Unless you have a very small business of three employees or less, the vast majority of anti-discrimination laws apply to you. Federal and state laws define discrimination as treatment of one employee differently from another on the basis of race, color, religion, gender, pregnancy, age, marital status, physical or mental disability or other personal characteristics.

A discrimination lawsuit by an employee could cost a small business heavily in legal fees and lost productivity. The best defense is to keep your place of business free of discrimination. There are three main tactics:

1. Education
2. Documentation
3. Enforcement

Action Steps
The best contacts and resources to help you get it done

Educate, educate, educate

Most managers know who is protected by discrimination laws, but may not know what actions are illegal.

I recommend: The U.S. Equal Employment Opportunity Commission (EEOC) sets out the details on how small business comply with discrimination rules. Get tips on educating your staff from Employee Benefit News. EEOC will also train your staff at your office or get on-site or online training from private education company AHI Workplace Compliance Training Center.

Investigate and document

Document every complaint you get. Investigate it thoroughly and get legal counsel if necessary — legal help early in the game when you suspect a significant problem will prove a smart move if a lawsuit develops.

I recommend: See the checklist from Nolo on how to react to and investigate a discrimination claim. Or get training from Trainup to teach your managers best practices on discrimination investigation.

Mean what you say

A policy with no teeth will certainly come back to bite you. It does no good to have a policy, conduct training and then don't enforce the rules. Do not take lightly unacceptable behavior, clearly explain to the employee that if he or she does not stop the behavior, you will be forced to let them go. Let an offender off the hook and you could put your business at risk.

I recommend: Create an anti-discrimination statement for your company so your intentions are clear – see a sample employee handbook anti-discrimination statement from hrVillage. See tips on disciplining employees from FindLaw.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Employment practices liability insurance covers businesses against claims by workers that their legal rights as employees have been violated. It protects against lawsuits, including sexual harassment and discrimination. Evaluate whether this type of policy is worth investing in.
• •  You are legally required to work with your employees to make it possible for them to practice their religion, say if they request time off for religious observances. However, you are not required to offer this accommodation if it would cause a hardship on your business or other workers.
• •  If you fire an employee in a protected class, it can be harder for the discharged employee to make a case against you if you replace him or her with another member of the same protected class.