8 Reputational and Legal Risks Employers Can’t Ignore

8 Reputational and Legal Risks Employers Can’t Ignore

I recently published an article on the hidden/indirect costs of inadequate offboarding practices. These can be equally significant, if not more so, particularly when it comes to reputational, legal, and community risks.

These hidden costs can have far-reaching consequences for your organisation’s reputation, productivity, and bottom line.

Let’s explore eight key risks and costs that arise when employers fail to implement comprehensive offboarding strategies:

1. Erosion of Corporate Social Responsibility (CSR) and Environmental, Social, and Governance (ESG) Standing

Poor offboarding practices can significantly impact a company’s CSR or ESG standing.

When employees are treated poorly during the offboarding process, it can be perceived as a failure in the “S” (Social) component of ESG, potentially leading to:

  • Negative community perception: Local communities may view the company as an unreliable employer, affecting its ability to attract local talent and maintain positive relationships with local stakeholders.
  • Investor scrutiny: As ESG factors become increasingly important to investors, poor employee treatment can lead to lower ESG ratings, potentially impacting investment and financing opportunities.
  • Regulatory attention: Governments and regulatory bodies are placing greater emphasis on corporate behavior, including treatment of employees. Poor offboarding practices could invite increased regulatory scrutiny.
  • Consumer backlash: In an era of conscious consumerism, customers may choose to boycott companies that are perceived as treating employees unfairly, even during the offboarding process.

The cost of losing your CSR or ESG standing can be substantial. A study by Cone Communications found that 87% of consumers would purchase a product because a company advocated for an issue they cared about, while 76% would refuse to purchase a company’s products or services upon learning it supported an issue contrary to their beliefs.

2. Increased Legal Exposure

Poor offboarding processes can expose your organisation to various legal risks. 

Without proper documentation and clear communication during the offboarding process, former employees may be more likely to file wrongful termination suits or make claims regarding unpaid wages, benefits, or discrimination.

The costs associated with defending against such legal actions can be enormous. Legal fees, settlement costs, and potential damages awarded in court can quickly escalate into six or seven-figure sums. Moreover, the time and resources diverted to manage these legal battles can significantly impact your organisation’s operational efficiency.

3. Data Security Breaches

When employees leave without a proper offboarding process, there’s a risk that they may retain access to sensitive company data, customer information, or proprietary systems. This oversight can lead to significant data security breaches, either intentional or unintentional.

The costs of such breaches can be staggering. According to IBM’s Cost of a Data Breach Report 2021, the average total cost of a data breach increased from $3.86 million to $4.24 million, the highest average total cost in the 17-year history of the report. Beyond the immediate financial impact, data breaches can result in regulatory fines, legal action from affected parties, and long-term damage to customer trust.

4. Intellectual Property Disputes

Failing to properly manage intellectual property (IP) during the offboarding process can lead to costly disputes. 

If clear agreements aren’t in place or reinforced during offboarding, departing employees may inadvertently or deliberately take company IP to their next role.

The costs of IP litigation can be substantial. Intellectual Property Office of Australia (IP Australia) found that IP litigation costs can range from thousands to millions of dollars, depending on the complexity of the case. A 2019 report by the American Intellectual Property Law Association found that the median cost of a patent infringement suit with $1-$10 million at risk was $1.5 million. Beyond legal fees, the loss of competitive advantage due to compromised IP can have long-lasting effects on your business.

5. Reputation Damage and Employer Brand Erosion

In today’s interconnected world, a poor offboarding experience can quickly become public knowledge.

Disgruntled former employees may share their negative experiences on platforms like Glassdoor or LinkedIn, deterring potential candidates and tarnishing your employer brand.

The cost of repairing a damaged reputation can be substantial, requiring increased investment in employer branding initiatives and public relations efforts. A study by CR Magazine and Allegis Group Services found that 75% of Americans would not take a job with a company that had a bad reputation, even if they were unemployed.

6. Loss of Client Relationships and Business Opportunities

In client-facing roles, employees often develop strong relationships with customers. When these employees leave without a proper transition plan, those relationships may be at risk. 

Clients may follow the departing employee to their new organization or simply take their business elsewhere due to the disruption in service.

The cost of lost business opportunities can be significant. According to a study by Bain & Company, increasing customer retention rates by 5% increases profits by 25% to 95%. Losing established clients due to poor offboarding practices can have a substantial impact on your bottom line.

7. Compliance Violations and Regulatory Penalties

Inadequate offboarding processes can lead to compliance violations, particularly in highly regulated industries. Failing to properly revoke access to systems, retrieve company property, or manage confidential information can result in breaches of industry regulations or data protection laws like GDPR or CCPA.

The penalties for such violations can be severe. For instance, GDPR violations can result in fines of up to €20 million or 4% of global annual turnover, whichever is higher. Beyond the financial penalties, regulatory violations can lead to increased scrutiny, damage to industry relationships, and loss of customer trust.

8. Diminished Alumni Network and Referral Opportunities

A well-managed offboarding process can turn former employees into valuable brand ambassadors and potential “boomerang” employees. 

By neglecting to nurture these relationships post-departure, employers miss out on a powerful network that could provide referrals, industry insights, and a pool of experienced talent for future hiring needs.

The cost of rebuilding these relationships or developing new ones from scratch can be substantial. According to a study by iCIMS, employee referrals have the highest applicant-to-hire conversion rate – only 7% of applicants are via employees, but this accounts for 40% of all hires.



It’s crucial to recognise that the true cost of poor offboarding extends far beyond immediate financial impacts.

By implementing comprehensive offboarding strategies that include clear communication, proper documentation, thorough exit interviews, and ongoing alumni engagement programs, you can mitigate these risks and costs.

Investing in proper offboarding is not just about doing right by your departing employees; it’s about protecting your organisation’s reputation, preserving valuable client relationships, maintaining compliance, fostering a network of allies in the business world, and upholding your company’s CSR and ESG commitments. The long-term benefits of effective offboarding far outweigh the initial investment, making it an essential component of any successful HR strategy.

By addressing these often-overlooked indirect costs and risks, you can create a more resilient, attractive, and successful organisation that values its employees at every stage of their journey – even as they move on to new opportunities.

In doing so, you’ll not only mitigate potential legal and reputational risks but also position your company as an employer of choice and a responsible corporate citizen in an increasingly conscious and competitive business environment.

Remember, your company’s treatment of departing employees reflects your overall corporate values and culture. Ensuring a positive offboarding experience is not just good for your former employees—it’s essential for maintaining your company’s reputation, community standing, and long-term success in today’s socially aware business landscape.

Photo taken from: https://www.onelegal.com/blog/legal-risk-management-for-lawyers/

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Greg Weiss

Greg Weiss is the founder and director of Career365 and Australia’s leading career coach. Greg has coached well over a thousand people from recent graduates to CEOs as they pivot, re-launch and accelerate their careers. He is the author of three practical books and the creator of three online courses: “Career Clarity. How to find career fulfillment”; “Career Networking. How to unlock the hidden job market”; and “Career Success. How to succeed in your new job”.

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