Employment Law for Business

Employment law experienced significant growth in the latter twentieth and early twenty-first centuries. Employers must comply with a number of federal and state laws designed to end discrimination and promote a fair work relationship. This essay reviews some of the major Federal and State laws that directly affect the employer-employee relationship. The essay goes on to discuss some issues related to the determination of whether an employer-employee relationship exists and how that relationship may terminate. This essay concludes with comments regarding steps an employer may take to comply with the regulatory framework.

Keywords Americans with Disabilities Act (ADA); Employee Retirement Security Act (ERISA); Employment law; Employment discrimination; Fair Labor Standards Act (FLSA); Family Medical Leave Act (FMLA); Independent contractor; Occupational Safety and Health Act (OSHA); Title VII; Workers' compensation

Law > Employment Law for Business

Overview

Employers may find candidates for a job from a number of sources (want ads, employment agencies or referrals) and entice them with salary, location, opportunity for advancement, etc. The employer will then screen people for the job with interviews, tests and references. While each of those practices has specific laws and indeed are covered by the anti discrimination law discussed later, this essay will be concerned with the obligations that an employer and an employee have after the employment agreement has been consummated.

An employer makes an offer whereby the employer promises to do something (pay wages, provide benefits, etc.) and the employee accepts the offer and thereby promises to do something (work certain hours, do a certain job, etc.). After this agreement is made, certain legal obligations apply. While employers and employees have certain freedom to contract and agree to certain conditions of employment, that freedom is limited and regulated by federal, state and local laws. The complete array of law that can apply to the employer-employee relationship exploded in the second half of the twentieth century; this essay discusses the major laws that affect most businesses most of the time.

Federal Laws

Congress has passed several laws that regulate the employment environment: Fair Labor Standards Act (FLSA), Occupational Safety and Health Act (OSHA), Employee Retirement Security Act (ERISA), Family Medical Leave Act (FMLA) and various laws on discrimination based on race, national origin, gender, religion and age. We will take a look at each area mentioned, for an overview of the basic federal regulatory framework and its impact on how companies do business.

The Fair Labor Standards Act applies to most employers, including work at home, and sets the minimum wage, overtime pay standards, recordkeeping and child labor standards. The FLSA applies to all businesses that engage in interstate commerce or handle, sell or produce goods that have moved in interstate commerce. As a practical matter, FLSA applies to a very large number of businesses and it covers approximately 100 million full and part time employees. Generally, the FLSA will apply to a business that that does over $500,000 in volume. Certain businesses and employees are exempt from the FSLA, for example, executives, outside sales, professional employees and hospitals. However, if the FLSA applies, the employer must pay the federal minimum wage or more per hour and pay time and half for hours worked in excess of forty per week. Children under twenty years old may be paid a reduced rate for the first ninety days of employment. According to U.S. Department of Labor regulations, employers must keep records of certain information including wages and hours. The FLSA also restricts certain labor performed in the home. The Department of Labor investigates violations of the FSLA and violators can face criminal prosecution, fines up to $10,000 and possible imprisonment. State laws may also apply to areas covered by the FLSA and the law with the higher standard must be applied (Department Of Labor [DOL], 2005).

The Occupational Safety and Health Act sets standards that require employers to adopt practices to provide a safe and healthy work environment and the OSHA administrative agency conducts inspections to ensure compliance. OSHA covers generally all employers and their employees in the 50 states and the U.S. territories. Under OSHA, an employer is defined as any person engaged in business affecting interstate commerce who has employees (except governments, generally). Among other exceptions, self-employed people are not covered and neither are industries that are regulated by other federal agencies (mining, nuclear energy, transportation industry). For example, an OSHA standard may require that employees be provided with and trained to use protective equipment. Employees must then conform their conduct to the rules that apply to them. OSHA standards fall in to four main categories: employee right of access to medical and exposure records, personal protective equipment, hazard communication and record keeping. Every employer covered by OSHA is subject to inspection and if an inspector cites a violation, the business faces fines depending on the severity of the violation and the business's history of violation (DOL, 2005).

The Employee Retirement Security Act covers most private sector employee benefit plans that have been voluntarily established by employers or employees. ERISA regulations seek to ensure that employee benefit plans are established and maintained fairly and are financially sound. Generally, the mangers of employee benefit plans must manage funds for the exclusive benefit of the employees, be prudent and avoid conflicts of interest, report and disclose information to the government and employee beneficiaries and cooperate with investigations. The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), a part of ERISA, provides for the continuation of health coverage for ex-employees, at their own expense, of a business with a qualifying health plan. The Department of Labor has significant authority to enforce ERISA by bringing a civil action, investigating violations, imposing fines (up to $1,000 per day) and imposing criminal penalties in certain circumstances. Generally, ERISA supersedes state laws that relate to employee benefit plans (DOL, 2005).

The Family Medical Leave Act allows employees to take unpaid leave in certain situations. This allows employees to tend to their family lives without the concern of being terminated and promotes the stability and economic interests of families while serving the country's interest in preserving the family unit. The FMLA applies to businesses that are engaged in interstate commerce or an activity that affects interstate commerce and has fifty or more employees that have worked at least twenty weeks in the current or previous year. Generally, under the FMLA, an employee's job is protected for twelve weeks out of any twelve month period of unpaid leave to give birth and care for a child or care for themselves or an immediate family member with a serious health condition. An employee improperly terminated can sue the employer under the Act (DOL, 2005).

Title VII of the Civil Rights Act of 1964 (Title VII) was the first federal legislation to give broad protection against employment discrimination against any individual with respect to compensation, terms, conditions or privileges of employment based on "race, color, religion, sex [including pregnancy] or national origin" by employers, labor organizations and employment agencies. Three years latter, Congress enacted the Age Discrimination in Employment Act (ADEA) that extended similar coverage provided by Title VII to age discrimination. In 1990, Congress passed the American with Disabilities Act (ADA) to prevent employment discrimination against people with physical or mental disabilities. The ADA prohibits discrimination and requires employers to make reasonable accommodations to qualified individuals. Employers with a minimum of fifteen employees under Title VII and ADA (minimum of twenty under the ADEA) that are engaged in activities that affect interstate commerce are covered by the anti-discrimination laws. The "affects commerce" requirement is not difficult to meet; even local activities can meet the test and as a practical matter, almost any company that meets the minimum employee requirement will also meet the affects commerce requirement. These laws have broad coverage but they are not complete. Sex discrimination, under Title VII, refers to gender—including transgender (Employment Law, 2013)—and not sexual orientation and the ADEA applies to people over forty and permits discrimination against young people because of their age, although state law may provide such coverage (Rothstein, 2004; Burkhauser, 2012). Additionally, the U.S. Supreme Court has ruled that adverse employment decisions must be narrowly scrutinized as cause for action. In the case of age discrimination, age must be the sole reason and not merely a "motivating factor." Similarly, whereas discrimination based on gender, race, or religion itself as a motivating factor is proscribed by Title VII, retaliatory dismissal for complaining about discrimination, if other factors contributed to the dismissal, is not (Brill, Fant, & Baddish, 2013).

The laws above operate to prevent the employer from discriminating against an employee in a protected class and they also prevent an employer from taking action against an employee for making a complaint under the laws. An employee has a retaliation claim against an employer if the employer responds to the filing of a claim in a way that is materially adverse to the job applicant or employee such that the employer action could dissuade other workers from supporting or making a charge of discrimination (HR Focus, 2007).

The Equal Employment Opportunity Commission (EEOC), a federal administrative agency, enforces Title VII, the ADEA and the ADA. Employees who wish to enforce rights granted under the anti-discrimination acts file with regional EEOC office. The EEOC has broad power to investigate employer practices and sue private employers to comply with the laws. The EEOC also issue interpretative guidelines and policy statements to assist businesses in complying with laws (Player, 1992).

State Law

While states may enact laws that enhance federal protection, as in the case of the minimum wage, workers' compensation is largely a matter of state law. States have enacted workers' compensation laws in response to inadequate recovery available to injured workers from their employers. Before workers' compensation laws, employees injured at work were forced to prove that an employer was negligent, a difficult prospect given an array of defenses that were favorable to the employer. Also, there was the serious problem of worker injury caused by something other than employer negligence. In either case, workers suffered from extreme financial hardship arising from medical bills and lost wages. By the early 1900's, state legislatures began to remedy this predicament by establishing funds to compensate injured employees without regard to fault. Such "no-fault" compensation was paid if a work place injury occurred regardless of the cause. So long as the employee could show that their injury arose out of and during their employment, they were compensated; even if their own carelessness caused the injury.

Generally, workers' compensation laws cover all private employers that have one or more full time employee and the majority of public employers. Workers' compensation laws benefited workers but the no fault approach to workers' compensation also had advantages for employers. Workers' compensation laws make recovery from workers' compensation the exclusive remedy for the injured employee. The employer is immune to most lawsuits that arise in the course of employment and the workers' compensation law precludes the recovery of certain types of damages from the employer. Workers' compensation benefits are financed by insurance policies maintained by employers as mandated by the relevant State's workers' compensation law. All States, except Louisiana, enforce Workers' Compensation laws by administrative agencies.

Employment Status

A person may be "working" for a company but may not be an "employee" under the law. While different jurisdictions may define "employee" slightly differently, the vast majority of employment law will only apply to an employee. That "working" person may be an independent contractor. An independent contractor, for example, is not covered by workers' compensation laws, the ADEA or Title VII. Tax responsibility for the business independent contractors and employees also differ greatly. Businesses that intend to create an independent contractor as opposed to an employee often explicitly state as much in the agreement. The title of the document would be "Independent Contractor Agreement" as opposed to "Employment Agreement." A well drafted document will never inadvertently refer to an independent contractor as an employee and will explicitly disclaim employee status repeatedly with respect to each relevant area.

Despite what a contract may state, whether a person is an independent contractor or an employee will be decided by the courts. The test usually used by courts is the "right-to-control" test. When a business retains control over the manner and means of the job performance, a court may find an employer-employee relationship. On the other hand, if a business only specifies the finished product but not the manner in which it is achieved, a court would likely find an independent contractor. This issue often comes up in the context of truck and cab drivers and commissioned sales people where the distinction becomes blurred. The consequences of being one or the other can be great and can arise in a number of legal situations. For example, if an employee is hurt by employer negligence, workers' compensation is typically their sole remedy. If an independent contractor is injured by negligence caused by the business, the business would be exposed to the full measure of damages that a jury may award. On the other hand, an independent contractor would not be able to take advantage of no fault coverage in the absence of employer negligence.

Termination

Termination decisions are governed by certain laws in certain situations, as in the discrimination laws, but there are also legal considerations of general application that concern termination. Employment "at will" is the legal doctrine that states an employee without a fixed term of employment can be fired for any reason or no reason. This idea formulated in 1877 by a treatise writer, became accepted as a basic rule of employment law. However, in 1935 Congress passed the National Labor Relations Act (NLRB), which gave workers the federally protected right to join unions, organize and bargain collectively. With the increased power derived from numbers, collectively bargained agreements eventually contained termination for "just cause" provisions that protected employees from arbitrary employer treatment under the "at will" doctrine. After that an employee could not be fired except for "just cause."

The civil rights movement in the 1960's further supported the idea that arbitrary employer decisions to hire and fire should be curtailed in favor of social interests. As a result, most all states now recognize at least one of the three general exceptions to the employment "at will" rule. Employees could rely on promises implied by employer, including promises inferred from an employee handbook; employees could not be discharged in violation of public policy, and; employees could rely on the implied promise of good faith and fair dealing. As these exceptions gained in popularity, courts also began to allow more claims related to the employment relationship and gave more employees more options to recover for employment related damages. The steady erosion of the employment at will doctrine has caused employers to be ever more vigilant in their employee relationships to avoid consequences for wrongful discharge and related problems.

Applications

The development of employment law has increased employee rights and given them the ability to recover at law for problems arising in the workplace. To avoid lawsuits, fines and other penalties, employers must comply with the laws and regulations. Effective compliance with the law usually involves some sort of preventative medicine and employers should take deliberate and systematic measures to enforce the law in order to avoid legal problems and therefore the extraordinary costs associated with non-compliance.

Employers can help avoid discriminations charges by having clear policies that forbid harassment and discrimination in their employee handbooks; this includes rules against racial jokes, slurs name calling and any other racial or discriminatory banter. Managers should be trained annually about the legal requirements and effective responses to possible violations of equal opportunity employment law and sexual harassment law. Employees should be reminded that company rules against discrimination against co-workers, customers or vendors will not be tolerated. It should be emphasized that the company will not retaliate against employees who file complaints of such behavior. If complaints arise, employers should investigate thoroughly and promptly and take the appropriate disciplinary measures against offenders. The company should fully document the objective reasons that are related to specific job requirements, for all hiring, firing and promotion decisions. The company should also avoid hiring practices that may omit members of protected classes. For example, hiring by relying on referrals from a predominantly white male workforce could constitute an employment barrier to non whites and women. Employers should take account of cultural differences and be careful not to implicate racial distinctions with appearance and grooming standards (Lawson, 2007).

The ADA does not require an employee to submit any particular form to make a request for an accommodation. However, getting the request in writing can help employers to determine precisely the accommodation requested. Because accommodations are afforded by reference to the job's purpose and essential functions, the employer should also maintain written job descriptions. Employers can then clearly identify the essential nature of the job and whether or not the accommodation is possible. As is generally the case, such a written definition is most useful before any problems arise (HR Focus, 2007).

Workers' compensation is an extensive program and employers must pay expensive premiums. The rate an employer pays is in part influenced by its "experience modifier" which is calculated with reference to the number of workers' compensation claims from the previous years. To control premiums, employers should try to limit claims and the severity of injuries with a comprehensive safety program. Healthier workers also contribute to increased productivity. Employers should attempt to avoid injury caused by overexertion, employee contact with machinery and other workplace hazards, slips, trips and falls. The employer should also attempt to control employee drug and alcohol use by creating drug testing programs as permitted, before hiring, at random, on reasonable suspicion, after an accident and before a return to duty. Employers should also pay careful attention to potentially fraudulent claims from problem areas. Problem areas may be employees with preexisting injuries, a grudge against the company, injuries that occurred without any witnesses, employees that refuse independent medical exams and claimants who may be working other jobs (Safety Compliance Letter, 2007). Employers should also require employees to report injuries immediately so that employees can receive treatment quickly and reduce lost productivity. Accordingly, employers should be certain those employees are familiar with the procedures related to reporting. After injuries, employers should have a clear and written return to work program that encourages employees to get back to work as soon as they are able. Doctors can be enlisted to delineate the restrictions an employee may have and the employer should maintain contact with an employee during their absence, even hand delivering the check if possible. This approach will decrease the amount of benefits paid and reduce lost productivity (Safety Compliance Letter, 2007).

Legal problems often arise because of the lack of clear and effective communication with employees. Employee handbooks are a good way for employers to communicate required information, but employers must use them with care. As previously mentioned in the section on termination, handbooks may create unintended obligations for employers. Because handbooks are broadly circulated to all employees, statements in them can be considered binding contracts. Employers can help avoid such a situation by including a bold and conspicuous disclaimer that makes clear that all employment is "at will." Additionally, an employer can inadvertently bind itself to statements made in handbooks that attempt to describe pay, benefits or detailed steps in disciplinary action. On the other hand, handbooks should provide great detail on the grievance procedure and harassment policy. Handbooks are very useful tools to promote a good work environment for employees and to maximize the company's interests and should be tailored to the specific employers needs (Fair Employment Practices Guideline, 2002)(HR Magazine, 2006).

This essay is a general introduction to a few broad concepts in employment law and should not be interpreted to offer any legal advice. The field of employment law is complicated and in depth and a response to any particular problem should be addressed carefully and individually by a knowledgeable professional.

Terms & Concepts

Administrative agency: A governmental body often created by a statute or law that is empowered to create regulations and otherwise enforce the law.

Age Discrimination in Employment Act (ADEA): A federal law designed to prevent employment discrimination based on age.

American with Disabilities Act (ADA): A Federal law designed to prevent employment discrimination against people with physical or mental disabilities.

Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA): Part of ERISA and provides for the continuation of health coverage for ex- employees, at their own expense, of a business with a qualifying health plan.

Employment "at will": The general legal doctrine that states an employee without a fixed term of employment can be fired for any reason or no reason.

Employee Retirement Security Act (ERISA): A federal law that covers most private sector employee benefit plans to ensure that they are established and maintained fairly and are financially sound.

"Experience modifier": A part of the calculation used to determine workers' compensation premiums that is determined by reference to the number of workers' compensation claims at a given company in previous years

Fair Labor Standards Act (FLSA): A Federal law that applies to most employers, including work at home, and sets the minimum wage, overtime pay standards, recordkeeping and child labor standards.

Family Medical Leave Act (FMLA): A federal law that allows employees to take unpaid leaves in certain situations.

Independent contractor: A type of arrangement related to the employer-employee relationship. Typically referred to at law as master-servant or principal-agent relationship whereby the principal or master is not bound to the traditional duties of an employer and characterized by increased autonomy in that the independent contractor-servant-agent retains more control.

Interstate commerce or commerce: Having to do with commerce between states; an area that Congress can regulate and is based on the Commerce Clause of the U.S. Constitution. Under the Commerce Clause, Congress may pass laws on activities that involve the channels of commerce (roads bridges and air travel) the instrumentalities of commerce (cars, trucks and planes) and those activities that affect commerce. The final category has been construed very broadly and is the base of power exercised by Congress in passing the anti discrimination laws discussed.

Law; also Statute: A piece of legislation passed by Congress and signed by the President that often creates administrative enforcement agencies.

No-fault compensation: The concept that insurance benefits are paid for injury regardless of what caused the injury accepted. As applied to Workers compensation, benefits are paid without regard to the cause of injury so long as the injury arose in the employment context.

Occupational Safety and Health Act or Administration (OSHA): Sets standards that require employers to adopt practices to provide a safe and healthy work environment and conducts inspections to ensure compliance.

Regulation: A rule promulgated by an Agency to apply and enforce a law. Regulations are created according to specific procedure and are not the same as laws in a Court.

Termination for "just cause" provision: A part of an employment contract that protected an employee from the employment at will doctrine and allowed termination only for certain behavior.

Title VII of the Civil Rights Act of 1964(Title VII): A Federal law that protects against employment discrimination against any individual with respect to compensation, terms, conditions or privileges of employment based on "race, color, religion, sex [including pregnancy] or national origin" by employers, labor organizations and employment agencies.

Workers' compensation: State laws that require employers to carry insurance to compensate workers injured on the job without regard to fault.

Bibliography

Avoid turning your employee handbook into an employment contract. (2002). Fair Employment Practices Guideline, 4-5. Retrieved Saturday, March 17, 2007 from EBSCO Online Database Business Source Complete http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=8776820&site=ehost-live

Brill, E.A., Fant, L.M., & Baddish, N.M. (2013). 2012-2013 U.S. Supreme Court wrap-up: Hot topics in labor and employment law. Employee Relations Law Journal, 39, 3-8. Retrieved October 31, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=91640070&site=ehost-live

Burkhauser, R.V., Schmeiser, M.D., & Weathers II, R.R. (2012). The importance of anti-discrimination and workers' compensation laws on the provision of workplace accommodations following the onset of a disability. Industrial & Labor Relations Review, 65, 161-180. Retrieved October 31, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=70100826&site=ehost-live

Covington, R. N. & Decker, K. H. (1995). Individual employee rights in a nutshell. St. Paul, MN: West Publishing.

Employment law -- Title VII -- EEOC affirms protections for transgender employees. -- Macy v. Holder, No. 0120120821, 2012 WL 1435995 (E.E.O.C. Apr. 20, 2012). (2013). Harvard Law Review, 126, 1731-1738. Retrieved October 31, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=86961218&site=ehost-live

Get ADA Requests in writing when possible. (2007). HR Focus, 2. Retrieved Saturday, March 17, 2007 from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=24309864&site=ehost-live

Lawson Jr., H. (2007). 10 ways to avoid race bias and harassment claims. Vision Monday, 21, 64-64. Retrieved Saturday, March 17, 2007 from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=24120934&site=ehost-live

Player, M. A. (1992). Federal law of employment discrimination in a nutshell. St. Paul, MN: West Publishing.

Retaliation claims: what you should know about the changing law. (2007). HR Focus, 84, 7-11. Retrieved March 17, 2007 from EBSCO Online Database Business Source Complete http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=23565080&site=ehost-live

Rothstein, M. A., Craver, C. B., Schroeder, E. P. & Shoben, E. W. (2004). Employment law (3rd ed.).St. Paul, MN: Thomson West.

Smith, A. (2006). Handbooks missing modern management. HRMagazine, 51, 32-34.

Retrieved Saturday, March 17, 2007 from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=21518318&site=ehost-live

U.S. Department of Labor [DOL]. (2005). Employment law guide. Washington, DC: U.S. Government Printing Office. Available at http://www.dol.gov/compliance/guide/lawguide%5f2006.pdf

Workers' compensation cost control: 6 strategies to save you money. (2007). Safety compliance letter. Retrieved Saturday, March 17, 2007 from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=24287118&site=ehost-live

Suggested Reading

Rosenfeld, E. (2007). Is This the Year of Workers' Compensation Reform? (Cover story).

Insurance Advocate, 118, S3-S14. Retrieved Wednesday, March 21, 2007 from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=23971511&site=ehost-live

Utz, J. (2007). Employment discrimination: selected employee benefit issues. Journal of Deferred Compensation, 12, 4-66. Retrieved Saturday, March 17, 2007 from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=23609788&site=ehost-live

Brown, R. (2006). China's employment discrimination laws during economic transition. Columbia Journal of Asian Law, 19, 361-427. Retrieved Wednesday, March 21, 2007 from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=21597679&site=ehost-live