WASHINGTON — Most employment lawsuits don’t start with intentional wrongdoing. They start with shortcuts, outdated policies and gut reactions that seem reasonable in the moment but create serious legal exposure down the road.
During a recent National Federation of Independent Business (NFIB) webinar, Tony Dalimonte, an employment attorney with Foster Swift Collins & Smith in Michigan, walked small-business owners through the employment law changes and risks they need to understand in 2026.
“Most of these claims start with something small — a denied schedule change, an outdated policy, a manager making a gut decision on the fly,” Dalimonte says. “But once a lawyer or a federal agency gets involved, those small decisions can get scrutinized very carefully, and the cost of defending them is far greater than fixing the issue on the front end.”
For drycleaning business owners juggling their day-to-day operations, reviewing employment law might not be at the top of their to-do list. But small businesses are sued just as often as large corporations, Dalimonte says, and they feel the impact even more.
Your Handbook — Helping or Hurting?
The employee handbook stands as one of the most important documents a business has, Dalimonte says, but it’s also one of the most commonly mishandled.
“Courts and government agencies treat it as your rulebook,” he says. “If you say you have certain policies, they expect you to follow them. A handbook can be your first line of defense, or it can become the first exhibit in a lawsuit against you.”
The most common handbook problems he encounters include outdated policies that haven’t been reviewed in years. These are policies that don’t reflect how the business actually operates, handbooks copied from other companies or downloaded online, and managers who don’t know what the handbook actually contains.
Many handbooks state that overtime, for example, must be approved in advance by a supervisor, Dalimonte says. Yet managers routinely might allow employees to work late, answer emails after hours, or come in early without following the approval process.
“If you get hit with a wage claim and you try to point to the handbook and say the overtime wasn’t approved, the response is simply going to be your policy doesn’t match reality, so it doesn’t help you,” he says.
Why Handbooks Matter in Litigation
When a lawsuit is filed, the employee’s attorney will immediately request the employee handbook, Dalimonte says. Any differences between written policies and actual practices then become ammunition.
“Judges and agencies expect consistency,” he says. “If your handbook promises fairness or a process, you’re going to need to follow it.”
Dalimonte also recommends providing a reason for termination, even in states with at-will employment.
“If you don’t tell an employee why they’re being terminated, it leads their mind to wonder,” he says. “Maybe it wasn’t because of poor performance. Maybe it was because of race or gender or any number of protected characteristics.”
When preparing termination letters, Dalimonte says, having a documented misconduct policy allows employers to point to specific violations rather than leaving the reason ambiguous.
Handbook Acknowledgments are Critical
Even the best handbook provides no protection if employees can claim they never received it.
“If you can’t prove that an employee received the handbook, you should assume the policy doesn’t exist,” Dalimonte says.
Whether acknowledgments are electronic or recorded on paper doesn’t matter. What matters is obtaining signed confirmations when distributing the handbook. During depositions, Dalimonte uses these signatures to establish that employees knew about company policies.
Wage and Hour Compliance
Beyond handbooks, wage and hour claims represent some of the most expensive employment disputes businesses face. Even when the dollar amounts seem small, Dalimonte says, these claims typically come with statutory attorneys’ fees and can snowball into class actions.
Dalimonte recalls defending a class action in which the company automatically clocked employees out for 30-minute lunches, but employees claimed they weren’t actually taking breaks.
“While the damages to each employee weren’t very high, the attorneys’ fees are why these cases are filed,” he says. “You could have a case where back pay is only $5,000, but you’re going to get hit with an additional $100,000 in attorneys’ fees after a two-year case.”
The federal minimum wage serves as a floor, not a ceiling, Dalimonte says. Many states and cities have higher rates that change frequently. Michigan, Arizona, California, Colorado and Maryland all increased their minimum wages as 2026 began. He adds that businesses operating in multiple locations must ensure they’re paying the correct rate wherever they have employees.
The ‘Exempt Employee’ Misconception
One of the most common misunderstandings Dalimonte encounters involves exempt versus non-exempt classification.
“I get asked all the time, ‘I pay them a salary — doesn’t that automatically make them exempt from overtime?’” he says. “The answer is ‘no.’”
The Fair Labor Standards Act provides two tests for determining overtime exemptions: salary level and job duties. At the federal level, the salary threshold is approximately $35,000. But the duties test is where businesses often stumble.
For the executive exemption, employees must directly supervise at least two people. For the administrative exemption, employees must perform office work related to significant business matters and exercise discretion and independent judgment.
“You could have an office employee that does mostly administrative work but isn’t really exercising that discretion or independent business judgment,” Dalimonte says. In that case, the employee might need to be classified as non-exempt.
“If you’re not sure, the most conservative thing is to err on the side of non-exempt,” he advises. “If an employee works over 40 hours (a week), you pay them overtime.”
Come back Thursday for Part 2 of this series, where we’ll explore accommodation requirements and the Equal Employment Opportunity Commission’s enforcement priorities for 2026.
Have a question or comment? E-mail our editor Dave Davis at [email protected].
