Running a business means making dozens of decisions about employees every day. You hire and fire people. You approve payroll. You respond to complaints. You rely on managers to handle problems. You make decisions about who gets promoted, who gets scheduled, and who gets hired.
While most of those decisions don't feel like legal decisions, they can be.
Unfortunately, a string of recent 2026 employment law cases involving restaurants, staffing agencies, public employers, and small businesses demonstrate just how quickly an everyday HR decision can become an expensive legal problem.
For business owners, HR professionals, and managers responsible for employment decisions, that's an important distinction. You don't have to be trying to do something wrong to expose your company to significant liability, costly settlements, and preventable claims — but the right HR processes can usually prevent them.
In July of 2026, a Las Vegas restaurant group agreed to a $2 million settlement related to allegations of sexual harassment, including inappropriate touching of employees. According to the allegations, the company failed to take appropriate action even after receiving complaints.
The lesson isn't simply that employers need to prevent sexual harassment; they also need to have a process for what happens after someone reports it.
An employee complaint should never disappear into a manager's inbox, become workplace gossip, or get dismissed because "that's just how that person acts."
Once an employer becomes aware of potential harassment, the response matters. At your business:
A complaint procedure isn't much help if employees don't know about it — or if managers don't know how to use it.
Another July 2026 case involved the DC Water and Sewer Authority, which agreed to pay approximately $217,000 to settle an age discrimination claim brought by the EEOC.
The allegation? That DC Water replaced an experienced HR professional with a younger (and less qualified) employee. As part of the settlement, the organization agreed to strengthen its nondiscrimination policies and provide additional anti-discrimination training.
Before making a termination, promotion, hiring or compensation decision, ask:
"Would we make this same decision if this employee had a different age, sex, race, or other protected characteristic?"
And just as importantly:
"Can we explain, document and support the legitimate business reason for this decision?"
If the answer to either question is unclear, that's a good time to pause and seek HR or legal guidance. You need to be especially cautious if artificial intelligence (AI) is making hiring decisions, as this is drawing enforcement scrutiny. Be sure your AI-driven tools have bias testing and transparency reviews.
Like many other industries, staffing agencies are often trying to satisfy the needs of their clients. But a client request should never override employment law.
WorkSmart, a staffing agency, recently settled an Equal Employment Opportunity Commission (EEOC) sex discrimination claim alleging that it failed to hire or refer women for laborer positions based on a client's request.
Businesses do not get to outsource legal responsibility simply because someone else requested the action. Imagine a hiring manager saying:
Those statements should immediately raise a red flag. Whether you're a staffing company or another business, your managers need to understand that business preferences never trump legal requirements. If a requested practice might violate employment laws, address the issue first before moving forward.
Employment-law liability doesn't always come from discrimination or harassment. Sometimes it comes from payroll.
The U.S. Department of Labor (DOL) recently announced that six workers at a San Diego deli were allegedly paid a flat $100/day, despite regularly working 11-hour days. This was less than the applicable local minimum wage and never included the legally required overtime premiums for hours worked over 40 in a workweek.
In all, there were $500,256 in back wages recovered, which was approximately $83,000 per employee. For a small business, that kind of liability can be devastating.
As a best practice, business owners should regularly review the following:
A payroll process that seems "close enough" can quickly become very expensive, especially when repeated every week or across multiple employees for an extended period of time.
Another DOL case involving NY Gyro, a Minnesota restaurant operator, illustrates how multiple payroll problems can compound.
The DOL found that the company failed to maintain records of hours worked, paid employees straight time rather than overtime for hours over 40 (even though overtime pay is generally one-and-one-half times the regular rate under federal law), and paid at least one employee below the federal minimum wage. The company agreed to pay approximately $613,000 to 46 workers.
The problem wasn't one incorrect paycheck; it was a system. Without reliable time records, their payroll was inaccurate, which resulted in unpaid overtime that affected multiple employees, and ultimately created significant liability for the company.
This is why timekeeping isn't just an administrative task.
If you don't have accurate records of when employees worked, it becomes much harder to demonstrate that such employees were paid correctly.
A good timekeeping system should make it easy to answer:
If your business can't answer those questions confidently, your payroll process deserves a closer look.
Not only should you have a good timekeeping system, but you should know which employees need to have hours tracked and which don't. Simply paying employees a salary does not automatically mean they are exempt from overtime pay. Unless they qualify for an exemption, hours must be tracked to ensure employees are paid minimum wage — and that may be different from one state to the next.
Although the federal minimum wage remains $7.25 per hour in 2026, many states have raised baseline pay rates. For example, New York is at $17 per hour in specific areas, Illinois is at $15 per hour (starting 2025), and California grew to $16.90 per hour after being $15 per hour in 2025. State minimum-wage and paid sick leave changes in 2026 affect many covered employees and your overall payment compliance.
This final case highlights another area business owners can't afford to overlook: retaliation.
A former Philadelphia DEI officer filed a lawsuit alleging that she was terminated after reporting harassment involving a Black employee and that she was prohibited from speaking publicly about equity issues.
While this case is still ongoing, the issue raises an important question for every employer:
What happens when an employee raises a concern?
An employee might complain about harassment, discrimination, wage violations, collective bargaining, paid family leave, safety issues, or another workplace problem. You cannot treat that employee differently after they voice a complaint, particularly when their concern has legal ramifications. Retaliation risks can also arise when workers invoke new rights notices, safety protections, or protected crime-victim leave.
While you may disagree with the complaint, that doesn't necessarily mean the employee can be punished for making it.
For example, terminating an employee shortly after they make a discrimination complaint can create obvious questions about whether the termination was retaliatory, even if you believe they had another reason. This is why manager training is essential; they need to understand the difference between responding to a legitimate performance or conduct problem and taking action because an employee complained.
It's not completely unheard of that an employee who makes a complaint may be at fault for performance issues in certain circumstances, but terminating an employee shortly after they make a complaint looks suspicious on behalf of the employer.
This is a great reason why documentation, consistency, and careful review matter. Depending on your records, it may be appropriate to both implement disciplinary action for the perpetrator who acted discriminatorily and to address the performance problems by the complainant, but tread lightly and contact your certified HR expert for guidance.
At first glance, these cases don't have much in common. One involves sexual harassment, another involves age discrimination, the next involves staffing and hiring, two involve wage-and-hour violations, and another involves alleged retaliation.
But when you look closer, a common theme emerges: the absence of good processes.
Consider what could have made a difference:
|
Risk |
Process that could have helped |
|
Harassment complaint |
Clear reporting and investigation procedure |
|
Discrimination claim |
Consistent decision-making and documentation |
|
Client requests illegal discriminatory hiring |
Manager/client compliance training |
|
Unpaid overtime |
Accurate timekeeping and payroll audits |
|
Minimum-wage violations |
Regular wage-rate reviews, including pay-data disclosure reporting requirements |
|
Retaliation claim |
Complaint-response and manager training |
None of those processes are particularly complicated, but they have to exist to avoid compliance issues.
This doesn't mean business owners need to become employment-law experts. In fact, that's unrealistic.
The better goal is to build a business where you don't have to personally know every answer because you have a process for finding the answer before acting. That includes making sure you comply with OSHA duties to provide a workplace free from recognized hazards in most private industries, FMLA leave rules that can require 12 weeks of unpaid leave, and any child labor restrictions that may apply.
That might mean having an HR professional review a termination. It might also mean conducting periodic payroll audits; training supervisors on harassment, discrimination and retaliation; establishing a clear employee complaint procedure; or working with an employment attorney when a situation presents significant legal risk. Attorney review may also make sense before using repayment agreements, classifying an independent contractor, or imposing restrictive-covenant terms that may be subject to salary thresholds or civil penalty exposure.
The important part is knowing when to stop and ask for help.
The most valuable lesson from these recent cases may be surprisingly simple.
Before ignoring an employee complaint, accepting a client's questionable hiring request, terminating someone who recently raised a workplace concern, assuming an employee isn't entitled to overtime, or deciding that a few missing time records aren't a big deal, ask, "Is this legal?"
That brief pause can be worth far more than the cost of getting professional guidance.
Employment-law problems don't always begin with a dramatic decision by a business owner. Sometimes they begin with a manager who doesn't know what to do, or a payroll process nobody has reviewed in years, or from an employee who raises a concern and nobody follows up. Other times, a business simply assumes that because it has never had a problem before, its current practices must be fine.
For a business owner, the ultimate takeaway is this: don't wait for a lawsuit, government investigation, or six-figure settlement to discover where your HR processes have gaps.
Need help discovering those gaps or receiving guidance with your workforce development? Book a free consultation and our team will contact you shortly.