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Legacy Matters

May 01, 2018

Why Your Family Business Needs a Family Employment Policy

You have a successful family business. Things are going along well. Then one day, your brother (who is not involved in the business) asks if you would hire his daughter, Samantha. Samantha is a nice young lady, but she has struggled some in life. “Gosh,” your brother says, “I would greatly appreciate it if you could find even a low-level position for Samantha.”
 
In the meantime, your son (who is involved in the business), falls in love with Gretchen. They are going to get married, which will require Gretchen to move from across the country. “Gosh,” your son says, “Let’s bring Gretchen into the business.”
 
Problems That Can Arise From Hiring Family Into Your Business
So now you have hired your niece and your daughter-in-law. Things go well for a few years, then some issues arise:
 
  • Your niece makes a series of blunders costing you thousands of dollars.
  • Your son tells you his marriage is failing, and Gretchen has filed for divorce.
 
If Samantha were not a family member, you would fire her on the spot. In addition, your son tells you that he cannot stand the sight of Gretchen anymore and does not want to work in the same building with her. What do you do now?
 
A Family Employment Policy Provides Answers Before Questions Arise
At this point, you are likely wishing you could rewind the clock back to where you could have adopted a family employment policy. Such a policy would have:
 
  • Allowed you to avoid hiring unqualified family members in the first place;
  • Provided a plan for hiring and managing family members; and
  • Provided guidance for issues such as those you are facing now.
 
A family employment policy addresses some very important issues:
 
  • Will we hire family members?
  • If we will hire family members, do we require a certain education level?
  • If we will employ a family member in a management position, is a certain level of outside work experience required?
  • If we will employ in-laws, is an arrangement made at the time of employment for a divorce or if the employee/in-law is discharged?
  • Are family members entitled to certain perks like additional vacation time or coming-and-going whenever they want?
 
These are heady questions that people often prefer to avoid. Nevertheless, failure to have a plan can result in terrible outcomes for both the business and the family.
 
How Do I Develop Our Family Employment Policy?
One approach is for a family business to adopt a mission, a vision and those values specifically related to the involvement of family in the business:
 
  • A mission statement defines why an organization exists.
  • A vision statement defines what the organization seeks to become.
  • A values statement defines how the individuals will behave in the business.
 
With respect to a family business, a mission statement can answer the following questions:
 
  • What are the roles of family members in the current business?
  • What are the roles of family members compared to non-family members?
 
A vision statement can provide the following:
 
  • The role family members will play in the future of the business. Family members can be passive shareholders, non-management employees, leaders in the day-to-day operation of the business, members of the board of directors or even chair of the board.
  • A clear plan for family member involvement in the future.
 
A values statement can address the following issues:
 
  • What are the expectations of family members with respect to work ethic?
  • Are family members expected to hold certain levels of education and/or experience before becoming leaders in the business?
 
What Should Be Included in Our Family Employment Policy?
Based on the answers to the questions raised above, your family will develop rules or positions related to employment of family members. Examples of the kinds of statements that can be included in a family business mission/vision/values statement include:
 
  • “We will be a business-first organization and not a family-first organization.”
  • “Being a member of the family does not alone qualify an individual for a leadership/management position.”
  • “To hold a management/leadership position, a family member must have at least a four-year college degree and three years of experience with an unrelated company.”
  • “A family member is expected to meet the same performance expectations of non-family employees.”
 
Developing a mission/vision/values statement around family employment can help set expectations, prevent misunderstandings and take some of the emotion out of a difficult situation in the future. Without a stated philosophy, families and family businesses can suffer enormous damage when a family member/employee acts or performs badly.
 
If you need assistance developing or updating your family employment policy, please contact Louis Rabaut in our Labor and Employment Practice Group, Mark Harder, chair of our Private Client and Family Office Practice Group or your Warner attorney.

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