Chicago Tech Startups: Employment Issues are Avoidable with Sound Legal Advice

Groupon is facing the possibility of a class-action employment lawsuit in Chicago amid allegations of unpaid overtime by sales reps, according to Crain's Chicago Business.

Chicago business attorneys can often help growing companies avoid the common pitfalls of employment law. Whether wage and hour disputes, sexual harassment or discrimination issues, consulting an experienced law firm can ensure a company's growing human resources department is on solid legal footing. In some cases that could involve drafting employment agreements or determining executive compensation, in other cases it could be as simple as ensuring the employee handbook properly and legally addresses issues like the Family and Medical Leave Act.

In this case, a former Chicago sales rep filed a lawsuit against Groupon in U.S. District Court. She left the company's employment last month. She is seeking retroactive overtime plus 2 percent in damages. The suit claims the 3-year-old company didn't pay enough, failed to pay overtime, and violated other wage laws.

The suit seeks class-action status on behalf of all employees who may not have received proper overtime pay. It's the latest legal setback for the Chicago-based company, which sells daily deals via Internet coupons. The company's initial public offering is on hold and it's facing multiple lawsuits over whether it's e-mailed coupons violate the consumer protection laws that regulate gift cards. The company has a workforce of nearly 10,000 -- including about 4,800 sales reps.

About 1,000 U.S. reps are paid $32,500 a year plus commissions. The lawsuit accuses the company of failing to pay overtime until last spring when management discovered the problem. The company reportedly promised to calculate and pay overtime owed, but that never happened. By some estimates, reps are owed as much as $5,000 each, which could amount to a $2 million payout by the company.

These are not issues unique to Groupon. Too often, startup companies minimize the need for sound legal advice for far too long. They see it as an expensive line-item and not an investment. As the legal woes at Groupon illustrate, sound legal advice now can save a company from dealing with expensive legal headaches in the future.

For its part, Groupon has brought in new management to address the growing pains. While the company's massive sales force is hurting its bottom line (the company has yet to turn a profit), it is also seen as a barrier to entry for other companies.

The Wall Street Journal reports that Groupon is downplaying the suit's significance, saying similar suits have been filed against Cisco, Salesforce, Nortel and others.

The Journal reports the fast-growing company has reported revenue of $1.5 billion this year, compared to $131.5 million during the same period last year.

Jeremy A. Gibson & Associates is a law firm dedicated to business and technology litigation in Chicago and elsewhere in Illinois. Call 877-452-4529 for a free consultation.

Additional Resources:

Groupon Sued over Unpaid Overtime, Crain's Chicago Business, Sept. 9, 2011.