Employment Law Pitfalls Small Businesses Can Avoid

Staying compliant with employment law isn’t just a concern for large corporations. For small businesses—especially those growing quickly or operating with limited HR resources—missteps in employment law can be costly. In this episode of the Bender CFO video podcast, Shane Bender talks with attorney Sean Urich, shareholder at Ogletree Deakins, about the top legal mistakes small businesses make and how to prevent them before they become problems.

🎥 Watch the Full Interview with Attorney Sean Urich

In this 25-minute video, Shane and Sean cover real-world examples of legal missteps, how small businesses can stay ahead of changing employment laws, and why proactive planning is the best strategy. If you want to reduce your legal risk and feel more confident about your employee policies, this conversation is a must-watch.

Why Employment Law Still Trips Up Small Businesses

Legal trouble often begins not with bad intentions—but with assumptions. Small businesses may assume their old handbook is still valid, their employee agreements are solid, or their PTO policy is “standard.” Unfortunately, laws evolve quickly, and even one outdated document can leave your company exposed.

A lack of proactive planning causes expensive mistakes

Sean shares that many employers only reach out to a lawyer after something has gone wrong. But a brief policy review or handbook refresh could have prevented the issue in the first place—saving money, stress, and even litigation.

Many employers rely on outdated or vague documents

One of the most common problems Sean sees is clients relying on boilerplate templates or agreements that haven’t been reviewed in years. Even small tweaks in the law can change how a policy holds up in court.

Common Legal Mistakes That Create Big Risks

Many of the most damaging legal issues small businesses face could have been avoided with simple documentation and clearer policies. Below are a few key areas where Sean sees businesses get into trouble.

Missing or outdated complaint procedures

Many small businesses don’t realize they’re legally required to have formal complaint procedures—especially for harassment cases. In Texas, businesses with just one employee must now comply with updated sexual harassment laws. Without a complaint process in writing, employers lose key legal protections.

Weak or missing employee handbooks

A handbook is more than just an onboarding document—it’s a company’s first line of defense. Without clearly documented expectations, procedures, and rights, employees and employers are left guessing. That opens the door to miscommunication and legal exposure.

Bonus and commission plans without clarity

When commissions and bonuses are earned, paid, or forfeited can be hotly contested. Vague language like “must be employed at time of payout” can create confusion—especially during a termination or resignation. A written agreement should clearly explain when and how bonuses are earned.

Misunderstanding PTO payout rules

Different states have different rules around paid time off. Some require payouts at termination; others do not. Businesses with outdated “use-it-or-lose-it” policies may find themselves on the wrong side of the law—especially if they operate in multiple states.

Small Businesses Are More Vulnerable Than They Think

Compliance often takes a backseat in fast-moving small businesses, but today’s legal landscape doesn’t offer much grace. Here are three key reasons why the risk is higher than many owners realize.

The law changes faster than you think

Texas made a major change to its sexual harassment law in 2021—lowering the employee threshold from 15 to just 1. Even long-time employers didn’t realize the law had shifted. This is just one example of how easily businesses can fall behind.

Employees today are more informed (and litigious)

With the internet at their fingertips, employees can easily research their rights, file EEOC complaints, or even draft demand letters—all without hiring an attorney. Sean also notes that many claims are based on incomplete or misleading information pulled from AI or templated complaint generators.

Even AI-generated complaints are a rising concern

Sean recalls receiving a polished, three-page internal complaint from an employee whose past communication was filled with typos. It was clear the letter had been AI-generated—yet it still needed to be addressed seriously. Employers must be prepared for a new era of digital “lawyering.”

How Fractional CFOs and Legal Advisors Work Together

Fractional CFOs are often the first to see operational risks that can become legal ones. When finance and legal are aligned, businesses stay protected while they grow.

When finance and legal align, risks shrink

Shane points out that CFOs can help identify financial triggers—like large incentive plans or ownership changes—that require legal support. Aligning strategy early helps reduce compliance risk down the line.

CFOs help identify triggers for legal review

Here are a few common financial scenarios where involving a legal advisor early can prevent future issues:

• Designing new bonus or commission structures
• Drafting phantom stock or equity agreements
• Responding to suspected employee fraud
• Updating PTO, leave, or compensation policies

Common docs a CFO should loop in legal help for

To ensure your business is protected, CFOs should involve legal counsel when working with the following types of documents:

• Employment agreements (especially C-level or key staff)
• Bonus and commission plan documentation
• Equity and phantom stock agreements
• Employee handbooks and HR policies
• Non-compete and confidentiality agreements
• Termination and severance agreements

Pro Tips from Sean Urich for Business Owners

Before wrapping up, Sean offered a few high-value reminders for owners who want to stay ahead of employment law issues.

Review and update handbooks annually

Laws change, and so should your internal documentation. Schedule a review at least once a year—even if nothing seems urgent.

Be precise with agreements and policies

Avoid vague, industry-jargon-filled documents. Think through specific scenarios—what happens if an employee quits, is terminated, or goes on leave?

Never copy-paste legal templates off the internet

Online templates rarely align with your actual business needs. And worse—they may include outdated or non-compliant clauses.

Final Thoughts: Stay Proactive, Stay Protected

Legal compliance isn’t about fear—it’s about clarity. When you have the right agreements, the right policies, and the right support, you protect your business and create a better environment for your team. If you’re not sure where to start, start with a conversation.

Book a consultation with Bender CFO Services today