Back to Basics: Auditing Your Employment Practices

Employers, including banking and financial institutions, face an ever-evolving employment law landscape. In addition, in challenging economic times, employees may be more motivated to challenge employment decisions. One of the best ways to control these risks is to regularly audit your employment practices and update them as necessary. Drawing on lessons learned from litigation and real-world employment disputes, this article highlights key areas where financial institutions should focus their attention to address the potential risks of employees threatening or pursuing claims and to put themselves in the best possible position to defend these claims.

Hiring: Getting It Right From the Start

The hiring process is an employer’s chance to make a first impression, and this is where legal exposure begins. Financial institutions should ensure that appropriate documentation exists at each stage of the hiring process — from the job posting (including the requirement to include compensation details), to the application and interview process, to making and communicating the offer (or declining a candidate), and finally, to conducting background checks and/or drug testing and providing any required notices. Job descriptions should also be reviewed regularly to ensure they accurately reflect job duties and essential functions, as these become key documents when accommodation requests arise.

Equally important is training your managers and hiring team. Training should cover what to look for during interviews, how to document hiring decisions and reasoning, and what you want to be able to demonstrate later if any decision is challenged. Training should also teach managers to be issue spotters who can recognize potential compliance concerns early.

Employment Agreements and Restrictive Covenants

Financial institutions routinely deal with employees who have access to sensitive client data and valuable business relationships. For these employees, well-crafted employment agreements and/or standalone restrictive covenant agreements are essential to protect your business. Not every employee requires a formal employment agreement, but employers should thoughtfully consider who needs one and in what contexts. Important considerations include whether the arrangement is at-will or for a defined term, whether to include restrictive covenants, and whether to specify the circumstances under which employment ends.

When implementing restrictive covenants — whether noncompetition, nonsolicitation, or nondisclosure agreements — employers should thoughtfully consider the appropriate scope of restrictions and always think about what they would want to be able to demonstrate if enforcement or litigation became necessary. A critical lesson from litigation is the peril of not having a signed agreement or not providing a copy to the employee at termination — either of which can jeopardize an employer’s success at the preliminary injunction stage or later in litigation.

Employee Handbooks: Your First Line of Defense

Employee handbooks serve multiple important functions: They communicate expectations to employees, ensure compliance with applicable laws, promote consistent treatment, and support defenses in litigation. Some policies are legally required. Best practices include maintaining state-specific supplements, obtaining employee acknowledgments, and implementing proper updates — both when major changes in law occur and on a regular, recurring basis.

Policies should be tailored to your business and leave room for flexibility, but they are not worth having if they are not followed. Deposition downfalls and summary judgment losses are more likely when employers cannot demonstrate that their own policies were followed or that employees were not aware of them.

Documentation and Performance Management

Documentation remains one of the most powerful tools available to employers. Four rules should guide your approach: (1) do it; (2) keep your audience in mind — including the employee, their potential attorney, and any future agency, judge, or jury who may review your decision; (3) follow the rules set by any law, agreement, or policy; and (4) tell the story.

Contemporaneous documentation is often the key to success in litigation. Be mindful of the timing and delivery of performance reviews. Common pitfalls include issuing a positive performance review right before termination — which can defeat summary judgment — or failing to document historical issues later relied on to support termination, particularly when an intervening accommodation or leave request may create an appearance of retaliation.

Leave, Accommodations, and Investigations

Managers should be trained to identify leave and accommodation requests (as employees do not need to use specific language to trigger an employer’s obligations) and when to involve HR. Documentation of the step-by-step interactive process is critical and should be kept separate from performance-related documentation.

When complaints arise — whether involving discrimination, harassment, or retaliation — employers should have a general investigation policy that leaves room for discretion. HR leaders or anyone who may be asked to investigate should receive training and consider privilege issues in documenting findings. Employers should anticipate defending the qualifications of the investigator and the steps taken and should be able to demonstrate how bias was avoided.

Terminations: The Final Chapter

Termination decisions can carry significant legal risk. Employers should be aware of any state-specific requirements, involve HR appropriately, carefully document the reasoning behind decisions, investigate any electronic activity, and remind employees of post-employment obligations. Litigation may be avoided through good termination practices. The key is to anticipate how you will defend the decision-making process — both the decision itself and how bias or other unlawful action was avoided. Documentation can be convincing proof at summary judgment, but inconsistency in reasoning puts your institution at risk.

Conclusion

For banking and financial institutions, strong employment practices are not just a legal necessity — they are a competitive advantage. By regularly auditing and updating your employment practices, you position your institution to avoid or defend against risk.