What are the major employment laws?
There are many federal and state employment laws. Federal laws controlling a particular type of employer conduct set minimum standards for conduct. States may pass laws that place additional requirements on employers, so long as these laws do not conflict with or hinder the execution of federal laws. That is, if not in conflict, the state laws may be more restrictive upon employer practices than similar federal statutes. The major federal laws controlling the employer-employee relationship are as follows:
• Internal Revenue Code
• Fair Labor Standards Act
• Family Medical Leave Act
• Worker Readjustment and Retraining Act
• Uniformed Services Employment and Reemployment Rights Act
• Employee Retirement Income Security Act
• Worker’s Compensation Act
• Occupational Safety and Health Act
• Consolidated Omnibus Budget Reconciliation Act
• Health Insurance Portability and Accountability Act
• Affordable Care Act
• Immigration Reform and Control Act
• State Laws
The Department of Labor may also require employers that meet certain criteria to prominently display information about employment laws and employee rights.
• Note: Laws prohibiting discrimination in the workplace are discussed in detail in a separate topic section.
What is an “employee”?
An employee is a stakeholder and representative agent of a firm. She may also be an owner of the firm, but her role as employee is generally separate from that of owner. For purposes of employment law, it is important to distinguish an employee from an independent contractor. Most of the employment laws apply to the relationship between employer and employee, and specifically exclude the independent contractor relationship. In a dispute concerning whether an individual is an employee or an independent contractor, administrative agencies and courts generally employ some version of the following tests:
• Control Test – The control test applies numerous factors regarding the extent of an employer’s control over the employee or independent contractor. This test seek to measure the extent to which the agent is an extension of and answerable to the employer. An employee is engaged by a business to perform services under the guidance and supervision of the employer. These tasks are generally part of the core operations of the business. The employer will control the place, hours, and method of work. The employee generally works exclusively for the employer. An independent contractor, on the other hand, is an individual hired as an outside professional to perform services to a business. The employer maintains far less control over the independent contractor, who generally controls her own time and manner of performing services. Frequently, the independent contractor may have other clients and may employ her own employees.
⁃ Note: The control test is most notably employed by the Internal Revenue Service to determine employee status. Factors the IRS employs in making this determination include the employer’s behavioral and financial controls over the agent. Further, it looks at the nature of the employer-agent relationship, such as the nature of the work agreement between the parties.
• Economic Realities Test – This tests seeks to determine the economic situation under which the individual performs services for the employer. It focuses on whether an agent is taking advantage of an employer’s opportunity or whether an individual has their own business and is performing a necessary service to the employer. Factors examined in this determination include:
⁃ Does the agent have her own equipment and employees?
⁃ How much control over the agent does the employer exercise?
⁃ To what extent is the agent exposed to the opportunity for profit or loss?
⁃ Is the relationship temporary or permanent in nature?
⁃ How integrated in the employer’s business is the agent’s activity?
⁃ How much independent thought, decision making, and initiative is charged to the agent?
⁃ How independent is the agent’s business organization?
⁃ Note: This test is primarily used by the Department of Labor to determine employee status.
• Example: A business may hire a marketer, accountant, attorney, etc., to perform work for the business. These individual are not employees. They have their own businesses.
What are the legal obligations regarding the terms of employment between an employer and employee?
The terms of an employment relationship will either be determined by the employment agreement between employer and employee or pursuant to the legal duties established under state law. All states in the US, except Montana, recognize the “at-will” employment doctrine. This doctrine allows for an employer to discharge or fire an employee for any non-discriminatory or retaliatory reason without cause or justification. Further an employee may resign from or quit her employment at any time without legal liability. This doctrine seeks to promote free movement of employment. Each state, however, recognizes limited exceptions to the principle of at-will employment. That is, these states either pass statutes or have common laws protecting the employee from discharge in certain situations:
• Public Policy Exception – Most states in the United States prohibit an employer from firing an employee if the reason for the action violates some readily accepted public policy. This prevents an employer from terminating an employee for exercising a legal right or failing to perform a legal act for the employer.
⁃ Example: Firing an employee for performing some public duty (showing up to jury duty), for exposing illegal conduct (such as reporting violation of some law to the employer or government agency), or exercising her rights as a US or state citizen (such as voting) are all against public policy.
• Implied Contract Exception (Good Cause Exception) – Some states see the employer employee relationship as a contract that cannot be undone without specified or “good cause”. The terms of the contractual relationship consist of any representations or assurances made by the employer prior to or during the term of employment.
⁃ Example: If an employer provides an employee handbook to a new employee, the provisions in the handbook may be considered part of the contractual relationship. Often, these handbooks will outline a procedure for performance review, discipline, and discharge of the employee. An employer who fails to live up to these obligations prior to discharging an employee could be liable.
• Good-Faith and Fair-Dealing Exception – Some states impose upon the employer a duty to exercise good faith and fair dealing with regard to all employees. This doctrine, to varying degrees, means that an employer must treat an employee fairly in the decision to fire her. This generally means that an employee violates these duties by firing an employee without due cause of justification.
As stated above, these doctrines exist to varying degrees in all states. A pure, at-will state will not recognize or recognize these principles to a lesser extent.
What tax and other compensation withholding requirements do the state and federal governments place on employers with regard to employees?
Employers are obligated to comply with statutes and IRS regulations regarding the withholding of:
• Income Taxes – Employers have an obligation to withhold income taxes from employee compensation based upon an employee’s election. The employer then submits the withheld funds to the IRS and state taxing authority on behalf of the employee each month.
⁃ Note: The employee elects an amount to be withheld on IRS form W-4. This is done by indicating the number of employee claimed dependents and indicating any desire for additional withholdings.
• Payroll Taxes – Employers are required to withhold Medicare and Social Security taxes from the employee’s salary pursuant to the Federal Income Contributions Act (FICA). The employer combines these withheld funds the employer’s FICA tax obligations for the employee and submits the funds to the IRS each month.
⁃ Note: Self-employed individuals must withhold self-employment taxes, which consist of the employer’s contribution and employee’s FICA tax responsibilities.
• Federal Unemployment Tax Act (FUTA) & State Unemployment Tax Act (SUTA) – Employers are required by state and federal law to pay for unemployment insurance to cover events in which an employee loses her employment for any covered reason. FUTA is common to all employers across the United States. SUTA varies among the states. Some states allow an employer to be self-insured; while other states require employers to pay into a private or state-funded insurance plan or policy.
⁃ Note: FUTA and SUTA taxes do not apply to self-employed individuals.
• Worker’s Compensation – Worker’s Compensation is a state law regime that requires employers to maintain insurance that provides wage and benefit replacement in the event an employee is injured in the scope of her employment. Federal worker’s compensation laws, primarily the Federal Employee Compensation Act, provide the same protections to federal, non-military employees. Workers compensation covers lost wages, medical expenses, disability payments, and costs associated with rehabilitation and retraining.
⁃ Note: Application of worker’s compensation laws varies from state to state based upon the number of employees. Also, states may offer state-provided plans or allow for private worker’s compensation plans.
What is the “Fair Labor Standards Act”?
The Fair Labor Standards Act (FLSA) is a law administered by the Wage and Hour Division of the Department of Labor. The FLSA places limitations and requirements on the rate and method of pay for public and private employees who are covered by the law. Specifically, it lays out the national minimum wage, age limitations, and over-time pay requirements for employees. Currently the federal minimum wage is $7.25 per hour, with a higher rate of 1 and ½ times an employee’s hourly wage for each hour worked beyond 40 hours in a given work week. The minimum wage law does not apply to certain classes of employees or certain types of jobs. Further, there are other exemptions based on ancillary benefits and privileges provided to the employee, such as meals, insurance, retirement benefits, etc. The FLSA generally prohibits minors under the age of 14 years from working for compensation outside of a family business or agriculture. It further limits the number of hours that an adolescent between the ages of 14 and 16 can work in a given workweek. It may also proscribe employing minors below the age of 18 years in certain positions (such as dangerous positions or positions charged with handling controlled substances or alcohol).
• Note: The FLSA applies to hourly employees. Salaried employees may, in some instances, work a number of hours for a rate of pay that violates minimum FLSA requirements. The rate of salaried pay for employees who are managers or supervisors that exempts these employees from overtime pay is $47,476.
The FLSA primarily provides for civil causes of action by employees or the Department of Labor against employers who violate the provisions. The FLSA also provides for an optional complaint system whereby the Department of Labor will review the complaint and determine whether to seek action or redress. Plaintiffs may file an FLSA lawsuit against an employer in federal or state court in the jurisdiction in which the employer is organized or carries on business. Any suit must commence within 2 years from the date of the claimed violation of the law. A plaintiff may seek damages in the form of any lost or back pay associated with the violation. Further, the court may asses a penalty in the amount of any actual damages, plus court costs and reasonable attorney’s fees.
What is the “Family Medical Leave Act”?
The Family Medical Leave Act (FMLA) was passed to provide covered employees (both male and female) with time away from work in the event of medical necessity. Specifically, covered employees can take up to 12 weeks of unpaid leave from work during any 12-month period in any of the following situations:
• Health Conditions – The covered employee is unable to work due to a serious health condition;
• Family Members – An immediate family member of the employee has a serious health condition that requires the employee’s care;
⁃ Note: An immediate family member of a covered employee includes a spouse, minor child, or individual over whom the employee has legal guardianship (such incapacitated individuals).
• Birth – Upon the birth of a newborn child of the employee;
• Adoption/Guardianship – Upon acquiring physical guardianship of child pursuant to adoption or foster care; or
• Military Injury – A family member is injured pursuant as part of military activity or medical necessity arises pursuant to notice of a family member’s pending deployment.
The employer cannot take any negative actions against the employee for taking the unpaid leave and must allow the employee to return to her same job at the end of the period. The employee does not have to take the entire time off. Further, the period is independent of any paid time off or vacation time accrued and taken by the employee.
Covered Employees and Employers
When determining whether the FMLA applies to an employer or covers a particular employee, there are two separate tests. First, the FMLA applies to employers employing:
• 50 + Employees – The employer must employ 50 or more part or part-time or full-time employees,
• Daily Employees – The 50 or more employees only includes those who work each working day (whatever days of the week that may be),
• 20 + Weeks of Employment – The 50 + employees must work for 20 or more weeks during the current or preceding calendar year.
If any of the above elements are missing, the FMLA does not apply to the employer. Second, the FMLA provides benefits to employees who meet the following conditions:
• 12-Month Period – The employee must have worked for the employer for at least 12 months;
⁃ Note: The 12-month period does not have to be consecutive. That is an employee can work for a time, stop, and then restart. The question is whether the employee has worked for a total period of 12-months.
• 1250 + Hours – The employee must have worked at least 1250 hours during the proceeding 12 months; and
⁃ Note: Look back 12 months and see if the employee has a combined 1250 hours.
• 50 + Employees – The employee must work at a location where at least 50 employees work.
⁃ Note: This requirement excludes employees in satellite offices for larger companies.
If all of these elements are present, an employee of a covered employer is eligible for FMLA benefits. The onus is on employers to notify eligible employees of their eligibility for such leave and to document any request for leave by the employee. The employer may require a medical certification that a qualifying event has occurred prior to granting the leave.
What is the “Worker Adjustment and Retraining Act”?
The Worker Adjustment and Retraining Act (WARN Act) was passed to protect employee rights and interests in the event of large-scale layoffs as a result of operational closures by businesses (such as plant closure). The law provides that covered employers must provide adequate notice (a minimum of 60 days) to employees in the event of such a pending layoff. The WARN Act is applicable to employers with 100 or more part-time and full-time employees. A part-time employee is one who works a minimum 20 hours per week. If the WARN Act applies to an employer, all employees, including hourly and part-time employees, must be given notice.
The provisions of the WARN Act are made to protect individuals who will suffer a loss of employment as a result of the layoff or operational closure. Loss of employment for purposes of the WARN Act includes:
• termination of employment,
• layoff exceeding 6 months, or
• a reduction in employee’s work time of more than 50% in each month for 6 months.
The broader definition of loss of employment prevents employers from skirting the rules through structural shifts that have the same effect as immediate termination. Any of the following situations qualify as mass layoff events triggering WARN Act notice provisions:
• Plant Closing – This includes closing an employment site resulting in loss of 50 employees within a 30-day period. This applies also if there are more than one plant location closings for the business that combine to equal the number.
• Mass Layoff – This is when 500 or more employees lose their job within a 30-day period, or when more than 50 employees lose their job and it comprises 33% of the employer’s total workforce. Employees that work less than half time do not count toward the 50-employee requirement.
Failure to comply with the provisions of the WARN Act allows for a cause of action by affected employees. The limitations on what constitutes a mass layoff prevents the WARN Act from applying to routine firings and operational downsizing across a business.
There is no governmental agency cause of action, investigation, or other enforcement of the WARN Act provisions. Employees protected by the WARN Act must bring a civil action for violation of the statute. Under the law, these employees are entitled to pay for 60 days from receipt of notice. If notice is not given 60 days prior to the operational closure, the employee receives pay past the date of closure (or layoff) until reaching the 60-day requirement. Further, failure to notify local government in accordance with the provisions of the WARN Act may lead to court-ordered fines up to $500 per day for each day of violation (along with court costs and attorney’s fees).
• Note: The employer may generally avoid penalties if the entire amount owed to employees is paid within 3 weeks of the closing.
Exceptions from WARN Act Provisions
A few limited exceptions to the notice provisions of the WARN Act exist that allow an employer to give less than 60 days notice to protected employees. The primary exceptions are as follows:
• Strikes – An employee may execute a mass layoff and rehiring to replace employees who are striking, so long as such actions do not violate other labor laws.
• Refinancing – Exception to notice may be applicable if an entire business is failing and giving the required notice could disqualify or cause the business to not to be able to secure financing to continue operations.
• Force Majeure – If a natural disaster disrupts the business’s operations leading to a mass layoff.
These exceptions provide for fairness to the employer in the event of happenings that are beyond its control and the equities justify limiting the notice provided to protected employees.
What is the “Occupational Safety and Health Act”?
The Occupational Safety and Health Act (OSHA) was passed to regulate safety conditions for employees in the work places of private employers with 20 or more employees. The Occupational Safety and Health Administration is the federal agency charged with overseeing OSHA compliance. The agency develops rules and regulations concerning workplace safety, inspects business premises, fields and investigates complaints of hazardous conditions, and may take administrative and judicial actions for failure to comply.
• Note: Certain types of industries are exempt from regulation under OSHA due to regulation under other federal statutes. OSHA also allows for state programs that regulate industries pursuant to OSHA guidelines, which may also cover state or public employees. The state guidelines may be stricter and place additional requirements on the business beyond the OSHA guidelines.
The primary employer requirements under OSHA are as follows:
• Safe Work Environment – Employers must “furnish to each of his employees employment and a place of employment which are free from recognized hazards that are causing or are likely to cause death or serious physical harm to his employees.”
• Notification – Employers must inform employees of certain potential dangers of the workplace to which they are exposed.
• Right to Complain – Employees may report or file a complaint with OSHA regarding any non-compliance with OSHA provisions.
• Retaliation – Employers cannot retaliate against employees for exercising their rights or protections under OSHA.
Employees may file an OSHA complaint against the employer. Complaints alleging an imminent danger in the workplace are likely to result in an OSHA inspection. If there are issues of retaliation for filing an OSHA complaint, employees must file a retaliation complaint within 30 days of the violation. In the event of any OSHA violations, the OSHA inspector may refer the matter to the Department of Labor to investigate and potentially file suit against the employer. Employees cannot bring an action directly against the employer under OSHA.
What is the “Employee Retirement Income Security Act”?
The Employee Retirement Income Security Act (ERISA) was passed to protect employees’ rights with regard to pension, retirement, and other benefit plans offered or provided by employers. Portions of the plan are administered by the Department of Labor, the Internal Revenue Service, and the Employee Benefits Security Administration. Important provision of ERISA include:
• Disclosure and Reporting – Title I establishes disclosure and reporting requirements for sponsors of pension and benefit plans.
• Fiduciary Standards – The Act establishes fiduciary standards for administrators of pension and benefit plans.
• Insurance Benefits – Title IV requires certain employers to pay premiums to the Pension Benefit Guaranty Corporation, which is an insurance fund to secure certain retirement benefit plans.
Importantly, ERISA does not require employers to offer any particular benefits or pension plan; rather, it applies the above rules to employers who voluntarily provide such plans to employees.
Types of Pension Plans
There are two basic categories of pension plan covered under ERISA.
• Defined Benefit Plan – A defined benefit plan provides recurring payments to an employee upon retirement. The amount of payment is calculated using a formula based upon the years of service and the employee’s salary during a specified period prior to retirement. The payments generally continue for the remainder of the employee’ s life.
• Defined Contribution Plan – A defined contribution plan allows an employee to make contributions to a retirement account. The employer generally matches a portion of these contributions. The fund is invested to allow growth (often on a tax-free basis) until the time of retirement. The employee may then withdraw any amount of the funds at any time. Early withdrawal of retirement funds generally results in a penalty to the employee. The funds are taxed at the employee’s marginal tax rate at the time of withdrawal.
Employee Protections & Employer Requirements
The three primary protections afforded employees with defined benefit plans are as follows:
• Funding – An employer must adequately fund defined-benefit plans. Employers typically employ the services of actuaries to calculate the required amount of funding to meet future projected pension payment demands.
• Vesting – A pension plan must vest ownership in the employee within a specified time. That is, the employee becomes entitled to receive benefits under the pension plan after a specified period. The percentage or rate of benefit entitlement is calculated as a percentage of full benefits based on the period or length of employment.
• Guarantee – Employees pay premiums to the Pension Benefit Guaranty Corporation to insure the defined benefit plan against loss.
What is the Consolidated Omnibus Budget Reconciliation Act?
Consolidated Omnibus Budget Reconciliation Act (COBRA) was passed to protect employees from the loss of healthcare coverage in certain situations. Specifically, it allows an employee or an employee’s dependent who is a beneficiary under an employee’s healthcare plan to maintain health coverage when a qualifying event causes a loss of coverage. COBRA applies to employers with 20 or more employees.
• Note: Some states have passed “mini-COBRA” statutes to help an employee maintain coverage when the federal law does not apply.
Qualifying Events – A qualifying event is defined as:
• Death of a covered employee;
• Voluntary or involuntary termination, layoff, strike, reduction of hours, etc.;
• Divorce from a defendant beneficiary; or
• Dependent minor reaches an age of non-coverage under the employee’s plan.
Situations where an employee remains employed but voluntarily cancels healthcare coverage or when an employee loses coverage for not paying are not qualifying events.
Period of Employee Protection – COBRA allows the employee to purchase continuation coverage for the following periods:
• Up to 18 months under no extenuating circumstances,
• 29 months if a person is disabled, and
• 36 months in case of divorce or widow(er).
The continued coverage can be equal to the terminated plan or any form of lesser coverage. COBRA, however, does not allow for an increase in coverage.
What laws protect employees from discrimination in receiving health insurance coverage?
The Health Insurance Portability Accountability Act of 1996
The Health Insurance Portability and Accountability Act of 1996 (HIPAA) is a primary law protecting the rights of employees with regard to obtaining and continuing health insurance coverage. Specifically, HIPAA prohibits group health plans and health insurance providers from discriminating against employees based upon certain factors. A common practice when an individual applies for health insurance coverage is to examine the individual’s medical history for prior health conditions. The insurance provider will often limit coverage for pre-existing ailments and injuries. This situation becomes a major issue for someone who loses employer-provided, health insurance coverage when leaving her current employment. HIPAA seeks to remedy this situation by granting an employee who leaves one job the ability to continue her same level of health coverage under a subsequent health plan without being excluded for pre-existing conditions. The key requirement is that an individual must never have a considerable break in insurance coverage between canceling one plan and beginning another. If an individual has a break in coverage, the insurer can exclude pre-existing conditions present during the previous 12 months (18 months if a late enrollee in the new plan). For the above-stated reason, individuals losing their employer-provided health coverage must purchase interim insurance to continue coverage during the interim. Coverage is generally available pursuant to the Consolidated Omnibus Budget Reconciliation Act. If the employee maintains coverage, a subsequent insurer cannot exclude or limit coverage of an individual because of health status, medical condition or history, genetic information, or disability.
• Note: The insurer can, however, charge more for the entire plan – which is paid for by the group of employees. Small businesses may be disadvantaged by insurer practices, as they will charge higher rates for the small group policy due to the increased risk of loss by one group member becoming sick.
What are “Worker’s Compensation” laws?
Worker’s Compensation laws are either state or federal statutes designed to protect employees and their families from the risks of accidental injury, death, or disease resulting from their employment. It is a form of insurance for the employee that is paid for by the employer. Specifically, if an employee suffers an accidental injury in the course of performance of her work obligations, the administering worker’s compensation board or commission will pay the employee a pre-determined percentage of her wages during the period of temporary disability. The governing commission also administers claims and makes determinations as to the validity of claims for injuries allegedly suffered in the course of employment.
Worker’s compensation laws protect employers as well as employees. It assures that an employee will be compensated in the event of a work-related injury. This protects the employee from the consequences of working for an insolvent employer that may not be able to continue paying the employee or that may go out of business in the event the employee sues the employer. Worker’s compensation payments are generally the exclusive remedy available to the injured employee. That is, the employee cannot sue the employer unless the conduct of the employer that injured the employee was intentional.
• Note: The Federal Employee’s Compensation Act (FECA) establishes a worker’s compensation scheme for federal employees. The FECA program is administered by the Office of Workers’ Compensation Programs (OWCP). All states have statutes establishing similar plans and state-run commissions or boards to administer the program. Some states allow employers to self-insure for worker’s compensation claims, while other states require employers to make recurring payment to a state-funded, worker’s compensation plan. The premiums paid by employers are the funds used to compensate injured employees making worker’s compensation claims.
What are the “employee verification laws”?
The primary employment law concerning employee verification is the Immigration Reform and Control Act of 1986 (IRCA). The IRCA requires that all employers complete and retain Form I-9 Employment Eligibility Verification forms for each individual they hire in the US. These forms seek to verify that individuals are legally permitted to hold employment within the United States based upon their citizenship or immigration status. Generally, an employee must be a citizen, lawful permanent resident, or holder of a work visa to qualify to hold employment. The employer is required to examine the employment eligibility and examine the documents an employee presents to determine whether the document(s) reasonably appear to be genuine. The employer must retain these forms and information for 3 years after the date of hire or for one year after employment is terminated, whichever is later.
• Note: The new, federal E-verify program makes the I-9 employee verification process easier. An employer can enter an employee’s pertinent information and receive verification of employment eligibility.
What “worker privacy laws” apply to the workplace?
Two primary federal acts provide for rights of privacy of employees with regard to their personal communications.
• Electronic Communication Privacy Act (ECPA) – The ECPA prohibits the recording or monitoring of employee’s private conversations without the employee’s knowledge. That is, an employee has an expectation of privacy with regard to her personal communications in the workplace. As such, an employer cannot infringe upon an employee’s privacy by monitoring those communications. There are, however, several glaring exceptions to this rule.
⁃ Business Equipment – An employee has no right to privacy when employing the employer’s equipment to communicate.
⁃ Example: An employer can monitor employee communications, such as emails, chat logs, search history, etc., if done on a business computer, phone, copier, etc.
⁃ Security – An employer may undertake reasonable monitoring of employee conversations if done for purposes of security or operational quality. The best manner to comply with this law is to disclose to employees any monitoring of communications.
⁃ Example: An employer may have surveillance cameras in the workplace, but the ability to record audio is limited.
• Employee Polygraph Protection Act (EPPA) – The EPPA prohibits private employers from using a polygraph while screening job applicants. That is, an employee or prospective employee cannot be compelled to submit to a polygraph as a condition of employment. There are certain exceptions for current employees who may be the subject of inquiry or personnel in sensitive industries.
⁃ Example: In some instances, private security firms and firms that manufacture or sell controlled substances may subject employees or applicants to polygraph examination based upon the sensitive nature of the position.
• Drug Testing – Some states place limits on the ability of an employer to conduct drug tests of employees. These laws generally do not apply to job applicants.