Employment Law Guide - USA
1 What terms govern the employment relationship? In particular:
1.1Is a written employment contract or statement of employment terms required?
A written employment contract is not required. In most states, the employment relationship is presumed to be ‘at-will’ and may be terminated for any reason (other than for an unlawful reason), with or without cause or notice, at any time by the employee or the employer.
However, upon hire, and in some cases annually, certain states require that employers must provide each employee with written notice of: the name of the employer; the address and telephone number of the employer ‘main office; the employee ‘pay rate and the basis of pay (i.e. hourly, day, week, salary, commission, etc.); the employee‘s overtime pay rate (if applicable); and the regular date upon which the employee will be paid.
1.2 Are there any terms implied by law into the employment contract?Into every contract, there is an implied covenant of good faith and fair dealing. Otherwise, the terms of the employment relationship are governed by the terms of the individual employment contract or offer of employment.
1.3 Are collective agreements with trade unions or employee representatives common (generally or in specific industries)?Employees in the United States have the right to: self-organisation; form, join, or assist labour organisations; bargain collectively through representatives of their own choosing; and engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.
An employer is required to bargain in ‘good faith’ with the certified labour organisation representing the employees. Collective bargaining can be divided into three separate areas: the duty to meet and confer; the duty to bargain in good faith; and the duty to cover certain subjects. The employer is not required to agree to any particular contract provision, no matter how reasonable or fair it appears to the union. However, refusing to meet at reasonable times; refusing to discuss grievances; refusing to discuss wages, benefits, or other mandatory subjects of bargaining; ‘take it or leave it’ bargaining; or attempts to make deals behind the backs of the negotiating committee would be unfair labour practices.
In 2010, the amount of salaried workers who were members of a union, was 11.9% (approximately 14.7 million), which was down from 12.3% a year earlier. The union membership rate for public sector workers (36.2%) was substantially higher than the rate for private sector workers (6.9%). Within the public sector, local government workers had the highest union membership rate, at 42.3%. This group includes workers in heavily unionised occupations, such as teachers, police officers, and fire fighters.
Private sector industries with high unionisation rates included transportation and utilities (21.8%), telecommunications (15.8%), and construction (13.1%). Sales and related occupations (3.2%) and farming, fishing, and forestry occupations (3.4%) had the lowest unionisation rates. Among states, New York had the highest union membership rate (24.2%) and North Carolina had the lowest rate (3.2%).
2 Is there a minimum wage? If so, please give details, in particular whether it applies to all employees, regardless of their age and experience.Pursuant to the Fair Labour Standards Act, employees are generally entitled to be paid a minimum of $7.25 per hour. However, the Act does not apply to all employers or employees. For example, the Act only applies to enterprises with employees who engage in interstate commerce; produce goods for interstate commerce; or handle, sell, or work on goods or materials that have been moved in or produced for interstate commerce.
Additionally, most businesses are only covered by the Act if they have an annual turnover of more than $500,000. However, the Act will cover the following regardless of their annual turnover: hospitals; institutions primarily engaged in the care of the sick, aged, mentally ill, or disabled who reside on the premises; schools for children who are mentally or physically disabled or gifted; preschools, elementary and secondary schools, and institutions of higher education; and federal, state, and local government agencies. The Act also covers domestic service workers, such as day workers, housekeepers, chauffeurs, cooks, or full time babysitters, if they receive at least $1,700 in cash wages from one employer per calendar year, or if they work a total of more than eight hours a week for one or more employers.
The Act provides for an exemption from the minimum wage for some employees. However, the exemptions are narrowly defined so employers should carefully check the terms and conditions for each exemption.
Youths under 20 years of age may be paid a lower minimum wage of $4.25 per hour during the first 90 consecutive calendar days of employment with an employer. Employers of tipped employees (i.e. employees who customarily and regularly receive more than $30 a month in tips) may consider such tips as part of their wages, but employers must pay a wage of at least $2.13 per hour if they claim a tip credit. They must also meet certain other requirements.
States can (and many have) set higher minimum wages. When the Fair Labour Standards Act and a state law apply, the higher minimum wage must be observed.
3 Are there restrictions on working hours? If so, please give details.Federal law does not limit either the number of hours in a day or the number of days per week that an employer may require an employee to work, provided the employee is at least 16 years old. Similarly, the Fair Labour Standards Act does not limit the number of hours of overtime that may be scheduled. However, the Act requires employers to pay covered employees at least 1¬Ω times their regular rate of pay for all hours worked in excess of 40 per workweek, unless the employees are otherwise exempt. Many states have restrictions on working hours. For example, state laws often require non-exempt employees take meal and rest periods.
4 Is there a minimum holiday entitlement? If so, please give details. How many public holidays are there in a year and are they included in the minimum holiday entitlement?There is no minimum holiday entitlement for employees of private employers. Certain government employees are entitled to a minimum holiday entitlement. In some states, if a private employer has a policy of providing employees with paid time off for holidays or vacation time, that time becomes vested as it accrues and employers are required to pay the employee for accrued but unused holiday or vacation time upon termination of employment, regardless of which party terminated the employment relationship and the reason for the termination.
5 What rights do employees have to time off in the case of illness or injury? Is that time off paid? Can an employer recover from the state sick pay granted to its employees?Under federal law and under most state laws, there is no requirement that employers provide paid time off in the case of illness or injury. The Family and Medical Leave Act (FMLA) provides certain employees with up to 12 weeks‘ unpaid, job-protected leave per year. It also requires that their group health benefits be maintained during the leave.
FMLA applies to all public agencies, all public and private elementary and secondary schools, and companies with 50 or more employees. Eligible employees may take up to 12 weeks‘ unpaid leave each year for any of the following reasons:
• for the birth and care of the new-born child of an employee;
• for the placement of a child for adoption or foster care with the employee;
• to care for an immediate family member (spouse, child, or parent) with a serious health condition; or
• when the employee is unable to work due to a serious health condition.
Employees are eligible for leave if they have worked for their employer for at least 1,250 hours over the past 12 months and work at a location where the company employs 50 or more employees within a 75 mile radius. Whether an employee has worked the minimum 1,250 hours of service is determined according to Fair Labour Standards Act principles for determining compensable hours or work.
Time taken off work due to pregnancy complications can be counted against the 12 weeks of family and medical leave. Many states have separate statutes that provide for unpaid disability leave in connection with pregnancy or childbirth. State statutes may also apply to employers with less than 50 employees and the eligibility requirements are often much less rigorous.
Additionally, the National Defence Authorisation Act (NDAA) amended and expanded the FMLA to permit a spouse, son, daughter, parent, or next of kin to take up to 26 workweeks‘ unpaid leave to care for a member of the Armed Forces who is undergoing medical treatment, recuperation, or therapy, is otherwise in outpatient status, or is otherwise on the temporary disability retired list, for a serious injury or illness.
The NDAA also permits an employee to take FMLA leave for certain qualifying exigencies arising out of the fact that the spouse, son, daughter, or parent of the employee is on active duty (or has been notified of an impending call or order to active duty) in the Armed Forces.
6 What are the statutory rights of employees who are parents or carers (including those of disabled children and adult dependants)? How is employee’ pay affected during periods of leave?
Under federal law and most state laws, there is no requirement that employers provide paid time off to parents or carers, to care for family members, including spouses, children or parents. However, if the employee is eligible for FMLA leave (discussed in question 5 above), the employee does have certain statutory rights with respect to health insurance coverage and job security.
A covered employer is required to maintain group health insurance coverage for an employee on FMLA leave when such insurance was provided before the leave was taken and on the same terms as if the employee had continued to work. If applicable, arrangements will need to be made for employees to pay their share of health insurance premiums whilst on leave. In some instances, the employer may recover premiums it has paid in order to maintain health coverage for an employee who fails to return to work from FMLA leave.
Upon return from FMLA leave, an employee must be restored to the employee’s original job, or to an equivalent job with equivalent pay, benefits, and other terms and conditions of employment. An employee’s use of FMLA leave cannot lead to in the loss of any employment benefit that the employee earned or was entitled to before using FMLA leave, nor be counted against the employee under a ‘no fault ‘ attendance policy. If a bonus or other payment, however, is based on the achievement of a specified goal such as hours worked, products sold, or perfect attendance, and the employee has not met the goal due to FMLA leave, payment may be denied unless it is paid to an employee on equivalent leave status for a reason that does not qualify as FMLA leave.
An employee has no greater right to restoration or to other benefits and conditions of employment than if the employee had been continuously employed.
7 Does a period of continuous employment create benefits for employees?While there is no requirement that U.S. employers provide benefits to their employees, employers use employee benefits as a means to attract and retain qualified personnel. As a result, the majority of employers provide employees with benefit packages that, at a minimum, encompass medical and/or dental insurance, paid time off (i.e. sick time or vacation time), or participation in a retirement plan. Generally, in order to be eligible to participate in such plans an employee must satisfy certain eligibility criteria, such as having been employed for a specified number of months or having worked for a specified number of hours.
Additionally, in the retirement plan context, participants earn their right to (or vest in) employer provided benefits gradually over a number of years. For example, a defined contribution retirement plan might provide that a participant vests in employer matching contributions after the employee has completed one year’s service at a rate of 25% per year. It is important to note that a participant is always 100% vested in all amounts contributed by the participant to the plan.
7.1 If individual employees are transferred to a new entity, are they deemed to retain their period of continuous employment?Generally, the structure of the deal will dictate what happens to employee benefit plans and plan liabilities. For example, in a stock sale or a merger of a seller into a buyer (or buyer acquisition subsidiary), the buyer steps into the shoes of the seller and generally assumes the seller’s employee benefit plans and plan liabilities as a matter of law. Employees of the seller become employees of the buyer and as a result all service credits transfer by operation of law.
On the other hand, in an asset sale, unless a buyer affirmatively adopts or continues a seller’s plans, the buyer usually does not assume any plans or plan liabilities. In contrast, in an asset transaction the seller’s employees do not automatically transfer to buyer, and buyer can determine whether it wants to hire seller’s employees. Service credit does not automatically transfer by operation of law, but must be specifically negotiated. Typically, where the seller’s benefits are as or more generous than those of buyer, the seller will ask for benefits substantially similar to those that the transferring employees had. Most buyers will not agree to this, but they usually will agree that transferring employees will be given benefits substantially similar to those of a similarly situated employee of buyer.
The assumption of liabilities, whether by operation of law or through negotiation, underscores the need for comprehensive due diligence prior to entering into a business transaction.
8 To what extent are temporary and agency workers entitled to the same rights and benefits as permanent employees?In the United States there is a distinction between full-time and part-time employees, as well as temporary and seasonal employees. Another important distinction is whether an employee is classified as exempt or non-exempt. Proper classification of an employee is important because it determines the applicability of federal and state labour laws. For example, both ERISA and the Internal Revenue Code permit employers to exclude independent contractors, temporary employees, and part-time employees (provided they work less than 1,000 hours per plan year) from participation in employee benefit plans. Also, as stated below, employees classified as exempt are exempt from the overtime pay requirements of the Fair Labour Standards Act.
Most states define part-time employees as those who work less than 35 hours per week, compared to full-time employees who typically work 40 hours or more. Part-time employees are typically paid on an hourly basis, and must comply with company rules, policies, and obligations, such as performance goals, safety rules, and company business practices. However, part-time employees generally have limited or no company benefits, such as health benefits, vacation and sick time, paid holidays, and unemployment compensation, among others, unless required by state labour laws and/or company policies.
Under federal laws, part-time employees are treated the same as full-time employees under the Fair Labour Standards Act (FLSA) in relation to minimum wage, overtime pay, recordkeeping and child labour. In addition, part-time employees are covered under the Occupational Safety and Health Administration’s policies concerning work-related injuries, illnesses and occupational fatalities. Under the Employee Retirement Income Security Act (ERISA), part-time employees who work 1,000 hours or more during a calendar year may be eligible for retirement benefits.
Temporary employees are typically hired to cover for absent employees (such as those who are on maternity or disability leave) and temporary vacancies, or to fill gaps in a company's workforce, and may be hired on a full or part-time basis. Temporary employees may be hired directly or through a temporary staffing agency, in which case the individual is leased to the staffing company and not an employee of the company that uses its services. Temporary employees typically are not eligible for benefits provided by the company in which they are placed; although some temporary agencies offer health care and other benefits to their temporary employees.
Generally, seasonal employees are hired to work on a part-time basis by companies that need extra help during a particular season, typically the Christmas season.
Exempt vs. Non-exempt
For most employees, whether they are exempt or non-exempt depends on (a) how much they are paid, (b) how they are paid, and (c) what kind of work they do. With a few exceptions, to be exempt, an employee must (a) be paid at least $23,600 per year ($455 per week), and (b) be paid on a salary basis, and also (c) perform exempt job duties. These requirements are outlined in the Fair Labour Standards Act Regulations (promulgated by the U.S. Department of Labour). Most employees must meet all three ‘tests’ to be exempt. Non-exempt employees are entitled to overtime pay. Exempt employees are not.
9 What statutory data protection rights do employees have?Several federal and state statutes provide employees with protection against discrimination or harassment in the workplace. The federal statutes include:
• Fair Credit Reporting Act governs what an employer can do with consumer credit information gathered about employees. If an employer wants to use a consumer report to make a hiring, retention, or promotion decision, it must first notify the employee or applicant in writing that a credit report may be requested and obtain written consent. In each case where information in the report influences the employer ‘decision to deny promotion or employment, the employer must provide the employee or applicant with pre-adverse action disclosure. The employee or applicant also must receive an adverse action notice once the employer has decided to deny promotion or employment.
• Electronic Communications Privacy Act (‘ECPA‘) enacted in 1986 by Congress, extends the federal wiretapping act to electronic communications. The federal wiretapping act now prohibits the interception of wire, verbal, or electronic communications except in limited circumstances. While federal law allows an employer to intercept the communications of its employees if it is done on equipment provided by the employer and for a legitimate business reason, employers must limit monitoring and taping to business-related communications and may violate the wiretapping act if personal calls are intercepted, especially where employees have been allowed to use business telephones to make and receive personal calls. The Stored Communications Act (SCA), which was enacted as part of the ECPA, protects the privacy of the contents of files stored by service providers and of records held about the subscriber by service providers, such as subscriber name, billing records, or IP addresses.
• Health Insurance Portability and Accountability Act of 1986, also known as ‘HIPAA‘) prohibits covered health plans from using or disclosing individually identifiable health information without a HIPAA-compliant authorisation from the patient or health plan participant. Individually identifiable health information is health information, including demographic information, which relates to an individual’s physical or mental health or the provision of or payment for health care, and which identifies the individual.
• The Financial Modernisation Act of 1999, also known as the ‘Gramm-Leach-Bliley Act‘ generally does not extend to corporations and their employees with respect to the issuance of equity securities.
From a state law perspective it is likely that a company would violate state privacy laws if it were to publicly disseminate its employees’ personal financial data. In the majority of states, the parent company and the local employer would be required to notify the employee upon discovery of a breach of the security of the data. Many states require that employers notify employees if their personal information was, or is, reasonably believed to have been acquired by an unauthorised person. Personal information may include any information that links a person ‘name to sensitive information such as, but not limited to, social security number, driver’s license number, medical information, or credit card or other financial information. Note that these statutes vary significantly by state, and companies with U.S. employees should consult with an attorney to determine what rules apply. Employees may also have a state common law claims for tortious invasion of privacy. Employers are often able to defeat electronic privacy claims if they adopt and effectively communicate policies that minimise or eliminate expectations of privacy.
The European Union Directive on Data Protection, which took effect in October 1998, prohibits the transfer of personal data to non-European Union nations that do not meet the European ‘adequacy’ standard for privacy protection. Because the European Parliament determined in July 2000, that U.S. privacy protections did not meet the ‘adequacy’ standard, it is illegal to transfer personal data from the European Union to companies in the United States, unless the companies assure adequate protection, either by joining the Federal Trade Commission’s Safe Harbour program or by submitting individual contracts to European data protection authorities for review and approval.
To qualify for the Safe Harbour, an organisation can either join a self-regulatory privacy program that adheres to, or develops its own self-regulatory policy that conforms to, the Safe Harbour’s seven principles. Those principles require that an organisation (1) notify individuals about the purposes for which they collect and use information about them; (2) give individuals the opportunity to choose whether their personal information will be disclosed to a third party; (3) ensure that third parties to which they transfer information also comply with Safe Harbour principles; (4) provide individuals with access to personal information regarding them that is held by the organisation; (5) take reasonable precautions to protect personal information; (6) take reasonable steps to ensure that data is reliable for its intended use; and (7) ensure compliance with Safe Harbour principles by establishing reporting and enforcement procedures.
10 What protection do employees have from discrimination or harassment, and on what grounds?Numerous federal and state statutes provide employees protection against discrimination or harassment in the workplace. The federal statutes include:
• Equal Pay Act prohibits discrimination on the basis of sex in the payment of wages or benefits, where men and women perform work of similar skill, effort and responsibility for the same employer under similar working conditions. Virtually all employers are subject to this Act.
• Title VII of the Civil Rights Act of 1964 (Title VII) makes it unlawful to discriminate against or harass a person because of his/her race, colour, religion, sex or national origin with respect to any term, condition, or privilege of employment, including hiring, firing, promotion, layoff, compensation, benefits, job assignments and training. Title VII prohibits not only intentional discrimination but practices that have the effect of discriminating against persons because of their race, colour, national origin or sex. Title VII applies to all private employers, state and local governments, education institutions, public and private employment agencies and labour organisations having 15 or more employees.
• Sexual harassment is a form of sex discrimination that violates Title VII. Unwelcome sexual advances, requests for sexual favours, and other verbal or physical conduct of a sexual nature constitute sexual harassment when this conduct explicitly or implicitly affects and individual’s employment, unreasonably interferes with an individual’s work performance, or creates an intimidating, hostile or offensive work environment.
• Pregnancy Discrimination Act amended Title VII, specifying that unlawful sex discrimination includes discrimination based on pregnancy, childbirth, and related medical conditions.
• Age Discrimination in Employment Act (ADEA) prohibits employers with 20 or more employees from discriminating against employees who are 40 years or older on the basis of age. In addition to those practices prohibited by Title VII, the ADEA prohibits statements or specifications in job notices or advertisements of age preference or limitations. The ADEA also contains explicit guidelines for benefit, pension and retirement plans.
• Americans with Disabilities Act of 1990 (ADA) prohibits discrimination based upon an employee’s physical or mental impairment which substantially limits one or more major life activities (i.e. a disability), an employee’s record of having a disability or an employee being regarded as having a disability, whether the employee actually has a disability or not. The ADA places an affirmative requirement on employers to reasonably accommodate a disabled employee in the performance of his or her job, unless the employer can show that this will result in undue hardship on the operation of the employer’s business. The ADA applies to all private employers, state and local governments, education institutions, public and private employment agencies and labour organisations with 15 or more employees.
• Rehabilitation Act of 1973 prohibits employment discrimination on the basis of disability by the federal government, federal contractors with contracts of more than $10,000, and programs receiving federal financial assistance.
• Genetic Information Non-discrimination Act of 2008 (GINA) bars employers from using an individual’s genetic information when making hiring, firing, job placement, or promotion decisions. GINA applies to all private employers, state and local governments, education institutions, public and private employment agencies and labour organisations with 15 or more employees.
• Bankruptcy Reform Act of 1978 prohibits private employers from terminating the employment of, or discriminating with respect to employment against, individuals on the basis of bankruptcy or bad debts.
• Immigration Reform and Control Act of 1986 prohibits employers with more than 3 employees from discriminating against anyone (except an unauthorised immigrant) on the basis of national origin or citizenship status.
11 Do whistle-blowers have any protection? If so, please give details.A whistle-blower is someone who reports to an employer, a regulatory body, or an oversight or review authority, the violation of a regulation, standard, or ethical obligation. Federal and state laws exist that provide whistle-blower protections for individuals who have been retaliated against because they have reported wrongdoing. Whistle-blower protections are embedded in the various federal statutes.
For example, the False Claims Act has one of the strongest whistle-blower protection provisions in the United States. ‘Qui tam’ under the False Claims Act, allows persons and entities with evidence of fraud against federal programs or contracts to sue the wrongdoer on behalf of the United States Government. In Qui tam actions, the government has the right to intervene and join the action. If the government declines, the private plaintiff may proceed on his or her own. Under Section 3730(h) of the False Claims Act, any employee who is discharged, demoted, harassed, or otherwise discriminated against because of lawful acts by the employee in furtherance of an action under the Act is entitled to all relief necessary to make the employee whole. Such relief may include: reinstatement, double back pay, or compensation for any special damages including litigation costs and reasonable attorneys' fees.
Further at the federal level, section 806 of the Sarbanes-Oxley Act of 2002 provides a cause of action that safeguards employees of public companies who provide information regarding, or assist in the investigation of: many types of fraud (including mail, wire, bank, and securities fraud); violation of Securities and Exchange Commission rules; or violation of any federal statute pertaining to fraud against shareholders. When engaged in a protected act, the employee cannot be discharged, demoted, suspended, threatened, harassed or in any other manner discriminated against in the terms and conditions of employment. If retaliatory action has been taken against the employee, they are entitled to file a complaint with the Department of Labour to seek the benefits of these safeguards.
An even broader provision of protection for whistle-blowers comes under section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Whereas Sarbanes-Oxley regulations relate exclusively to shareholder protection, under Dodd-Frank, many courts have held whistle-blower’s allegations need not be related to shareholder protection. Dodd-Frank also incentivises whistle-blower activity, in that in addition to anti-retaliation protections, if a whistle-blower provides ‘information relate[d] to a possible violation of the federal securities laws (including any rules or regulations thereunder’ that results in penalties or recoveries by the SEC or agencies, then he is eligible to receive between 10 and 30% of such penalty or recovery under the new SEC Rule 21F.
State law whistle-blower protections generally provide that it is illegal for employers to discharge, threaten or otherwise discriminate against an employee regarding compensation, terms, conditions, location or privileges of employment because such employee or a person acting on his behalf reports or is about to report a violation or a suspected violation of federal, state or local laws, rules or regulations to a public body, or because the employee takes part in a public hearing, investigation, inquiry or court action.
12 What rights do employees have when their employment contract is terminated? Please provide information on:
12.1 Notice periods.Employees do not generally have any statutory right to notice periods. Unless modified by contract, employment is generally at-will and may be terminated by the employer or the employee without notice.
Under the Workers Adjustment and Retraining Notification Act (WARN), employers with 100 or more employees, not including employees who have worked less than 6 months in the last 12 months and not counting employees who work an average of less than 20 hours a week, must provide employees 60 days’ notice in advance of a covered plant closing or covered mass layoff. Additionally, many states have mini-WARN acts requiring advance notice to employees or others in the event of worksite closings or large layoffs. These mini-WARN’s vary greatly in scope and effect.
12.2 Severance payments.Employees do not have any statutory right to severance pay. Severance pay is a matter of agreement between an employer and employee. Severance pay is often granted to employees upon termination of employment in exchange for a release of any claims against the employers by the employee.
At the executive level, change in control agreements between companies and executives, so called ‘golden parachute agreements’ are common. Change in control provisions provide that in the event of a change of control of a company, the executive receives enhanced protection against being terminated or, if terminated, an enhanced severance package. What constitutes a change in control is negotiated between the parties to a business transaction, but typically refers to a transfer of ownership in which a new person or entity obtains a fifty per cent or greater ownership interest in the company.
Section 280G of the Code restricts the amount of enhanced severance payments an executive may receive without penalty. In simplified terms, Code s280G provides that any payments or distributions in the nature of compensation to an individual that are contingent on a change in control of a corporation will be deemed ‘excess parachute payments’ if the aggregate present value of the payments or distributions exceeds three times the individual’s base amount (i.e., current salary). Code s280G prohibits the corporation from taking a deduction for any excess parachute payments. Similarly, Code s4999 imposes tax obligations on the individual who receives an excess parachute payment, equal to 20% of the amount above his base amount.
12.3 Any procedural requirements for dismissal.There are no statutory procedural requirements for dismissal. Employers often establish their own policies or procedures for termination of employment. Dismissal procedures are also often set out in collective bargaining agreements.
13 What protection do employees have against dismissal? Are there any specific categories of protected employees?Employment is ordinarily at-will, and may be terminated by the employer or the employee at any time, for any lawful reason. Protections against dismissal are generally limited to state and federal discrimination laws, public policy exceptions to at-will employment under state law and any contractual protections the employee may have negotiated with the employer as part of the employment relationship.
14 What rules apply on redundancies?
• Worker Adjustment and Retraining Notification Act (WARN)
WARN is a federal law requiring employers of more than 100 employees to give written notice of layoffs at least 60 days before any plant closing or ‘mass layoff.’ A number of states also have mini-WARN acts that may have even stricter requirements and apply to even smaller employers.
• Discrimination laws
Federal and state discrimination laws, such as the Age Discrimination in Employment Act (ADEA), prohibit workers in protected classes from suffering unlawful disparate impact or disparate treatment because of a redundancy or reduction in workforce.
• Family and Medical Leave Act (FMLA)
Employees on FMLA leave may be protected against a reduction in workforce, unless it can be shown that they would have lost their positions even if they had not taken FMLA leave.
• Uniformed Services Employment and Reemployment Rights Act (USERRA)
USERRA requires employers to reinstate returning members of the military services to the jobs they would have held had they not been serving. The law also might protect an employee against layoff, unless the employer can show that ‘circumstances have so changed as to make such reemployment impossible or unreasonable . . . or such employment would impose an undue hardship on the employer.’
• Consolidated Omnibus Budget Reconciliation Act (COBRA)
This federal law requires most employers that sponsor group health plans for their employees to allow certain employees and their dependents who would otherwise lose coverage under the plan because they left their job or certain other events (such as a layoff) to pay to continue that coverage for a specified period of time. A number of states also have mini-COBRA acts that may provide additional benefits or have stricter notice requirements.
• National Labour Relations Act (NLRA)
Also, the Securities Act of 1933 requires a publicly held company to register offers or sales of securities, including offers to its own employees. Generally, a publicly held company must file a Form S-8 Registration Statement with the SEC for a restricted stock or performance share plan. The company must report the value of any restricted stock awarded to a named executive officer in the ‘Restricted Stock‘ column of its proxy statement for the year of the award.
All 50 states also regulate, to some extent, the offering and sale of securities by privately held companies. The state laws are referred to as ‘blue sky‘ regulations. Although every state law is different, most state laws closely track the exemptions from registration and filing under the Securities Act.
Finally, some employers may choose to offer non-qualified deferred compensation plans to executives in order to provide executives with retirement funds above the statutory deferral maximums of qualified retirement plans. Non-qualified deferred compensation plans permit the employer to pick and choose among who will participate and what benefit they will accrue.
Code s409A sets forth tax requirements related to non-qualified deferred compensation plans. Restricted stock units are considered deferred compensation, subject to the rules of Code s409A. Under Code s409A, if a non-qualified deferred compensation plan fails to satisfy specific requirements relating to timing of elections and distributions and to funding, amounts deferred under the plan for the current taxable year, and all preceding taxable years, are includible in gross income, to the extent not subject to a substantial risk of forfeiture and not previously included in income. These deferrals also are subject to an additional tax equal to 20% of the compensation required to be included in gross income.
19 Is it possible to restrict an employee’s activities during employment and after termination? If so, in what circumstances can this be done? Must an employer pay its former employees remuneration while they are subject to post-employment restrictive covenants?An employer’s ability to restrict the activities of its employees varies dramatically from state to state, particularly with respect to post-employment restrictive covenants. As a result, it is essential that the laws of the state where the worker is employed be consulted in connection with any restrictions. Restrictions should be set out in writing. The following are some general considerations for employers:
• Employers may prohibit employees from using or disclosing confidential business information during and after the termination of the employment relationship, by requiring employees to sign confidentiality agreements as a condition of employment.
• Employers may generally prohibit employees from competing with the employer during the employment relationship by requiring employees to sign non-compete agreements, either as a condition of employment or as a condition of receiving bonuses or other forms of compensation or benefits. In some states, it is also possible, through written agreement, to limit an employee’ability to compete against the employer post-termination and to limit an employee ‘ability to solicit the employer ‘customers, clients and/or employees for a period of time. The requirements for and validity of such agreement varies from state to state. However, most states view non-compete agreements unfavourably and construe them narrowly. In some states, non-competition agreements are simply unenforceable. Where non-compete agreements are lawful, they will be enforced only to the extent necessary to protect an employer’s confidential information, trade secrets or goodwill and must be reasonable in scope and duration.
• Generally, employers are not required to pay former employees remuneration during a post-employment restrictive covenant. However, in many states, courts are more likely to enforce non-compete agreements where the employee is being compensated. For example, in California, where non-competes are generally unenforceable, if an employee is paid during a post-employment ‘consulting period’ the employer can require non-compete obligations. In Oregon, where new statutory amendments only allow non-competes for higher-level employees, who are earning above a threshold amount in wages, there is a savings clause allowing employers to enforce a non-compete clause with employees outside the high-level group, if the employer pays at least 50% of the employee’s annual gross base salary and commissions at the time of the employee’s termination.
• Pursuant to the National Labour Relations Act, employers may not prohibit employees from self-organising to form, join or assist labour organisations, from bargaining collectively through representatives of their own choosing or from engaging in other activities for the purpose of collective bargaining or other mutual aid and protection.
20 Are there any proposals for major reform of employment law or pensions law in your jurisdiction?Employment and employee benefits laws in the United States are in a constant state of reform at the federal and state levels. As new laws are passed, new regulations providing guidance on existing laws are issued and cases involving employment issues are decided. Here are a few recent proposed changes and trends that employers are watching:
The U.S. Department of Labour is considering a rule that would make hiring foreign non-agricultural temporary workers (usually to fulfil seasonal needs), under the H-2B Temporary Worker Program, more difficult in order to encourage greater use of domestic workers. The new rule would require pay parity for the non-foreign workers, as well as heightened proof of an attempt to recruit domestic labour by employers.
The U.S. government continues to make investigations into the misclassification of workers as independent contractors a priority. While many programs were cut in connection with Department of Defence and Full-Year Continuing Appropriations Act of 2011 (commonly referred to as the continuing resolution to fund the federal government through September 30, 2011), the Act allocates at least $21,332,000 to the Secretary of Labour ‘for the purposes of program evaluation, initiatives related to the identification and prevention of worker misclassification, and other worker protection activities. ‘The Department of Labour has made coordination with other federal agencies to target worker misclassification a priority.
Connecticut, Hawaii, Illinois, Maryland, Oregon, and Washington have all recently passed laws prohibiting employers from using credit checks in their review of prospective or current employees, with some exceptions for those employees or prospective employees in certain roles. Proposed federal legislation, H.R. 231 Equal Employment for All Act creating similar prohibitions is also currently pending before Congress.
Recent court challenges have arisen suggesting that employers who discipline employees for making disparaging comments about their employer on social media sites are committing a violation of the employees’ rights under the National Labour Relations Act. No definitive answers have yet emerged, but it seems likely that the challenges will continue.
The trend of barring class certification for employment class action lawsuits based on a lack of commonality among the disparate experiences of putative class members, continues with various Ninth Circuit and Supreme Court (Dukes v. Wal-Mart) decisions denying class action treatment.
Effective from January 1, 2012, plan fiduciaries will be required to provide participants and beneficiaries of defined contribution retirement plans, on a regular and periodic basis, sufficient information regarding the plan and its investment options, including fee and expense information, such that participants can make informed decisions with regard to the management of their accounts.
The U.S. Supreme Court’May 2011 decision in CIGNA Corp. v. Amara may reshape the remedies available under the Employment Retirement Income Security Act (ERISA) resulting from discrepancies between an ERISA plan document and summary plan description (SPD). The Supreme Court held that a misleading or incomplete SPD, could not support a claim for benefits under ERISA; rather, the terms of the plan document control. However, by remanding the case to the lower court, the Court has implied that employees may seek a remedy under s502(a)(3) of ERISA which provides equitable relief for violations of ERISA. In the wake of Amara, employers can expect increased litigation and discovery over whether individuals such as call centre or human resources representatives, qualify as fiduciaries under ERISA. Amara instructs employers to pay careful attention to all ERISA plan documents and all communications to plan participants.
Employers must be aware of the special considerations that relate to employees and participants residing in Puerto Rico (‘Puerto Rico employees’) and the special transitional relief for transfers between U.S.-based retirement plans and Puerto Rico-only retirement plans issued by the Internal Revenue Service (‘IRS’) which expires December 31, 2011.
• Any retirement plan covering Puerto Rico employees must comply with the new plan qualification provisions of the Puerto Rico Internal Revenue Code that were enacted on January 31, 2010. The new rules will require plan sponsors to amend or restate their plans and file them with Hacienda for the issuance of an updated determination letter. Qualification with Hacienda is mandatory.
• Sponsors of retirement plans qualified in both the United States and Puerto Rico have until December 31, 2011 to spin off and transfer assets attributable to Puerto Rico employees to Puerto Rico-only plans. By transferring Puerto Rico employees from a dual qualified retirement plan to a Puerto Rico-only plan, the retirement income of the Puerto Rico employees automatically becomes Puerto Rican source income not subject to U.S. income taxation. An employer that fails to complete this transfer before January 1, 2012 will have no remedy other than to keep their Puerto Rico employees as active participants in their U.S. qualified plans and subject Puerto Rico employees to U.S. income taxation.
The passage of the Patient Protection and Affordable Care Act and the accompanying Healthcare and Education Reconciliation Act marked significant changes in the way companies and their employees think about healthcare. Many of these healthcare reform provisions became effective January 1, 2011; the remainder of the provisions are to be phased in over the next two years. Beginning in 2014, the individual mandate will kick in. Everyone will have to be covered by health insurance or pay a fine; those who cannot afford insurance will be eligible for assistance. The employer mandate kicks in at the same time. Employers with at least 50 employees must provide health care benefits or pay a penalty. Employers who provide benefits may still have to pay a penalty, depending on the cost of benefits to employees and the employee’s ability to pay.
• Employers that have more than 50 employees and do not offer coverage must pay an annual fine of $2,000 per full-time employee (those working at least 30 hours a week). The first 30 employees are ‘free’; the fine begins with employee number 31.
• Even employers that offer coverage may face a penalty if the employer does not pay for at least 60% of the actuarial value of the benefits the plan provides or the employee's cost for coverage is more than 9.5% of the employee's household income. In this situation, a full-time employee would be eligible to receive government-subsidised coverage. If this happens, the employer would have to pay a penalty of $3,000 per full-time employee who receives the subsidy, up to a maximum limit.
• Employers must offer a voucher to employees who (1) have an income that is less than four times the federal poverty level, (2) would have to pay more than 8% of their income for employer-provided coverage, and (3) choose to enrol in a plan from a state insurance exchange. The voucher requires the employer to pay what it would have paid to enrol the employee in its own plan.
Larger employers will also have to automatically enrol employees in their health insurance plan.
21 Does an employer need to have a subsidiary company, branch or other legal entity to employ people? If so, is there a requirement for a general manager or other key personnel?Generally, there is no requirement that an Employer have a subsidiary company, branch or other legal entity in the U.S. in order to employ persons in the U.S. However, it is likely (barring an exception for certain non-U.S. employees performing limited services in the U.S.), that the Employer will be required to administer a U.S. payroll for tax reporting and withholding issues. The U.S. payroll system will require the Employer to withhold federal and state tax as well as pay the Employer ‘portion of the Social Security, Medicare, and Federal Unemployment taxes (See Rev. Rul. 92-106). Foreign employers with employees in the U.S. must follow the same rules as U.S. employers with regard to depositing withheld taxes and filing tax returns.
It should also be noted that employing persons in the U.S. will be a factor in determining whether or not the foreign employer is ‘engaged in a U.S. trade or business’. The analysis as to whether or not the Employer is ‘engaged in a U.S. trade or business’ will impact the foreign employer’s U.S. tax reporting and payment obligations.
U.S. employers seeking to employ U.S. persons abroad may be required to establish a foreign entity in order to obtain working permits or other immigration clearance. The requirements largely differ based on the countries in which the U.S. employer seeks to expand and operate.
22 Does salary need to be paid in the country in which the work is done?There is no requirement that wages are paid in the U.S. Wages may be deposited in a foreign bank account. However, regardless of where the compensation is deposited, the Employer must still satisfy its U.S. obligations to withhold and deposit taxes with the U.S. government.
A payment in a foreign currency could create administrative issues for U.S. payroll purposes and expose employees to currency fluctuations.
Note also that the U.S. Internal Revenue Service maintains a broad discretion to collect taxes (which should have been, but which were not withheld) from any person that has control over the payment of employees’ wages (See 26 U.S.C. 3401(d)).
23 Do meetings and documents need to be in your local language even if both parties speak good English?Generally, there is no legal requirement that meetings are conducted, or documents be provided, in an employee’s primary language. However, many states have enacted legislation which provides that certain notices be given in an employee’s primary language. For example, as of April 2011, employers in New York are required to notify employees of pay practices on an annual basis in English and in the employee’s primary language. Therefore, it is extremely important to consult state and local laws on this subject. Additionally, even if there is no statutory obligation to conduct meetings in the employee’s primary language or to provide documents in the employee’s primary language, the sufficiency of the notices provided and the enforceability of policies and/or agreements with employees may be subject to challenge, based upon the employee’s inability to understand the information being provided.
24 What legal limitations are there on the notice period the parties can agree (for example minimum notice periods)?Employees do not generally have any statutory right to notice periods in connection with termination of employment. Therefore, any right to notice is subject to contract, which the employer and the employee are free to negotiate. Any restriction or limitation on the parties’ ability to waive or limit statutory notice requirements are governed by each individual statute.
25 What benefits does the employer have to provide in addition to salary?Generally, an employer is not required to provide its employees with benefits in addition to compensation. Employers are required to pay certain employees a minimum wage, which is prescribed by state law, and overtime pay. There are some exceptions to this general rule. In the state of Connecticut and jurisdiction of San Francisco. On July 1, 2011, Connecticut became the first state to require employers to provide paid sick leave effective as of January 1, 2012. Under the new law, employers with fifty or more workers, who do not already offer at least five day’s comparable paid leave, will be required to provide ‘service workers’ with one hour of paid sick leave for every forty hours worked, up to a total of forty hours per year. San Francisco enacted a similar measure in 2007.
Further, pursuant to the Massachusetts Health Care Reform Act, Massachusetts employers with 11 or more full-time employees working in Massachusetts must either make a ‘Fair and Reasonable Premium Contribution’ to their employees' healthcare premiums or make a contribution to the Commonwealth of Massachusetts of up to $295 per year per employee (referred to as the ‘Fair Share Contribution’). Massachusetts employers must also establish a cafeteria plan for their employees under Section 125 of the Internal Revenue Code. Employers who do not comply with this second provision, in certain circumstances, will be required to reimburse a Massachusetts trust fund for part or all of their employees' state funded healthcare costs after a $50,000 annual deductible (referred to as the ‘Free Rider Surcharge’).
In other jurisdictions, however, market conditions will drive an employer toward offering a comprehensive compensation and benefits package. Employee benefits are a significant component of total compensation and offer employers added flexibility in compensation design. For example, small start-up companies may not have the resources to offer competitive salaries and may instead use employee benefits, such as stock options, flexible benefits, and alternative work schedules to lure employees. Employers use employee benefits to create an appropriate balance of wage and non-wage compensation. Well-designed employee benefits are a central strategy in attracting and retaining employees, especially in a competitive labour market. In fact, today’s work force has come to expect at least a core benefit package, including: health care, pension, and paid leave (sick days, holidays, vacation, etc.), and employers who do not offer benefits are at a disadvantage in attracting qualified employees.
Note: Commencing January 1, 2014, employers with 50 or more employees will be required to offer employees health insurance or pay a penalty.
26 Are there circumstances where it is possible to engage someone as a consultant rather than an employee? If so, what are those circumstances?It is possible in some circumstances to engage someone as a consultant or independent contractor rather than an employee. However, misclassification of a worker as an independent contractor, rather than an employee can expose employers to significant liability, even if the worker and the employer have agreed to the classification. Unfortunately, there is no bright line test and the determination can vary depending upon the obligation for which the determination is being made.
For example, for tax purposes, the issue essentially comes down to one of control. If the employer has the right to control what work is being done and how it is being done, the worker is likely to be an employee. The Internal Revenue Service has developed a 20-factor test to assist employers in making this determination.
For purposes of determining whether a worker is an employee or an independent contractor for purposes of the Fair Labour Standard Act, the focus is on the ‘underlying economic reality ‘of the situation and whether the worker is economically dependent upon the employer.
The United States Supreme Court has identified six factors to consider, including the right to control, in assessing the underlying economic reality of the situation. These factors are:
• the extent to which the worker's services are an integral part of the employer's business;
• the permanency of the relationship;
• the amount of the worker's investment in facilities and equipment;
• the nature and degree of control by the employer;
• the worker's opportunities for profit and loss; and
• the level of skill required in performing the job and the amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent enterprise.
The lack of a universal definition of what constitutes an employee combined with the significant liabilities and penalties associated with misclassifying workers creates substantial challenges for employers.
26.1 Where applicable, what are the advantages and disadvantages of engaging as a consultant rather than an employee?Unlike employees, independent contractors are not protected by federal and state discrimination laws or by federal or state wage and hour laws, they are not eligible for employee benefits and cannot form or join labour unions. Employers are not required to pay Social Security, Medicare and unemployment taxes or to withhold and remit income taxes for independent contractors. Because there are so many advantages for employers to engage or classify workers as consultants or independent contractors rather than employees, the liability and penalties for misclassifying workers is severe.
27 What other key issues should a company employing someone be aware of?To summarise, employment in the United States is ‘at-will’ and employers, for the most part, are under no statutory authority to provide benefits to employees. However, most U.S. employers do provide benefits as a result of competitive market forces, collective bargaining agreements, or individually negotiated employment contracts. Where an employer does provide such benefits, the employer must adhere to applicable federal and state laws, and the applicable regulations thereunder. For example:
• An employer which sponsors a 401(k) plan for the benefit of its employees must adhere to the qualification requirements of the Internal Revenue Code as well as the fiduciary responsibility provisions of the Employee Retirement Income Security act (ERISA).
• Pursuant to COBRA, an employer which offers health insurance to its employees must provide certain qualified individuals with continuation of benefits in specified instances of a loss in benefits.
• Employers are prohibited from discriminating against certain protected classes of individuals.
Thus, when doing business in the United States, it is important to consult with local counsel to ensure compliance with complex statutory and regulatory requirements.
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Articles in this publication are intended as an overview of the subject area and should not be relied on as legal or other professional advice. You should seek specific legal advice before taking action on any of the issues raised. Taylor Vinters is a trading name of Taylor Vinters LLP. Taylor Vinters LLP is a limited liability partnership registered in England and Wales (registered number OC343503) which is authorised and regulated by the Solicitors Regulation Authority and is authorised and regulated by the Financial Services Authority for investment business. A list of members is available from our registered office.