I Think I’ve Made a Huge Mistake: What to Do When You’ve Tripped-Up on Regulation?

Date: June 14, 2018

We all know that deep sinking feeling when you realize you’ve messed-up something big. The reality is that regulatory mistakes are inevitable from time to time. This is especially true for small businesses struggling to keep pace with everchanging—and unnecessarily complex—regulatory regimes. Indeed, small businesses generally operate without the benefit of in-house legal counsel or HR professionals—which means they are often walking blindfolded through a regulatory minefield.

In an ideal world, we would all have enough time, energy and acumen to sufficiently research every legal issue that might come up in running our day-to-day business. But since it is impossible to always perform Herculean feats to ensure total compliance, the question is what can you do when you realize the mistake? Are there ways to rectify the situation?

There is Probably No Silver Bullet

As a practical matter, employers face a dilemma when they realize they’ve made a mistake. On the one hand, any legal claim that an employee might bring is subject to a statute of limitations. This means an employer might want to do nothing and run out the clock. But that’s a gamble. Your business may be audited or a disgruntled employee (or former employee) may run to a plaintiff’s attorney before the clock runs out.

On the other side of the ledger, employers might choose to “make things right” by paying back wages or taking other steps to fix errors once the problem comes to light. This option may be costly, especially if similar mistakes were made with multiple employees. Still, this may be the better course in some cases. To be sure, most employees just want to know that their employer is treating them right and will appreciate their employer rectifying good faith mistakes. And if you are offering all back-wages, an employee is probably unlikely to initiate a legal action, or even to find a lawyer willing to represent them. Moreover, in some instances, an employer may potentially avoid regulatory penalties by coming clean.

Yet this can be a difficult judgment call. Its highly advisable to work with a trusted employment law attorney either in crafting settlement agreements and or in deciding whether it makes sense to acknowledge the mistake at all. Much will depend on the nature of the mistake, the specific facts at issue, and the dynamics of your working relationship with affected employees.

Make Sure You Get Things Right Going Forward

Whether you chose the run out the clock or to go back and fix the mistake, you will want to stop the bleeding by taking corrective action going forward. For example, if you have misclassified an employee as exempt when they should be paid on an hourly basis, you will have to inform that employee that they will need to begin tracking their hours and taking any meal or rest breaks required by state law. Likewise, if you have misclassified a worker as an independent contractor, you will need to terminate the working relationship or convert the individual to an employee—with all that entails, from workers compensation and unemployment insurance to overtime pay.

Of course, it’s also understandable if you are unsure of how to proceed. Again, regulatory issues can be extremely difficult. That’s even more reason to seek out legal counsel to ensure that you are on solid legal footing going forward. As we’ve said in the past, there is no better time than the present to get your house in order.

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