GPSolo Magazine - April/May 2004

Employer-Employee Issues:
Eight Danger Areas

Unless a business client is a sole proprietor or very small partnership, chances are good that the client has employees. If you are advising such a business client, at some point you will have to address employment and labor issues.

Many laws, such as those for wages and safety, apply to all employees, and employers are required to comply with the laws and to keep accurate records. In addition, particular employees may be in one or more of the myriad groups of people who are protected against discrimination under federal and/or some state laws. The protected classifications may include age, race, creed, religion, color, disability, marital status, gender, pregnancy, national origin, ancestry, sexual orientation, having an arrest or conviction record, engaging in protected concerted activity or whistle-blowing, citizenship, taking family/medical leave, the use or non-use of legal substances, and the results of lie-detection or genetic testing.

You must be able to recognize potential problem areas in employment and labor laws and be prepared either to advise your clients how to stay out of trouble or to refer them to someone who can provide that advice. Given the complexity of the laws in this area, you may find it helpful to develop a referral relationship with a boutique firm that limits its practice to employment and labor law. In lieu of this, the following overview of common issues may aid you in covering the basics.

Identifying Employees

One of the first things an employer must do is identify exactly which individuals in a workplace are considered “employees.” This might seem obvious, but the definition of “employee” can vary markedly from one statute to another.

For example, the Occupational Safety and Health Act (OSHA) and other laws provide the redundant explanation that an employee is “an employee of an employer who is employed in a business of his employer which affects commerce.” At the opposite extreme is the Family and Medical Leave Act (FMLA), which defines an employee in far more detail (see sidebar “Family and Medical Leave Act: Partial Definition of ‘Employee,’” page 20), starting with any person who is on an employer’s payroll and including individuals who are laid off, on leave, or on suspension but expected to return to work for that employer.

The Americans with Disabilities Act (ADA), which applies to employers with 15 or more employees during 20 or more calendar weeks in the current or preceding year, uses a definition similar to OSHA’s: an individual employed by an employer. In Clackamas Gastroenterology Associates v. Wells, 123 S. Ct. 1673 (2003), the U.S. Supreme Court ruled that such a definition was circular and explained nothing. To determine whether shareholders and directors of a professional corporation are counted as employees under the ADA, the Court held that the question should be resolved according to common-law elements of control, including whether the person has the ability to hire and fire; reports to or supervises others; and shares in profits, losses, and liabilities of the company.

Eight Common Employer Errors

Assuming your client has employees as defined in one or more state or federal laws, your next task is to alert the company to possible mistakes it may make in dealing with its workforce. Several potential pitfalls are discussed individually below (although in the real world, many of these issues overlap).

1. Employment at will. Virtually all states recognize the employment-at-will concept, which means either the employee or the employer is free to end the employment relationship at any time, with or without cause, as long as the reason is not illegal. Many states recognize exceptions to this rule, the most common being terminations in violation of public policy. Depending upon the state, the relevant “policy” may be found in statutes, court decisions, administrative regulations, or general concepts of the common good. This can make challenges to such terminations extremely complicated.

Another common exception to employment at will involves actual or implied contracts. Actual employment contracts usually are verifiable, but “contracts” can be implied from employee handbooks, company policies, or even verbal assurances of “permanent” employment as long as employees adequately perform their duties.

A third exception, embraced by only a small minority of states, is the “good faith and fair dealing” exception, which essentially incorporates the “good faith” principle into every employment relationship. In those states, an employer must have what amounts to just cause for terminating a worker.

One final point: Be sure you have a clear understanding of the employment-at-will standard in each state where your client company has employees. As a practical matter, employers typically do not fire employees for no reason. Therefore, even if a state strictly adheres to the employment-at-will standard, the employer should inform every employee, in writing, of the reason for the termination. That simple step can help provide a strong defense to later allegations of discrimination or other illegal motive.

2. Labor laws in nonunion workplaces. One of the most insidious laws for employers and those who advise them is the group of statutes commonly referred to as the National Labor Relations Act. Most employers whose workers are represented by unions are aware of the labor laws’ basic requirements, such as no individual negotiations with employees, collective bargaining for new contracts, and addressing employee complaints through the contractual grievance process.

Employers who do not have unions often unwittingly violate labor laws, sometimes with serious consequences. For example, employers are limited in what they can say and do during a union organizing drive. A wrong move can result in the company’s becoming unionized even if the employees would not have voted for the union.

Both union and nonunion employees also are protected by labor laws if two or more employees act together for the common good of the employees or if one employee is a spokesperson for other employees. An employer who takes disciplinary or other adverse action against such employees risks the intervention of the National Labor Relations Board, which can lead to prolonged and expensive litigation.

Another example of labor law protection for both union and nonunion employees are Weingarten rights, derived from a Supreme Court decision that employees have the right to another employee’s presence when being interviewed about something that could lead to disciplinary action. Where unions are involved, the other employee often is a union steward, but even nonunion employees can have another employee present. This does not mean, however, that the employee has the right to an attorney or to the union’s business agent if the agent is not an employee of the company.

3. Wage and hour issues. Employers may easily make a variety of wage-related errors, such as following federal minimum wage standards in states that mandate a higher minimum wage. One of the most common wage errors comes from the belief that any salaried employee is exempt from overtime and minimum wage requirements. In order to be exempt, an employee’s job duties must fall within one of five categories: professional, executive, administrative, outside sales, or some computer technologies. The Department of Labor proposed new rules for these categories in March 2003, but they continue to face stiff opposition in Congress.

Another common wage-related error is paying employees for only their scheduled work hours even if the employer is aware that employees often begin or end their work duties beyond the scheduled hours. Still another error is allowing employees to accumulate “compensatory (comp) time” instead of paying them for overtime. In many states, comp time is permitted only within the same workweek unless the employer is a government entity and comp time has been addressed in a collective bargaining agreement between the government entity and the employees.

4. Hiring, retention, firing, and references. Naturally, companies want to hire capable, reliable employees who will work hard for reasonable compensation, but employers must be scrupulous in not appearing to discriminate in hiring and firing decisions. Courts and administrative agencies such as the Equal Employment Opportunity Commission and its state equivalents deal with thousands of discrimination and harassment claims every year.

Business clients must develop and carefully follow policies detailing the steps of hiring, investigating, and terminating employees—and document, document, document! If your client chooses applicant A over applicant B for the sales position because A looked each interviewer in the eye as she spoke, was neatly dressed, and seemed to be at ease, whereas B looked everywhere but at the interviewers, seemed nervous, and wore inappropriately casual clothes, these facts should be noted. Your client will be grateful for your insistence when B later files a claim that he was not hired because of his [insert one or more protected classifications].

Recently the Supreme Court addressed firing and rehiring to determine whether an employer’s policies in these areas violated the Americans with Disabilities Act. In Raytheon Co. v. Hernandez, No. 02-749 (Dec. 2, 2003), an employee fired after a positive drug test applied for reemployment two years later, after completing a rehabilitation program. The company refused to hire him based solely upon its strict policy against rehiring former employees who were fired or who quit in lieu of discharge. The Court held that the company’s no-rehire policy was a “quintessential legitimate, nondiscriminatory reason for refusing to rehire an employee who was terminated for violating workplace conduct rules.”

If an employee creates a hostile or dangerous workplace, the employer must terminate the employee in self-defense. Unfortunately, the employer then must maneuver between a rock and a hard place in responding to requests for references regarding that employee, on one side risking a defamation claim from the former employee, and on the other side risking a failure-to-warn claim from a future employer or third party alleging that a death or serious injury might have been prevented had the terminating employer given accurate reference information. To minimize these hazards, the terminating employer should respond only in writing and only to written reference requests, and should include only information that is accurate and can be substantiated.

5. Discrimination and harassment laws. Depending upon the jurisdiction, employers may be subject to many more state laws than federal laws. For example, most federal discrimination laws apply only to companies with 15 or more employees, but state laws may apply if a business has even one employee. Many states also have employee discrimination protections that are in addition to and/or more specific than federal safeguards.

Be sure your clients correctly interpret current discrimination standards. Discrimination laws no longer protect only obvious racial or gender differences. Courts often find that protections apply if the decision or action in question was based on one of the less familiar classifications listed at the start of this article. As a result, a white man under 40 may be protected under the discrimination laws if he was not hired because of his sexual orientation, arrest record, or national origin. Even the more familiar classifications such as age, race, and gender can result in a reverse discrimination case—say this man was not hired because the employer preferred a woman, or an African American, or a person over 40. In fact, the other categories can themselves yield reverse discrimination suits—say this man was not hired because he was not a homosexual.

The U.S. Supreme Court currently is considering whether the Age Discrimination in Employment Act (which applies to employers with 20 or more employees) prohibits reverse discrimination—in this case, giving younger employees fewer benefits than older employees. In General Dynamics Land Systems v. Cline, 124 S. Ct. 367 (Apr. 21, 2003), employees over 50 years old were given full health insurance benefits upon retirement, while those under that age received only partial benefits.

6. Safety requirements. Employers must provide a safe work environment, supply or require employees to provide safety equipment, and ensure that safety policies are followed and equipment is properly used. OSHA has issued both general safety standards and specific standards for certain industries and activities. It also requires that material safety data sheets on all toxic or caustic substances are available in the workplace and accessible to employees. Be sure your clients are aware of all applicable OSHA and state safety requirements, establish clear safety policies, communicate them to employees, and strictly enforce the policies.

OSHA can and does appear at workplaces to conduct inspections without prior notice. Employers can insist that agency representatives have a warrant, but doing so typically only delays the inevitable. Once on the premises, OSHA agents can and will issue citations for any violations. Be prepared to advise employers about their legal rights if OSHA comes to call.

7. Privacy issues. Many aspects of the modern workplace give rise to employee privacy concerns: security cameras; telephone, e-mail, and Internet monitoring; drug or alcohol tests; and searches of lockers, desks, briefcases, duffle bags, handbags, and even automobiles. Some practices, such as intercepting wire or electronic communications, are subject to federal and state laws that limit the degree of monitoring allowed.

Depending upon the type of business and other factors, employers often can forestall privacy violation claims simply by informing employees that the monitoring, testing, or search may occur. This can be done during the hiring process and in the employee handbook and reinforced through posted policy statements. Work with clients to ensure their security policies and practices intrude upon employee privacy only to the degree necessary to protect the employer’s interests.

8. Family and Medical Leave Act (FMLA). The FMLA causes great confusion for many employers. Lengthy and complicated regulations coupled with often-conflicting state laws make employee FMLA claims a source of many employer headaches. For example, using the correct forms is not a given—federal forms may differ significantly from those allowed or required under state law, and state forms and policies may differ from one another as well.

The FMLA maxim for resolving conflicts between state and federal law is to apply whichever law gives the greatest rights to the employee. This could have a big impact on a business with branches in several states if the proper requirements for each are not being enforced. In addition, business clients should check that their own policies and procedures concerning leaves of absence, sick and disability leaves, and vacations mesh with the guidelines established in the state and federal laws.

Representing business clients requires familiarity with applicable federal and state laws that affect employees and the employer-employee relationship. If you do not feel qualified to tackle this aspect of practice yourself, your clients will appreciate your recognizing the potential problem and referring them to someone with expertise in employment and labor law.

Marna M. Tess-Mattner is a shareholder at Brigden & Petajan, S.C., in Milwaukee, Wisconsin, with a practice limited to management employment and labor law. She can be contacted at


Family and Medical Leave Act: Partial Definition of “Employee”

(b) Any employee whose name appears on the employer’s payroll will be considered employed each working day of the calendar week, and must be counted whether or not any compensation is received for the week. However, the FMLA applies only to employees who are employed within any State of the United States, the District of Columbia or any Territory or possession of the United States. Employees who are employed outside these areas are not counted for purposes of determining employer coverage or employee eligibility.

(c) Employees on paid or unpaid leave, including FMLA leave, leaves of absence, disciplinary suspension, etc., are counted as long as the employer has a reasonable expectation that the employee will later return to active employment. If there is no employer/employee relationship (as when an employee is laid off, whether temporarily or permanently) such individual is not counted. Part-time employees, like full-time employees, are considered to be employed each working day of the calendar week, as long as they are maintained on the payroll.

(d) An employee who does not begin to work for an employer until after the first working day of a calendar week, or who terminates employment before the last working day of a calendar week, is not considered employed on each working day of that calendar week.

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