This summary is subject to change without notice and does not cover all applicable laws. It sets a framework for enterprises considering becoming a user or provider of outsourced services. “Hot and emerging issues” are described at the end of this article.
Jurisdictional Competence. The U.S. federal Constitution permits multiple jurisdictions to enact and enforce laws governing employment. Thus, the Federal Department of Labor (“DOL”) administers and enforces more than 180 federal laws and implementing regulations. These mandates cover many workplace activities for about 10 million employers and 125 million workers. Each state, each county and each city has competence to enact labor laws as well. This summary is based primarily on federal law, which generally will cover most general situations.
General Legal Framework. Generally, state law adopts common law principles of master-servant relationships between an employer and an employee. Under such common law principles, employers may hire and fire employees “at will,” and employees may resign “at will,” without prior notice. However, termination of employment is illegal when based on an improper reason (such as discrimination of a member of a protected class).
Unions. Workers, acting by a majority have the right to be represented by unions pursuant to the National Labor Relations Act. The Labor-Management Reporting and Disclosure Act of 1959 (commonly called the “Landrum-Griffin Act”) deals with the relationship between a union and its members, establishing protections for union funds and promoting union democracy by requiring labor organizations to file annual financial reports, by requiring union officials, employers, and labor consultants to file reports regarding certain labor relations practices, and by establishing standards for the election of union officers.
Hours and Wage Computations. The Fair Labor Standards Act (“FLSA”) prescribes standards for wages and overtime pay for most private and public employment. The FLSA requires employers to pay covered employees, who are not otherwise exempt, at least the federal minimum wage and overtime pay of one-and-one-half-times the regular rate of pay. For nonagricultural operations, it restricts the hours that children under age 16 can work and forbids the employment of children under age 18 in certain jobs deemed too dangerous. For agricultural operations, it prohibits the employment of children under age 16 during school hours and in certain jobs deemed too dangerous.
Specially Protected Classes of Employees. Under the Federal Constitution and implementing “civil rights” laws, several classes of prospective, current and former workers are entitled to special protections.
Anti-Discrimination Laws. Several laws prohibit discrimination in hiring, promotion or termination of employment on the basis of one or more of the following classifications, regardless of the size of the enterprise employer:
- Race (CR-VII EO CR)
- Color (CR-VII EO CR)
- Religion (CR-VII EO CR)
- Sex (RCCR-VI CR (and in some cases sexual orientation))
- National origin (CR-VII EO CR)
- Religion
- Age over 40 years old
- Age (CR A)
- Military veteran status (V)
- Disabled status (CR D)
- Whistleblower status (WB)
- Political affiliation or belief (CR)
- Citizenship (CR)
A = The Age Discrimination in Employment Act of 1967 (“ADEA”) protects certain applicants and employees 40 years of age and older from discrimination on the basis of age in hiring, promotion, discharge, compensation, or terms, conditions or privileges of employment. The Age Discrimination in Employment Act of 1975 prohibits discrimination on the basis of age in programs and activities receiving federal financial assistance. The Act, which applies to all ages, permits the use of certain age distinctions and factors other than age that meet the Act’s requirements.
CR = Section 188 of the Workforce Investment Act of 1998 (WIA) prohibits discrimination against applicants, employees and participants in financially assisted programs and activities under WIA Title I.
CR-VI = Title VI of the Civil Rights Act of 1964 prohibits discrimination in programs and activities that receive federal financial assistance. Title IX of the Educational Amendments of 1972 prohibits discrimination in educational programs and activities that receive federal financial assistance.
CR-VII = Title VII of Civil Rights Act of 1964 prohibits discrimination in hiring, promotion, discharge, pay, fringe benefits, job training, classification, referral and other aspects of employment. The Immigration and Nationality Act prohibits employers (when hiring, discharging, or recruiting or referring for a fee) from discriminating because of national origin against U.S. citizens, U.S. nationals, and authorized aliens or discriminating because of citizenship status against U.S. citizens, U.S. nationals, and the following classes of a aliens with work authorization: permanent residents, temporary residents (that is, individuals who have gone through the legalization program), refugees, and asylees.
D = Section 503 of the Rehabilitation Act of 1973 prohibits discrimination in all aspects of employment for federal contractors and subcontractors where the disabled person is a qualified individual. Title I of the Americans with Disabilities Act (“ADA”) prohibits employers of 15 or more workers, employment agencies and labor organizations of 15 or more workers from discriminating against qualified individuals with disabilities. Title II of ADA prohibits such discrimination by State and Local governments as employers.
EO = Executive Order 11246 prohibits federal contractors and subcontractors from discrimination and requires affirmative action to ensure equal employment opportunity. Federal statutes that ensure non-discrimination in employment are generally enforced by the federal Equal Opportunity Employment Commission.
V = Vietnam Era Veterans Readjustment Assistance Act (“VEVRAA”) prohibits discrimination against and requires affirmative action for qualified special disabled veterans, as well as other categories of veterans. Under the Uniformed Services Employment and Reemployment Rights Act, certain persons who serve in the armed forces have a right to reemployment with the employer they were with when they entered service. This includes those called up from the reserves or National Guard.
WB = Occupational Health and Safety Act; Federal Mine Safety and Health Act of 1977; Federal Transit Law; Sarbanes-Oxley Act of 2002; American Recovery and Readjustment Act; Federal False Claims Act, as amended by Fraud Enforcement and Recovery Act of 2009 (P.L. 111-21) and other laws protect employees where the employee reports to enforcement authorities or suffers the alleged illegal actions of employers, such as violations of occupational safety and health regulations (especially in mining, transportation and construction), securities fraud, contract fraud in overcharging the federal government for goods or services, false statements by mortgage brokers and agents of mortgage lending businesses, false statements relating by recipients of economic relief or Troubled Asset Relief Program (“TARP”) funds or employer demands that an employee sacrifice any part of the employee’s compensation as a kickback to the employer or others.)
Family Medical Leave Act. The federal Family and Medical Leave Act (“FMLA”) requires employers of 50 or more employees to give up to 12 weeks of unpaid, job-protected leave to eligible employees for the birth or adoption of a child or for the serious illness of the employee or a spouse, child or parent. It does not apply to absences for the care of a sibling or an aunt or uncle.
Plant Closings and Mass Layoffs. Certain employers must give at least 60 days’ prior notice under the Worker Adjustment and Retraining Notification Act (“WARN”) Act to alert them to impending layoffs or plant closings. This statute is enforced through private action in the federal courts.
Reductions in Force. A “reduction in force” (“RIF”) may occur when an employer cuts back its activities. In any RIF, employers must take care to treat each individual employee’s case uniquely, and to ensure that the termination of employment meets any protections against discrimination.
Rights of Foreign Workers in the United States. Foreign citizens must have a visa that permits employment. Non-immigrant visa classifications include, for example, E-1/E-2 (treaty trader/treaty investor), L-1 (Intra-company transferee) and H-1 (specialized knowledge or experience) and O (outstanding ability) classes. Immigrants entitled to work are “lawful permanent residents” (“LPR’s, or “green card” holders) and are taxable as U.S. citizens. Generally, LPR’s are entitled to the same civil rights as U.S. citizens.
Compensation for Injuries on the Job. Employers must pay contributions to various funds to compensate employees injured on the job. Under state laws, unemployment insurance applies. Under federal laws, workers in maritime transportation, federal contractors involving exposure to radiation, federal employees and coal miners are entitled to various financial benefits for disability or death. See the Longshore and Harbor Worker’s Compensation Act, the Energy Employees Occupational Illness Compensation Program Act, the Ration Exposure Compensation Act, the Federal Employees’ Compensation Act and the Black Lung Benefits Act.
Termination for Cause. Each employment relationship may be terminated for cause. The “cause” that justifies such terminations typically is set forth in the terms of employment or an employment policies manual. Employment agreements protect the employee from termination, whether for cause or without cause. Typically, an employer has cause to terminate an employment for repeated unexcused absences, repeated insubordination or other actions that interfere with the workplace. In exceptional cases, employment may be terminated where the employee breaches the duty of loyalty by establishing a competing enterprise or abusing the employer’s trade secrets, under the doctrine of the “faithless servant.”
Restrictive Covenants. Employees have a duty of loyalty and thus cannot compete with their employers while employed. Most states permit an employer to restrict the employee from competing with the former employer after termination of employment, so long as the restrictions are reasonable in scope, territory and duration. Reasonableness is a question of fact in each case. Some states (notably California) do not enforce non-competition covenants after termination of employment unless the covenant is related to the sale of a business by the former employee or unless the employees pays additional consideration for the restrictive covenant. Other states (such as New York) allow a longer period of restriction where the covenant is related to a sale of the business.
Employee’s Rights after Termination of Employment. Employees are entitled to certain protections of their rights to certain benefits during and after termination of employments.
Welfare Benefit Plans. Employers are not legally required to offer medical insurance, profit sharing or pension or retirement plans. For those employers who offer pension or welfare benefit plans for their employees, the Employee Retirement Income Security Act (“ERISA”) regulates employers. Title I of ERISA is administered by the Employee Benefits Security Administration (“EBSA”) and imposes a wide range of fiduciary, disclosure and reporting requirements on fiduciaries of pension and welfare benefit plans and on others having dealings with these plans. These provisions preempt many similar state laws. Under Title IV, certain employers and plan administrators must fund an insurance system to protect certain kinds of retirement benefits, with premiums paid to the federal government’s Pension Benefit Guaranty Corporation (“PBGC”).
Medical Plans. Employees who were formerly employed by an employer who provided a group health care plan are entitled to continue such coverage for up to 18 months after termination of employment. Such employees must pay the insurance premiums for such continuation, pursuant to the Comprehensive Omnibus Budget Reconciliation Act of 1985 (“COBRA”) and the health care portability requirements on group plans under the Health Insurance Portability and Accountability Act (“HIPAA”).
Severance Payments (“Indemnities on Termination”). Generally, U.S. law does not require an employer to pay compensation for termination of employment. However, the WARN Act does require payment for services at least for 60 days upon a plant closing or mass layoff, whether or not the services are actually required. Further, employers are cognizant of the impact of terminations and generally offer some additional compensation upon termination, usually in exchange for a separation agreement that releases the employer from potential claims of discrimination. Separation agreements may also contain non-competition covenants to prevent the employee from competing with the former employer’s business.
Other Rights upon Termination. Employers must pay insurance premiums under State laws to cover the unemployment insurance benefits to employees whose jobs are terminated by the employer without cause.
International Agreements. The U.S. is a member of the United Nations, which is the governing body of the International Labor Organization in Geneva, Switzerland. The ILO’s role is not binding on member states.
Hot Emerging Issues. Under President Barack Obama, in 2009 two pending federal laws would dramatically alter the relationship between the employer and the employee.
Comprehensive Healthcare Legislation. Under the proposed America’s Affordable Health Choices Act of 2009, HR 3200, 111th Cong., 1st Sess., and other bills covering healthcare, health insurance plans would be required to guarantee coverage for all individuals and employers. Employers would be required to either adopt a health care plan for their employees or pay a penalty for not doing so. The burden of health care would thus fall primarily on the employer. Additionally, certain current health plans that are very beneficial to employees would be taxed an additional amount. This complex legislation (loosely dubbed “Obamacare”) has raised significant opposition from concerned citizens and will shape the next election for Congress and the Presidency.
Employee Free Choice Act (“Card Check” Law). Under the proposed “Employee Free Choice Act,” S. 560, 111th Cong., 1st Sess., secret ballot elections and other mandatory procedures for unionization (currently required) would not be required for unionization campaigns. Rather, it would be sufficient to have a majority of employees sign a petition to unionize. Employers would thus be subject to surprise campaigns for unionization, and employees would lose their privacy in making the decision whether, when and with whom to unionize. Employers would lose the right to negotiate the terms of the union contract and would be forced to accept an “arbitration” that is binding upon the parties for a period of 2 years, unless amended during such period by written consent of the parties. A union contract could prevent or limit subcontracting of any work, thus preventing or limiting possible outsourcing.
For related topics:
See Social Security Tax Agreements: The Cost of Expatriate Workers.
Updated: September 28, 2009