approach to take than affirmatively providing negative reference information.

Once such a policy is in place, dealing with the questions asked by a prospective employer of a problem employee is easy — you can give the information listed above and simply state that it is the company’s policy not to divulge any other information.


Mistake No. 4:  Inadequate Complaint Process

In California and many other states, employees can raise an independently separate claim for harassment or discrimination if the employer failed to do anything to prevent or rectify the harassment/discrimination.  In many harassment or discrimination cases, the employee often only tells a single superior (in many cases a direct manager or supervisor), rather than following the company’s procedures – if such procedures exist.  This also occurs in cases in which the perpetrator is the employee’s direct supervisor. In either scenario, companies must  ensure that their handbook is clear in providing an avenue for the grievance to be raised. Many small business handbooks simply contain statements that harassment, discrimination, or similar conduct will not be tolerated, and that offensive conduct should be reported — but they do not say to whom reports should be made, how, or in what manner.  Providing greater clarity about the appropriate grievance procedures can help give a company extra defense if problems arise later on. As always, reports of complaints should be treated with 100% confidentiality.


Mistake No. 5:  Out of Compliance with California’s Confusing Labor Laws

Did you know that California employees can be entitled to up to over a dozen different types of leaves?  Do you know how often breaks, meals, and rest periods are required to be provided, in what frequencies, whether they are to be paid, unpaid, and how long they must occur?

California labor and wage/hour laws are some of the most confusing in the world. To make things even more difficult, every year, California adds  a flurry of new labor laws and compliance requirements for employers, and the myriad of rules and regulations are only further complicated by California court cases that shape employer obligations, as well as actions taken by the National Labor Relations Board.

Whether it involves defining the workweek, addressing overtime, meal/rest breaks, medical leave time, vacation policies, uniform requirements, seating, off-clock work, or countless other labor law issues, the complex and interconnected web of employer obligations seem like a field of landmines, with expensive repercussions, including statutory and civil penalties.  Even just a  few unintentional mistakes, when coupled with waiting time penalties, inaccurate wage statement penalties, and attorneys fees and costs can be come huge.

Getting educated on and making sure your company is in compliance with California’s numerous labor laws and regulations is important — the overwhelming majority of employment related lawsuits tend to be allege labor law and wage/hour violations.  Worse yet, California law stiffens penalties for “knowing” violations, turning even small wage/hour issues into potentially catastrophic lawsuits.

Getting Legal Help

AXIS Legal Counsel’s Business and Corporations Practice provides legal advice to numerous businesses with a wide range of business matters. Axis  represent small, medium-sized, and large business clients with a wide variety of business and corporate law matters. We represent early-stage companies as well as established businesses on a wide variety of business law matters, ranging from contracts and transactions, intellectual property, labor/employment law, business financing, mergers and acquisitions, real estate, insurance, business succession planning, and general advice and counsel.  For information on retaining AXIS Legal Counsel to represent your business in connection with any legal matter, contact [email protected] or call (213) 403-0100 for a confidential consultation.


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