One does not climb the ladder of success without considerable business savvy and a commensurate work ethic. Boldly innovative ideas typically launch successful organizations, but dexterous management skills keep the profits flowing.
The irony is that some business leaders—individuals who deftly manage workforce risks and liabilities at the company—fail to have the same precision on the home front. They become so personally close to domestic staff that their emotions often cloud their reason, with potentially devastating consequences.
Jack McCalmon, founder of The McCalmon Group, which provides loss prevention services reducing an employer's litigation risks, said he sees this disparity often in his line of work. "High-net-wealth businesspeople are successful for a reason, but when it comes to liabilities arising in their homes, they sometimes don't pursue the same best practices that made them successful in business," Jack said. "They manage their family staffs in ways they would never manage their employees at work."
He recounted the all-too-common scenario in which a family office or wealthy homeowner doesn't check whether or not a nanny is undocumented. "The nanny doesn't have a bank account, so the family pays the nanny in cash. If the nanny is terminated and a claim is brought, the employer has a difficult time proving how much and when they paid the nanny, which is a violation of state and federal wage laws. It happens more than you think," he said.
Independent agent Chris McCrady has seen it, too. "Many of our clients are successful business owners, yet they have different processes to hire someone at the company than hiring domestic employees," said Chris, CFO and partner at Simpson & McCrady LLC, an independent agency based in Pittsburgh. "Necessities like a background check are not given the same degree of attention, when the truth is this should be even more important when hiring domestic staff."
Why is there such disconnection? The emotional elements involved in hiring nannies, tutors, household managers and others who will spend so much time with family members overwhelm more principled employee hiring and management practices. Many families tend to think of domestic staff as Downton Abbey-like family members, trustworthy to a fault. But family squabbles happen. When someone is fired for just cause, the family affair is over and a lawsuit is likely.
Family Affairs
Employees sue their employers for a host of reasons, including job discrimination, wrongful termination, sexual harassment and retaliation. According to Chubb's 2013 Private Company Risk Survey, the most common charge levied by an employee is retaliation, e.g., "I complained about sexual harassment and got fired for it."
While the survey doesn't distinguish domestic employers like a family office from other private employers, the findings are instructive nonetheless. One-quarter of respondents reported they had experienced an employment practices liability-related event in the past three years. Nearly half (45%) stated significant concerns they would be sued for wrongful termination, sexual harassment, discrimination or retaliation, and 22% said such lawsuits would cause the "most" financial damage, given the reputational repercussions.
These concerns are not unfounded: Employees in 2012 filed 99,412 charges with the U.S. Equal Employment Opportunity Commission (EEOC), the federal agency that enforces laws against workplace discrimination.
