The Employment Law Review: USA
Employment law in the United States derives from a combination of federal, state and local laws and regulations. Historically, federal law has been the primary source of employment-related statutes and rules. In recent years, however, virtually all the legislative action in the employment arena – and there is plenty of it – has taken place at the state and local levels (i.e., cities and counties).
Federal law applies to all 50 states and Washington, DC. Generally, a federal law pre-empts state or local law when the latter conflicts with the former. On the other hand, there is no federal pre-emption issue when a state or local law addresses a matter not covered by federal law, such as private sector employee paid leave.
For the most part, recent state and local measures have significantly increased employees' legal rights, protections and benefits and have correspondingly expanded employers' legal obligations. As a result, employees in many states and localities enjoy greater rights than they have under federal law. Generally, employers must follow the law that is more favourable to their employees. For instance, many states and localities have enacted minimum wage increases in the past few years that surpass the current federal minimum wage rate. Thus, employers in those jurisdictions must pay their non-exempt employees the higher minimum wage.
Moreover, the ever-broadening scope of state and local laws regulating the employer-employee relationship continues to gain strength as a formidable exception to the long-established employment-at-will doctrine. 'At-will' means that the employment relationship can be terminated by either party, at any time, without notice and for any reason, as long as the termination does not contravene the terms of a written contract (including a collective bargaining agreement (CBA)) or a federal, state or local law. The most likely laws to be raised to contest a dismissal are the anti-discrimination laws, such as Title VII of the Civil Rights Act of 1964 (Title VII), the Americans with Disabilities Act and the Equal Pay Act, and their state or local counterparts. Further, a discharge may be challenged under a variety of other laws that also ban retaliation, such as state and local paid sick leave laws.
In addition to termination, the anti-discrimination laws protect individuals with certain characteristics from adverse employment actions involving other 'terms or conditions' of employment, including hiring, promotion, compensation, and so on. Federal law prohibits discrimination based on race, colour, gender, national origin, religion, age, disability, military or veteran status, and genetic information. State and local laws in various jurisdictions prohibit discrimination based on additional categories, such as sexual orientation, gender identity, marital status and status as a victim of domestic violence. Employers doing business in the United States also should be aware that, while federal anti-discrimination laws generally apply to employers with a minimum of 15 or 20 employees, their state and local counterparts may have lower thresholds, and some may apply to all employers, regardless of size.
Anti-discrimination laws also prohibit employers from harassing employees based on a protected category, such as gender, age or race. Harassment is unwelcome conduct that is unlawful when the offensive behaviour becomes a term or condition of employment or continued employment, or when the conduct is sufficiently severe or pervasive to create a work environment that a reasonable person would consider intimidating, hostile or abusive.
These civil rights laws also protect employees and job applicants from retaliation for, among other actions, reporting harassment, discrimination or retaliation, either internally or to a government agency.
The US Equal Employment Opportunity Commission (EEOC) and its state and local counterparts oversee the enforcement of anti-discrimination laws.
Various federal, state and local government agencies enforce other laws governing the employment relationship. For example, the National Labor Relations Board (NLRB) administers, among other labour laws, the National Labor Relations Act (NLRA), which specifically permits non-supervisory and non-managerial employees in the private sector to engage in certain 'concerted activities', such as collectively discussing their terms and conditions of employment, engaging in union organising activities, and collectively bargaining with their employers. The US Occupational Safety and Health Administration ensures safe and healthy working conditions for American workers, and it administers several federal whistle-blower laws. Similarly, the US Department of Labor (DOL) promotes the welfare of American workers by, among other measures, overseeing the laws that protect retirement and healthcare benefits, guarantee a minimum hourly wage and overtime pay (under the Fair Labor Standards Act (FLSA)) and provide for unemployment insurance.
In addition to seeking redress for an alleged violation of an employment law via government enforcement agencies, many of these laws grant employees the right to bring a lawsuit in court, although filing a complaint with the appropriate agency often is a precondition to instituting litigation.
Year in review
i Sexual harassment and the impact of #MeToo
One of the most significant developments in employment law during the past year was the continuing, substantive impact of the #MeToo movement, sparked in October 2017 when the hashtag exploded on Twitter, resulting in a cascade of public sexual harassment and assault allegations involving high-profile names in the media, entertainment and financial services industries. In one of the swiftest transitions from cultural movement to legislative action, the #MeToo movement, which prompted the enactment of workplace anti-harassment laws in states from coast to coast, continued apace in 2019.
There are three predominant trends emanating from the recently enacted anti-harassment laws. The first has been laws mandating employee sexual harassment prevention training. This type of training is now required in California, Connecticut, Delaware, Illinois, Maine and New York. In New York, training must be conducted annually and needs to be interactive. In California, training is required every other year and must be one hour for employees and two hours for managers. Connecticut employees must be trained within three months of hire but only need to be retrained every 10 years. Relatedly, a number of states now require that employers maintain and distribute written anti-harassment policies.
The second trend has been the pushback on the use of non-disclosure provisions in settlements of employee harassment claims. New Jersey now has a sweeping ban on the use of these non-disclosure clauses, so as to allow employees to discuss publicly the underlying facts and circumstances of their allegations. New York and California both require an employee to confirm in writing that it is the employee's preference to incorporate a non-disclosure provision before it may be added to a settlement agreement resolving a claim of sexual harassment. In New York, this requirement was recently expanded to apply to all claims of harassment, discrimination or retaliation.
The third trend has been the weakening of mandatory arbitration agreements. New York and California have essentially banned the use of pre-dispute mandatory arbitration agreements to resolve potential harassment and discrimination claims. New York's ban, which was extended in 2019 to all discrimination claims, has already been struck down by one federal court, which found that the prohibition was pre-empted by the Federal Arbitration Act (FAA). California's law, which was due to take effect as of 1 January 2020, faced a successul a challenge on FAA pre-emption grounds, but further appeals may keep this law alive.
ii The FLSA
Changes to salary requirements for white-collar exemptions
On 24 September 2019, the DOL issued its Final Rule implementing various changes to the compensation requirements for the executive, administrative and professional exemptions to the FLSA's requirement to pay overtime to non-exempt employees. The changes, effective as of 1 January 2020, will result in many more workers being deemed non-exempt employees.
Under the Final Rule, the new minimum salary threshold for all three exemptions will increase from US$455 per week (US$23,660 per year) to US$684 per week (US$35,568 per year). In addition, the salary threshold for the 'highly compensated employee' exemption will increase from US$100,000 to US$107,432 per year.
Employers will be permitted to use commissions, non-discretionary bonuses and other incentive compensation to satisfy up to 10 per cent of the salary requirement, so long as those payments occur at least annually. The Final Rule does not provide for any changes to the 'duties' requirements for the executive, administrative or professional exemptions.
Notably, the minimum salary thresholds under the Final Rule are significantly lower than the thresholds required under state law in some jurisdictions. For example, New York State's minimum salary threshold for the executive and administrative exemptions is currently US$58,500 per year for large employers in New York City.
New rules proposed for evaluating joint employment
On 1 April 2019, the DOL proposed a new rule establishing a four-part test for determining joint-employer status under the FLSA.
Under the current regulatory framework, two or more employers acting entirely independently of each other may be deemed joint employers if they are 'not completely disassociated' with respect to the employment of an individual who performs work for more than one employer in a working week.
Under the DOL's proposed rule, joint employment would be determined using a balancing test focused on whether the putative joint employer (1) hires or fires the employee, (2) supervises and controls the employee's work schedule or conditions of employment, (3) determines the employee's rate and method of payment, and (4) maintains the employee's employment records.
All four of these factors need not be present for a business to qualify as a joint employer. In addition, other factors could be considered if, for example, they are indicative of the putative joint employer's exercise of significant control over the terms and conditions of the employee's work.
The DOL's proposed rule is in addition to pending proposed rules being considered by the NLRB to determine joint-employer status under the NLRA.
iii NLRB developments
NLRB returns to common law independent contractor test
In its decision of 25 January 2019 in SuperShuttle DFW, Inc, the NLRB returned to its long-standing test for distinguishing between employees, who have rights under the NLRA, and independent contractors, who do not. The common law test makes it easier to establish that a worker is an independent contractor, rather than an employee, than does the stricter test that replaced it in 2014.
As explained in SuperShuttle, factors considered under the common law test include:
- the extent of control that, by the agreement, the master may exercise over the details of the work;
- whether the worker is engaged in a distinct occupation or business;
- the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision;
- the skill required in the particular occupation;
- whether the employer or the worker supplies the means, tools and the place of work for the worker;
- the length of time for which the person is employed;
- the method of payment, whether by the time worked or by the job;
- whether the work is part of the regular business of the employer;
- whether the parties believe they are creating the relationship of master and servant; and
- whether the principal is or is not in business.
NLRB proposes a series of new administrative rules
On 22 May 2019, the NLRB released its Unified Agenda of Federal Regulatory and Deregulatory Actions, announcing its intention to consider formal rule-making in the following areas of NLRB law:
- NLRB election law – procedures and timelines, the procedure by which an unfair labour practice charge may block a petition for union representation or decertification, and the conversion of construction industry CBAs into a conventional Section 9(a) bargaining relationship;
- the NLRB's treatment of graduate student teachers as employees; and
- a union's right to gain access to a company's private property.
With regard to NLRB election law, on 12 August 2019, the NLRB published a Notice of Proposed Rulemaking that would amend the agency's rules and regulations governing the path to union representation for employees (see discussion in Section XI). The NLRB proposed three significant changes to the representation petition procedure:
- Blocking charge policy: The NLRB proposes replacing the current blocking charge policy with a vote-and-impound procedure. Elections would no longer be blocked by pending unfair labour practice charges, but the ballots would be impounded until the charges are resolved.
- Voluntary recognition bar: The NLRB proposes returning to the rule of Dana Corp. For voluntary recognition under Section 9(a) of the NLRA to bar a subsequent representation petition – and for a post-recognition CBA to have contract-bar effect – unit employees must receive notice that voluntary recognition has been granted and of a 45-day open period within which to file an election petition, which would allow them to vote on the issue of representation.
- Section 9(a) recognition in the construction industry: The NLRB proposes that in the construction industry, where bargaining relationships established under Section 8(f) cannot bar petitions for an NLRB election, proof of a Section 9(a) relationship will require positive evidence of majority employee support and may not be based on contract language alone, overruling Staunton Fuel.
On 13 December 2019, the NLRB also announced its proposed adoption of a new Final Rule, published on 18 December 2019, that will restore certain provisions of the NLRB's procedures for union representation elections. The proposed rule changes timing and procedure, and permits parties to litigate issues, including whether persons are supervisors under the NLRA and whether a unit is appropriate for bargaining before the NLRB directs and conducts an election.
iv State and local sick leave and paid family leave
During the past decade, one of the biggest trends affecting employers has been the enactment of state and local laws mandating paid leave for employees to use (depending on the specific law) for their own illness; to care for family members; to address situations relating to sexual violence, domestic violence, or stalking; or when welcoming a new child to their family. Currently, there are more than 30 jurisdictions requiring some type of paid sick or safe leave for employees.
These laws take a variety of different forms and all are drafted slightly differently. Most generally provide paid sick or safe leave pay based on the number of hours the employee has worked. Some laws limit the amount of time off an employee can accrue, some require carrying over unused, accrued time from year to year, and some mandate that employees be allowed to use time in small increments (e.g., 15 minutes). The proliferation and variety of laws has made compliance tricky, especially for companies with multiple locations across the United States.
More recently, states and cities have enacted laws that expand employees' entitlement to disability or paid family leave insurance benefits to provide partially paid leave for such matters as care for a new child or an ill family member. (See also Section IX.)
Several of 2019's significant cases emanate from the Supreme Court of the United States (the Supreme Court) and address the strength of, and exceptions to, the FAA, which is a statute designed to facilitate the resolution of disputes through arbitration, rather than in court. The FAA reflects a federal policy strongly favouring the enforcement of arbitration agreements.
i Henry Schein Inc v. Archer & White Sales Inc (decided 8 January 2019)
The Supreme Court unanimously held that the FAA does not permit a court to decline to enforce an arbitration agreement even though the court concludes that the claim of arbitrability is 'wholly groundless'.
The case concerned Archer & White Sales, a dental equipment distributor, which had entered into a contract with Pelton and Crane, a dental equipment manufacturer, to distribute Pelton's equipment. Over time, the business relationship turned sour, and Archer and White subsequently sued Pelton and Crane's successor in interest, Henry Schein, Inc, alleging violations of federal and state antitrust law, and seeking an injunction, among other relief. In response, Schein, relying on the arbitration provision in the parties' contract, asked a federal district court to compel arbitration. The court, however, declined to grant Schein's request, holding that the FAA claim was 'wholly groundless' because the arbitration provision at issue specifically excluded arbitration of an action seeking injunctive relief. On appeal, the US Court of Appeals for the Fifth Circuit affirmed the ruling.
In reversing the Fifth Circuit, the Supreme Court, stressing that the FAA does not contain an exception for 'wholly groundless' claims, held that the requirement to arbitrate disputes is a matter of contract, and courts must enforce arbitration agreements according to their terms. Accordingly, where an arbitration agreement between parties delegates the 'gateway question' of whether a matter is arbitrable to an arbitrator, 'a court may not override the contract', even if the claim 'appears to the court to be frivolous'.
ii New Prime Inc v. Oliveira (decided 15 January 2019)
As a corollary to the Schein case discussed above, the Supreme Court held in New Prime Inc v. Oliveira that where the FAA does, in fact, contain a specific exclusion, a court may decide the issue of arbitrability relating to that exclusion, even if the arbitration agreement expressly delegates arbitrability questions to the arbitrator.
In New Prime, the exemption from arbitration at issue was for 'contracts of employment of . . . seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce'. Because the exemption, commonly known as 'the transportation workers exclusion', expressly refers to 'contracts of employment', many businesses seeking to cover transport workers under an arbitration agreement designate these types of workers as independent contractors.
Such was the arrangement between New Prime, an interstate trucking company, and its drivers, who had hired Dominic Oliveira to perform work as a driver pursuant to an independent contractor operating agreement. That agreement contained both an arbitration clause and a delegation clause giving the arbitrator authority to decide threshold questions of arbitrability. When Oliveira filed a putative class action against New Prime in federal court, alleging that the company failed to pay truck drivers the minimum wage, as required by federal and Massachusetts law, New Prime filed a motion to compel arbitration. New Prime contended that (1) the delegation provision in the arbitration agreement required that an arbitrator decide the question of arbitrability, and (2) the transport workers exclusion only applied to contracts of employment, which required the worker to be an employee, whereas Oliveira was an independent contractor.
The Supreme Court rejected both arguments. With respect to the arbitrability question, the Supreme Court held that a court must first determine whether the FAA applies to the contract at issue before it can assert its power to compel arbitration. As the Court explained, a delegation clause is 'merely a specialized type of arbitration agreement', enforceable only to the extent that the dispute at issue meets the FAA's requirement of 'involving commerce', and the transport workers exclusion is inapplicable.
As to whether Oliveira's contract fell within the definition of 'contracts of employment', the Supreme Court looked at the common meaning of that term when the FAA was enacted in 1925 and concluded that the phrase was not then a term of art limited to 'employees'. Rather, it was construed broadly to cover any work, not just work in a formal employer-employee relationship.
Accordingly, the Supreme Court affirmed the ruling of the US Court of Appeals for the First Circuit that the district court lacked authority under the FAA to compel arbitration.
iii Lamps Plus, Inc v. Varela (decided 24 April 2019)
In 2010, the Supreme Court held in Stolt-Nielsen SA v. AnimalFeeds International Corp that a court may not compel class-wide arbitration when an agreement is silent on the availability of such arbitration. In Lamps Plus v. Varela, the Supreme Court extended that holding to agreements that are ambiguous on the matter.
The case was brought by Frank Varela, who, like other employees, had signed an arbitration agreement upon commencing employment with the company. In 2016, a hacker tricked a Lamps Plus employee into disclosing the tax information of approximately 1,300 employees. As a result, a fraudulent federal income tax return was filed in Varela's name. Varela sued Lamps Plus on behalf of a putative class of employees whose tax information had been compromised. Lamps Plus moved to compel arbitration on an individual basis, but the district court rejected the request, instead authorising arbitration on a class-wide basis. The US Court of Appeals for the Ninth Circuit affirmed the ruling, finding that the agreement was ambiguous on the issue of class arbitration, as it contained language arguably supportive of each side's position. Following state law, the Ninth Circuit construed the ambiguity against the drafter (Lamps Plus), thus allowing for class-wide arbitration.
In a split decision, the Supreme Court reversed the Ninth Circuit, concluding that while the contract was indeed ambiguous, there was no legal justification under the FAA for construing an ambiguous provision against either party. Writing for the 5-4 majority, Chief Justice John Roberts reasoned that, since class arbitration 'fundamentally changes the nature of the “traditional individualized arbitration” envisioned by the FAA . . . a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so'.
iv Fort Bend County, Texas v. Davis (decided 3 June 2019)
Generally, prior to initiating a lawsuit under Title VII, an individual must file a charge of discrimination with the EEOC or the appropriate state agency. However, in this case, the Supreme Court unanimously held that the charge-filing precondition to a Title VII suit is not a jurisdictional requirement but, instead, a mandatory claim-processing rule that is subject to forfeiture if not raised in a timely manner.
Lois M Davis, an information technology worker for Fort Bend County, had complained to the company's human resources department that the director of the department was sexually harassing her. After an internal investigation, the director resigned. Davis subsequently filed an intake questionnaire with the EEOC in which she alleged that her supervisor retaliated against her for reporting the harassment by limiting her work responsibilities. While her EEOC charge was pending, Davis was dismissed for failing to report to work on a Sunday, although she claimed that she had a commitment at church and had offered to arrange for another employee to cover for her. Following her dismissal, Davis supplemented her EEOC charge by handwriting 'religion' in the Employment Harms or Actions section of her intake questionnaire and checking the boxes for 'discharge' and 'reasonable accommodation'. However, she failed to revise the formal charge document.
After Davis was issued a right-to-sue letter, she filed suit in federal district court, alleging religious discrimination and retaliation for reporting sexual harassment. The court granted the County summary judgment on all Davis's claims. On appeal, the US Court of Appeals for the Fifth Circuit reversed on the religious discrimination claim and remanded the case back to the lower court, where Fort Bend, for the first time, argued that the court lacked jurisdiction to adjudicate Davis's religious discrimination claim, because it was not in her EEOC charge. The lower court agreed with the County and dismissed the case.
The Fifth Circuit again reversed, holding that the charge-filing mandate was not jurisdictional and was forfeited by the employer, because it was not asserted in a timely manner. Upon review, the Supreme Court agreed with the Fifth Circuit that Title VII's charge-filing instruction is not jurisdictional; rather, the instruction is 'properly ranked among the array of claim-processing rules that must be timely raised to come into play'.
Accordingly, the Supreme Court's ruling does not eliminate or alter the charge-filing mandate. Instead, the decision puts employers on notice that they must allege a violation of the requirement in a timely manner or forfeit the right to raise it as a defence.
v MV Transportation, Inc and Amalgamated Transit Union Local #1637, AFL-CIO, CLC (decided 10 September 2019)
In this case, the NLRB abandoned its long-standing 'clear and unmistakable waiver' standard for determining whether an employer made an unlawful unilateral change to union-represented employees' terms and conditions of employment under the NLRA. The NLRB instead adopted a 'contract coverage' standard, under which it will review the plain language of the parties' CBA to determine whether the alleged unilateral action taken by the employer was within the scope of the contract.
The NLRA prohibits a unionised employer from unilaterally modifying the terms and conditions of a CBA that are mandatory subjects of bargaining. As a minimum, the employer must maintain the status quo terms and conditions and bargain in good faith with the union until an agreement is reached or the parties arrive at an impasse in bargaining. Prior to MV Transportation, the defence available to a charge of unlawful unilateral change was that there had been a 'clear and unmistakable waiver' by the union of the particular issue. Thus, only when an employer was able to show that contract language specifically covered the matter at issue, and that it was clear the parties had fully discussed and consciously explored the change, was the union deemed to have waived its right to bargain over the action.
In MV Transportation, the employer unilaterally implemented several changes to its employee policies, including revisions to its schedule for progressive discipline. In response to the union's challenge to the employer's unilateral actions, the NLRB adopted the new contract coverage standard, under which it found that the management rights clause in the parties' CBA granted the employer the right to create and implement the policy without bargaining with the union. According to the NLRB, the clause demonstrated that the 'parties bargained and agreed to vest in the [employer] the exclusive right to discipline and discharge employees for just cause and to issue reasonable new and revised work rules and policies'. Although the language of the CBA would not have satisfied the high bar of being a clear and unmistakable waiver, it met the new, more liberal contract coverage standard.
Importantly, this ruling applies only to private sector unions; therefore, in most jurisdictions, unions operating in the public sector are still subject to the clear and unmistakable waiver standard.
Basics of entering into an employment relationship
i Employment relationship
As discussed in Section I, absent an enforceable contract, most US employment relationships are governed by the at-will doctrine, meaning that, absent an employment contract providing otherwise, an employment agreement may be terminated for any lawful reason without cause or notice. In fact, owing to the nature of at-will employment, generally, employers may unilaterally change terms and conditions of employment.
Employment may be established via oral agreements, which typically are deemed subject to the at-will employment doctrine, although an employer's unwritten practice of providing certain privileges or benefits, such as paid vacation, may create a legal obligation in some jurisdictions.
Employers and employees also are free to enter into written contracts governing various aspects of the employment relationship, including the term of employment, compensation, location of employment, services to be provided, restrictive covenants and benefits. A written employment contract may be amended by mutual agreement.
Employers may also establish various terms and conditions of employment through policies set forth in an employee handbook or manual. Generally, handbook provisions are not considered an implied contract of employment for any specific duration, especially where there is a disclaimer that the employment relationship is 'at-will'.
ii Probationary periods
US employers are not mandated by either federal or state law to establish probationary periods for new hires, although many employers find them useful, as they provide both the employer and new employee an opportunity to assess whether the arrangement is a good fit for both parties. Often, employees do not receive certain benefits during their probationary period, such as health insurance. Employment during a probationary period typically remains 'at-will' and that status does not change once the probationary period is successfully completed, unless a written contract between the parties specifies otherwise.
iii Establishing a presence
Generally, corporations and even unincorporated companies doing business in the United States must register with federal and state (and sometimes local) authorities, obtain a tax identification number, and pay various business and payroll taxes, such as Social Security and Medicare (at the federal level), and, depending on the state, contributions into unemployment insurance funds, government-mandated disability or family leave insurance programmes, and workers' compensation reserves. Some taxes, such as Social Security and Medicare, also require employers to withhold the employees' share of those taxes from their salary and submit those withholdings to the appropriate government agency. Such taxes and withholdings typically do not need to be paid for bona fide independent contractors.
Depending on the state (and sometimes the county or city) where operations are located, as well as the nature of the business, a company may need to obtain certain licences, pass health and safety inspections, and fulfil other government-imposed obligations to establish a legal enterprise.
An employer may include restrictive covenants in an employment contract to prohibit an employee from (1) competing with the employer, (2) soliciting the employer's customers or employees, or (3) disclosing confidential information or trade secrets after the employment relationship has ended. US state law controls whether and under what circumstances a restrictive covenant is enforceable against an employee.
In most states, including New York, Illinois and Delaware, narrowly tailored restrictive covenants that do not overly infringe upon an employee's ability to secure new employment may be enforceable, depending on whether the agreement, overall, is deemed reasonable. Specifically, factors that are commonly used to determine whether a restrictive covenant should be enforced as reasonable include the following:
- Does the employer have a legitimate interest to protect, such as a trade secret or client relationships?
- Are the time and geographical restrictions reasonable?
- Is the employee unduly burdened in pursuing his or her livelihood?
- Will enforcement harm some public interest?
To be enforceable, restrictive covenants typically also need to be supported by consideration. In most states, the commencement of new employment is sufficient consideration for a restrictive covenant. Whether continued at-will employment constitutes sufficient consideration for a later-signed restrictive covenant varies widely from state to state. A promotion, increase in compensation or receipt of another benefit (e.g., stock options) may support a new restrictive covenant.
Many, but not all, states follow the 'blue pencil' rule, which allows a court to edit or even rewrite a restrictive covenant that is overly broad in scope to reflect more reasonable terms. However, if an employer is perceived to have abused its bargaining power by requiring an employee to sign a patently unreasonable restriction, the court is unlikely to modify the covenant and more inclined to strike it completely.
A recent trend, initiated by Massachusetts in 2018, and followed to varying extents in 2019 by Maine, Maryland, New Hampshire, Rhode Island and Washington State, concerns the enactment of statutes outlawing non-compete agreements for lower-wage workers and setting strict requirements that employers must follow when asking employees to sign such agreements (including providing advance notice of the non-compete, an opportunity to consult with counsel, or some form of payment during the non-compete period).
Finally, in a minority of states, restrictive covenants are virtually unenforceable in the employment context. For instance, California generally prohibits covenants not to compete as a restraint against an employee's ability to engage in a lawful trade, business or practice.
Under federal and state law, employees are entitled to a minimum hourly wage for each hour they work. Employees are also entitled to overtime pay for any time they work in excess of 40 hours in a working week. Overtime is generally calculated at one-and-a-half times the employee's regular rate of pay.
The FLSA governs the payment of a minimum wage and overtime under federal law. However, many states have enacted their own minimum wage and overtime laws, and some of these laws are more generous than the FLSA. In California, for example, employees are entitled to overtime pay for any time they work in excess of eight hours in a single day (even if they do not work more than 40 hours in the working week). Employers must comply with the laws that are most favourable to their employees.
Certain employees, such as executive, administrative and professional employees, may qualify as being exempt from federal and state overtime laws if they satisfy both the applicable tests for duties and salary basis. The duties test generally requires that employees perform exempt work as their primary duty. Typically, the kind of work they must perform depends on the particular exemption. The salary basis test generally requires that employers pay the employees on a salary basis, at a level that meets or exceeds the minimum salary threshold required for that exemption.
Both federal and state wage payment laws impose stringent record-keeping requirements on employers. The maintenance of accurate and comprehensive records has become increasingly important in recent years as more states and localities enact wage theft laws and implement aggressive enforcement initiatives of those laws. A number of states – most recently New Jersey and New York, among others – have enacted wage theft laws that provide employees greater rights to recover unpaid wages or impose stiffer penalties on employers for violations (or both).
When employing any individual in the United States, whether a US citizen, a permanent resident (i.e., holds a green card) or a foreign national, an employer must ensure that it is abiding by all applicable immigration laws for employment verification and work authorisation. These requirements can be broken down into (1) completing Form I-9 verification for all US workers and (2) obtaining work authorisation for foreign nationals.
i Form I-9 employee verification
The process for verifying any worker's eligibility to be lawfully employable in the United States involves the completion, verification and retention of Form I-9 for Employment Eligibility Verification. New hires, by the first day of employment, must present specified original, unexpired work authorisation documentation, including identification documents, to their employer. The employer must verify the new hire's US work authorisation within three days of the hire date, and retain the verified Form I-9 for up to three years from the hire date, or one year from the employment termination date, whichever is later.
The federal government offers a service called E-Verify, which allows employers to verify new hires electronically to supplement the Form I-9 requirements. E-Verify is voluntary under federal law, but it is mandatory in certain states, such as Arizona, North Carolina and Tennessee, to name a few. Even where not mandatory, E-Verify may be a valuable tool for employers in industries that are particularly vulnerable to employment verification fraud.
ii Types of work-authorised non-immigrant visas
US employers that wish to employ a non-US worker (i.e., a foreign national) must obtain the proper work authorisation for that individual before the person is allowed to be employed. Among the most common types of non-immigrant worker visas are:
- the H-1B Specialty Occupations visa for those positions that require at least a bachelor's degree relevant to the position;
- the L-1A visa for intracompany transferees who work in managerial or executive positions in a company located outside the United States, and the L-1B visa for intra-company transferees who work in positions that require specialist knowledge;
- the free-trade-based non-immigrant worker visas for nationals of Australia (E-3 visa), Canada and Mexico (TN visa), Chile (H-1B1) and Singapore (H-1B1); and
- the O-1 visa for individuals with 'extraordinary ability or achievements' in business, entertainment, the arts or the sciences.
Many of these non-immigrant work authorisations have specific requirements for eligibility and myriad restrictions.
iii Immigrant visas
The non-immigrant work authorisation visas discussed above also have specific beginning and ending periods. For some employers, these restrictive timeframes may make long-term employment difficult. For those situations, the immigration laws allow US employers to sponsor non-immigrant visa work authorisation holders for US permanent residency (i.e., a green card), which is known as an immigrant visa. The process for obtaining such a visa is intricate, lengthy and, without expert legal guidance, difficult to navigate.
To summarise, employers must fulfil the above employment verification mandates for their entire US workforce and obtain proper work authorisation for their non-US workers.
Absent a written contract or CBA, employers may develop and implement employment policies and practices concerning a wide range of issues, including hiring, compensation, benefits, discipline, promotions, and so on. However, as previously discussed, myriad federal, state and local employment laws impose certain legal limitations and obligations on how an employer treats its employees, such as the prohibition on discrimination, harassment and retaliation concerning terms and conditions of employment based on a protected category; bans or restrictions in various jurisdictions on certain pre-employment enquiries (e.g., criminal, credit and salary history checks); and minimum wage and overtime pay mandates.
US employers also are required under federal and state law to provide reasonable accommodations to certain cohorts of workers, such as those with physical or mental disabilities and individuals with sincerely held religious beliefs, unless doing so would result in undue hardship. Some states and localities have broadened this obligation to include accommodation of pregnancy and related medical conditions (including lactation accommodation), and accommodation for victims of domestic or sexual violence.
Notwithstanding the numerous obligations and limitations imposed on employers under federal, state and local law, many US employers provide their employees with greater benefits than the law requires, such as paid vacation and holidays, and they set forth these and other terms and conditions of employment in an employee handbook. Handbooks typically also include policies prohibiting sexual harassment and providing for equal employment opportunities, and they may set forth dress code rules and guidelines concerning appropriate workplace conduct. Many employee handbooks also provide employees with rules for use of the employer's electronic systems (e.g., use of email and the internet), including that they should have no expectation of privacy when using those systems.
As a best practice, an employer usually requires its employees to sign an acknowledgement that they have received and read the employee handbook.
The United States is one of the few countries that does not provide or require employers to provide paid parental leave (either for new birth mothers or for the co-parent). The federal Family and Medical Leave Act provides eligible employees with 12 weeks of unpaid leave for an employee's own illness, to care for a family member, for parental leave, or for certain military exigencies.
Some of the most recent paid sick and family leave laws provide job protection for employees who have worked for relatively short periods of time and benefits for employees working at very small companies. As of January 2020, the following states and cities provide paid medical or family leave: California, San Francisco (California), New Jersey, New York, Rhode Island and Washington State. In the coming years, Washington, DC, and the following states will also provide similar leave: Connecticut, Massachusetts and Oregon.
For the most part, businesses, courts, legislatures and government agencies in the United States use English as their primary language. Increasingly, however, workplaces and various government offices are becoming bilingual (usually English and Spanish).
Generally, documents relating to employment are not required to be translated into an employee's primary language, nor are court documents. Nevertheless, there are some important exceptions to this general rule. Many federal, state and local laws require the posting of certain notices in the workplace. Although these must be in English, many must also be posted in an employee's primary language, if the notice is available from the appropriate government agency. For example, certain states and cities require a specific wage notice to be provided at hire, in English and in the employee's first language. Similarly, some states and cities now mandating anti-sexual harassment training require that the training be provided in an employee's first language.
If a significant portion of a workforce speaks a language other than English, it is a best practice to provide relevant documents, policies and training in that other language (or languages) to ensure that employees are aware of their obligations and rights.
Employee representation (protected concerted activity)
The NLRA establishes the rights of most private sector employees to come together for the purpose of mutual aid and protection, and to discuss terms and conditions of employment. If employees so choose, they may organise themselves as a group or in a union for the purpose of negotiating or bargaining with their employer about the terms and conditions of their employment. Managers and supervisors with the ability to hire, fire or assign work are excluded from the NLRA's rights and protections for employees.
Certain actions taken by employers or unions may violate the NLRA. These actions are considered unfair labour practices and may result in administrative sanctions, monetary liability or the NLRB granting injunctive relief. For example, an employer may not retaliate against employees who come together to speak with their employer concertedly about issues affecting more than one employee, such as wages, work schedules or safety concerns.
Under the NLRA, employees also have the right to form or join a union (or refrain from forming or joining a union). To form a union or to decertify an existing union, an employee (or a union) may file a petition with the NLRB, with evidence that at least 30 per cent of employees in the proposed bargaining unit is interested in union representation. The employer may contest the validity of the proposed bargaining unit. Once these issues have been resolved, the NLRB will conduct an election by secret or mail ballot. If a majority of the employees who vote in the election opt to be represented, the NLRB will certify the election and the employer must bargain in good faith with that union regarding the employees' terms and conditions of employment. (The NLRB also maintains procedures for decertification elections, which allow employees to vote on whether they wish to continue to be represented by the union.) The bargaining obligation is ongoing and, in most instances, exists until employees vote to decertify the union.
Employers may not threaten employees with discipline or termination, or promise benefits to an employee, for supporting or not supporting a union. Likewise, a union may not threaten an employee with expulsion from the union or force the employer to terminate an employment agreement because an employee refuses to participate in a union or other protected concerted activity. However, employers have limited rights to restrict employee union activity on company property and during employee work time through legally compliant no-solicitation and no-distribution rules.
Currently, no one federal law addresses data protection, although specific laws address privacy protection for certain types of data, such as medical information. Here, again, states are stepping in to fill the void.
California currently leads the way on privacy legislation. Under the California Consumer Privacy Act (CCPA), employers that meet the triggering thresholds for coverage (e.g., more than US$25 million in gross revenues) must provide applicants and employees with notice of the categories of personal information (i.e., that which is not publicly available) collected and the purposes for which the information will be used, at or before the time of collection. Employee or applicant consent to the collection of personal information is not required. There is no requirement that California employers register with data protection authorities before collecting personal information about their employees or job applicants.
The categories of personal information to be identified in the notice include:
- identifiers, such as a name or email address;
- characteristics of protected classifications under California or federal law;
- biometric information;
- internet or electronic network activity;
- geolocation data;
- audio or visual information;
- professional or employment-related information; and
- education information.
Further, employers must implement reasonable cybersecurity safeguards to protect certain sensitive employee personal information (e.g., Social Security numbers and medical or health insurance information) or risk employee lawsuits for data breach, including class actions seeking statutory damages. The CCPA broadly defines personal information as 'information that identifies, relates to, describes, is capable of being associated with or could reasonably be linked, directly or indirectly, with a particular consumer or household'. Reasonable safeguards may include limiting access to persons with a business need to access sensitive employee information and technical measures based on a risk determination.
The CCPA is effective as of 1 January 2020; however, all employee rights other than the notice of collection and private right of action for any data breach (e.g., the right to have personal information deleted) have been postponed until 2021.
In New York, the recently enacted Stop Hacks and Improve Electronic Data Security Act (known as the SHIELD Act) mandates that all employers collecting private information about New York State residents, including employees, implement a data security programme that incorporates 'reasonable administrative, technical, and physical safeguards to protect the security, confidentiality and integrity of the private information'. Failure to implement a compliant information security programme by 21 March 2020, may result in an action by the New York State Attorney General. Injunctive relief and civil penalties of up to US$5,000 may be imposed against an organisation and individual employees for each violation. Reasonable safeguards may include limiting access to employees' private information based on business need and technical safeguards, but there is no requirement that employers register with New York State government agencies.
Also of note is the Illinois Biometric Information Privacy Act (BIPA), which requires employers to provide written notice and obtain consent from employees (and customers) prior to collecting and storing any biometric data. Under BIPA, employers must also maintain a written policy identifying the 'specific purpose and length of term for which a biometric identifier or biometric information is being collected, stored, and used'. In Rosenbach v. Six Flags Entertainment Corp, the Illinois Supreme Court held that mere collection of an individual's biometric information may be enough to state a claim under BIPA. Texas and Washington State also have laws regulating the collection, use and disposal of biometric information.
US law does not prohibit the transfer of US resident employees' data out of the United States. There are no legal requirements that employers register with data protection authorities, obtain employee consent, enter into a joint user agreement or make a safe harbour registration before transferring personal information about US resident employees to overseas providers, subsidiaries or third parties.
As previously discussed, the employment-at-will doctrine allows an employer to terminate an employment relationship for any lawful reason, without cause or notice. However, the doctrine may not apply when, for example, the employee has a specified term of employment, or the employer's policy or an employment contract provides for discharge for specified reasons, sets forth a progressive disciplinary policy, or contains a notice period requirement.
There is no statutory right to severance or separation pay upon termination of employment, but an employer may agree to provide severance in individual contracts or via a severance policy or plan.
Typically, CBAs contain just cause provisions or other contract clauses that limit the reasons why, or the process by which, an employer may dismiss an employee. Most CBAs have a dispute mechanism often referred to as the grievance and arbitration procedure, and the parties must work within that contractual framework to resolve disputes regarding employment actions, including terminations.
The federal Worker Adjustment and Retraining Notification (WARN) Act requires that employers provide notice for certain group lay-offs and plant closures. Specifically, employers with 100 or more full-time employees must provide 60 days' notice to affected employees and certain state and local government agencies when there is a qualifying mass lay-off or plant closure, as those terms are defined by the statute. Some states have 'mini WARN' laws that cover additional events or contain more stringent notice requirements. For instance, New Jersey's WARN Act now requires employers to pay severance.
If an employer provides severance pay in connection with a reduction in force (pursuant to a contract or otherwise), it is likely to require the employee to sign a release of claims in exchange for severance benefits. If an employee is aged 40 or older, employers must follow the review and revocation periods for releases, as set forth in the Age Discrimination in Employment Act and the Older Workers Benefit Protection Act.
In a unionised workplace, the CBA may dictate the notice, actions or bargaining that must take place before a group lay-off, plant or site closure, or reduction in force may occur.
Transfer of business
There is no generally applicable transfer of undertakings law in the United States. In the case of a transfer of business, however, US employers should review applicable employment contracts and CBAs for relevant provisions, regardless of whether the transfer will result in the termination of employment for the employees covered by the contract.
Employers should also determine whether the transfer implicates the WARN Act or a mini-WARN Act (discussed in Section XIII.ii), although in most transactions in which the employees of the seller are merely transferred to the buyer, the WARN Act's notice requirements will not apply. On the other hand, significant post-transaction lay-offs could implicate the law.
Finally, any business closure, sale or merger involving a unionised workforce will trigger the employer's legal obligation to bargain with the union. The acquisition of a company with a unionised workforce could also activate the obligation to bargain.
During the past decade, new employment laws were enacted almost exclusively at the state and local levels, creating a patchwork of laws that are difficult to track and traverse, and especially unwieldy for multistate employers to navigate. This trend is likely to continue, although the results of the forthcoming 2020 presidential and congressional elections could result in a renewed focus on employment matters at the federal level. Notably, some of the presidential candidates have emphasised issues such as managing technology and privacy in the workplace, providing paid family leave to employees, and addressing the impact of artificial intelligence and the gig economy on how we think of workers and the workplace.