Legal Considerations and Company Culture

small business workforce planning
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Allie Blackham

Marketing Content Manager

The culture of your organization can have a significant impact on its overall success and reputation, as well as the way employees feel about working there. But it may also play a role in the legal standing of the business. Review some of the legal considerations associated with company culture to ensure your organization remains compliant.

What You Can and Can’t Include in Your Company Culture

As you take steps to establish and nurture your company culture, make sure you understand what can and can’t be included in it from a legal standpoint. Here are some things that could pose risks to your organization:

  • Poor onboarding and offboarding processes: Failing to incorporate a positive and supportive onboarding process is a significant issue for a new hire. Similarly, it’s essential to gather feedback from employees who have resigned to get insights into why they are choosing to leave, and make adjustments whenever possible.
  • Discrimination: Any type of harassment or discrimination based on protected classifications should never be permitted in any culture. These characteristics include race, religion, gender, disability, sexual orientation, and age.
  • Unlawful activities: Any acceptance or encouragement of unlawful activities, including embezzlement, fraud, or other unethical activities, must be avoided from a legal standpoint.
  • Retaliation: Allowing leaders or coworkers to retaliate against one another, specifically those who pose concerns or report misconduct, is a serious issue that can destroy the culture of an organization.
  • Non-compliance with laws: A lack of compliance with health and safety regulations, labor laws, and other legal aspects can damage a company’s reputation and increase the risk of legal action being taken against it.
  • Unfair compensation: Any inequitable or unfair pay practices, such as those related to race or gender, can have a negative impact on employee morale and even pose legal challenges for the business.
  • Lack of development: Neglecting employee needs for growth and development opportunities can create frustration and dissatisfaction, potentially resulting in high turnover and struggles in recruiting and bringing on talent.

By contrast, you can incorporate positive and inclusive policies and procedures into your organizational culture. It should also emphasize and support the company values and mission while providing ample support to employees.

Common Legal Consequences of a Poor Company Culture

Understanding the potential legal implications of a poor culture can help you better identify areas to improve in your own organization.

Discrimination lawsuits

If employees feel they have been discriminated against, whether directly or indirectly, they may take legal action against the company. Employers with poor workplace cultures tend to be at a higher risk of discrimination claims, particularly businesses that are known to allow banter or inappropriate jokes. The Equality Act permits businesses to be held liable for discriminatory actions taken by their employees that occur in the workplace.

According to data published by Forbes, the cost of a discrimination lawsuit can cost a business anywhere from several thousand to over a million dollars. Damages may include those associated with lost pay and any benefits they would have received had they not been discriminated against. If an individual believes they faced discrimination when seeking a promotion, they may also receive damages for the salary difference and any applicable bonuses, stock options, etc.

Bullying issues

Bullying differs from discrimination in that it typically doesn’t occur in response to one of the protected characteristics. However, this doesn’t make it acceptable in any form in the workplace. Your culture should not allow bullying in any form, which includes any attempt to harm, coerce or intimidate another person.

Forms of bullying that may happen in the workplace include verbal criticism, yelling, attempting to humiliate another person, or using intimidating gestures. Indirect bullying could include excluding or isolating an employee, taking credit for someone else’s work, or isolating someone from information or opportunities.

An employee may take legal action against an organization if they experienced bullying in the workplace. The Protection from Harassment Act 1997 provides protection for individuals experiencing harassing behaviors. If someone is physically violent with another, the victim may qualify to file a personal injury claim.

Problems with mental health and severe stress

Poor workplace culture can put a lot of pressure on those who work there, causing an increase in stress. Understanding the pressure on employees is vital for leaders who aim to build positive, supportive and inclusive cultures. Stressed-out employees may take more sick leave or experience increased absenteeism. Burnout is also common among those experiencing higher stress levels.

You may also face legal implications if your business doesn’t support employees who need to take time off due to mental health conditions, which may be exacerbated by stress. Those suffering from stress-related conditions may qualify under the Equality Act as having a disability and thus maintain protection from discrimination. Additionally, mental health treatment may qualify someone to take a job-protected leave of absence.

With a better understanding of the legal risks associated with a negative company culture, you can take steps to ensure your business isn’t facing these concerns. With a positive culture, you can boost retention and support employees as they help achieve organizational goals and take part in the growth and success of the company.

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