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Fiduciary Liabilities Overview for Small Business Owners

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By Lisa M. Schaffer, Esq. on September 14, 2018 | Last updated on March 21, 2019

Being a small business owner has its challenges, and one of them is caring for employees. But is this care actually a duty? And if so, what kind of care is required?

As a general rule, employers do not owe a fiduciary duty to employees. But wait -- don't stop reading yet! There are numerous requirements of limited fiduciary duty, and violating these can be extremely costly, as in millions of dollars. Limited fiduciary duties to employees reside primarily in the area of employee safety and a duty to be an employer in good conscience.

Safety -- Federal and State OSHA Laws

Federal laws require that all employers, whether large or small, adhere to the Occupational Safety and Health Administration's OSHA standards, which basically requires employers to provide a working environment that is free of known dangers. Additionally, almost every state also has their own version of OSHA, which provides an extra layer of duties of safe care.

A Boss in Good Conscience

State laws also require that an employer act in good conscience to his or her employees. This is intentionally vague, and is subject to different state laws. The duty to act in good conscience creates limited fiduciary duties in certain circumstances that are created by the employer, such as offering an employment contract or a 401K.

For instance, a small business owner may want to sponsor a retirement plan for its employees, in order to compete for top talent with larger companies. An employer doesn't have to do this, but if does, it needs to act in good conscience. Even if the business owner contract this out to a third party service provider, who works directly with the employees. the business owner has created a fiduciary duty that must be honored.

The business owner must follow the Employment Retirement Income Security Act (ERISA) rules and make sure the financial adviser is monitored for good performance and charging fees that are of industry standard. You may not think it's a big deal that the advisor is charging 1% fees, which was the standard 20 years ago when the relationship began, even though the industry standard is now 0.5%. However, the courts will disagree with you, and make you pay your employees the 0.5% difference. Just ask Lockheed Martin, who settled a similar lawsuit to the tune of $62 million .

If you are concerned that your work environment is not up to OSHA standards, or if you believe you have created a situation with an employee that has created a limited fiduciary duty, contact a local employment lawyer. They can review the facts of your case, and advise you of any fiduciary liability you may be facing, and offer sound legal advise for your next steps.

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