management law and employee relations

francisgon44

Chapter1TheRegulationofEmployment.pptx

Home >Law homework help >management law and employee relations

Employment Law for Business

Chapter 1

The Regulation of Employment

Because learning changes everything.®

Learning Objectives 1

Describe the balance between the freedom to contract and the current regulatory environment for employment.

Identify who is subject to which employment laws and understand the implications of each of these laws for both the employer and employee.

Delineate the risks to the employer caused by worker misclassification.

Learning Objectives 2

Explain the difference between an employee and an independent contractor and the tests that help us make that determination.

Articulate the various ways in which the concept “employer” is defined by the various employment-related regulations.

Describe the permissible parameters of non-compete agreements.

Introduction to the Regulatory Environment 1

Freedom to contract is crucial to marketplace freedom.

Employment is an agreement: a reciprocal exchange of labor for compensation.

An employee may choose to work or not-to-work for a given employer.

An employer may choose to hire or not-to-hire a given applicant. System is theoretically symmetrical.

Government enacts laws to resolve power imbalances between employer and employees. Examples:

Set minimum wage.

Anti-discrimination laws based on race, gender, other characteristics.

Is Regulation Necessary?

Opponent view:

Market forces encourage employers’ rational, non-biased behavior.

Decisions based on race or gender are inefficient.

Employers should be free to manage their companies as they see fit.

Proponent view:

Statistics reveal that regulation of discrimination and other elements of work relationship is necessary to ensure equal opportunities and fairness.

Human beings often do not act rationally.

Economic forces do not provide complete assurance against employment discrimination.

Market imperfections: biased firms can remain competitive while discriminating.

Exhibit 1.1: Realities about the Regulation of Employment

Generally, you do not have a right to your job.

This means that, once you are hired, your employer may choose to fire you, even for reasons that seem unjustified, as long as the termination is not in violation of a contract or for one of the few bases discussed in this textbook. But, basically, there are far more reasons a boss can fire you than not.

As an employer, you may fire someone for a good reason, for a bad reason, or even for no reason, just not for an illegal reason.

You may terminate someone simply because you do not get along with them. However, you must ensure that bias or perception, which might serve as the basis of a discrimination claim, is not interfering with judgment.

Classification of workers: Introduction

Origins of worker classification in the law of ‘Agency.’

Traditional designations of master or principal, and servant or agent.

Employee-agent is authorized to perform only certain functions.

Principal-employer must exercise ‘good faith’ toward employee.

Employee owes ‘duty of loyalty’ to Employer and must avoid misconduct, esp. that injures third parties.

Independent contractors are not employees – they are hired to perform specific functions within their expertise (see next slide) .

How workers are ‘classified’ as employees or contractors has crucial implications for rights and duties of all parties.

As workplaces become more flexible, resolving this issue correctly can be difficult – but misclassification has dire legal and financial consequences.

Classification of workers: two types

Employees:

Act on behalf of the employer as its agent.

Act only as authorized by the employer.

Employer obligated to exercise good faith in the relationship and ensure that no harm comes to the employee during the relationship.

Independent contractors:

Person who contracts with a principal to perform a task according to their own methods.

The principal does not have the right to exercise control over the physical details of the work.

Employees v. Independent Contractors

Discrimination protections: Civil Rights Act, Title

applies to Employees, not

to Independent Contractors.

Payroll deductions and tax.

Employee: employer calculates withholdings, regularly sends them to U S Treasury.

Independent Contractor - responsible for their own taxes, including deductions from gross payments.

Benefits.

Employee eligible to receive them, but it is not a requirement.

Independent Contractor has no access to benefits.

No ‘Safety net’ laws for Contractors: no minimum wage/OT, workers compensation (injuries on the job) or unemployment compensation eligibility, no right to organize a union or negotiate via collective bargaining.

‘Vicarious Liability’ of employer for mistakes, third-party injuries. Contractors directly liable for both. Insurance cost implications

Why Use Independent Contractors?

Specialized skills or Intermittent needs.

‘make-or-buy’ decisions (For example, law firm or in-house counsel?).

Seasonality.

Typical Cost factors:

Compensation, benefits and administration costs avoidance.

Avoids work-related expenses (for example, insurance, tools, etc.).

Avoids Overhead - pay for production, not time.

Guarantees satisfactory performance under contract of engagement.

Avoids most ‘Vicarious Liability’ risk re injuries to third parties.

‘Inherently Dangerous Activities,’ negligent hiring/retention exceptions.

Costs of Misclassification – High Stakes!

Inaccurate classification of workers - heavy fines and penalties.

Federal and state tax law impacts on revenue receipts.

The National Labor Relations Act (N L R A) – re unionization rights.

The Fair Labor Standards Act (F L S A) – min wage, overtime rates.

Social Security Act payroll deductions.

State labor codes, worker’s compensation and unemployment compensation laws.

Enforcement coordination among I R S, Dept. of Labor, 45 states.

Individual state initiatives.

‘Willful’ misclassification subject to even more severe penalties.

Independent Contractors: Safe Harbors (I R S)

I R S Classification Settlement Program penalty avoidance where:

The business must have never treated the worker as an employee for the purposes of employment taxes for any period.

All federal tax returns with respect to this worker were filed consistent with the worker being an independent contractor.

The company has treated all those in positions substantially similar to that of this worker as independent contractors.

The company has a reasonable basis for treating the worker as an independent contractor.

2011 – Voluntary Classification Settlement Program.

Companies not under review may voluntarily reclassify and avoid some taxes, fines, penalties and interest.

IRS Advance Rulings available, per filing form SS-8 (but note agency preference for ‘employee’ classification).

Definitions of “Employee” 1

Statute definitions are circular, unhelpful to classification process.

Therefore, Courts, agencies use ‘duck tests’ to analyze true nature of working relationships (‘If it quacks, flies, swims like a duck . . .’).

Common-law agency test – most common.

Emphasizes which party has right to control the work (exercised or not).

Example: I R S 20-factor analysis example.

Economic Realities Test – Dept. of Labor.

Emphasis on economic in/dependence of worker. Five factors examined.

ABC Test – trending - CA, now 12 other states.

‘Employee’ default, unless 3 stringent criteria met re: supervision, integration of the work and independence of the worker.

‘gig’ economy controversies loom in fast-growing segment of economy (see next slide).

Other Non-traditional work relationships 1

Re gig work: 2022 ‘TeamStage’ study: 57M U S workers participate in ‘gig’ work, with 44%, mostly younger workers relying on it as primary income source. Classification unclear pending court rulings with major implications.

Other work relationships: Contingent or temporary workers (employees or contractors).

Work is temporary, sporadic, or differs from the norm of a full-time employment.

Often supplied by staffing agency - agency sometimes acts as ‘employer’ where classification is clear (see Joint Employers slide).

Continuing uncertainties around ride-share drivers, other gig workers: CA ‘Prop 22’ referendum in 2020 created hybrid classification for those drivers (alone); result on appeal, 2023.

Other Non-traditional work relationships 2

Trainees, Interns and Volunteers:

Trainees: workers exempt from F L S A minimum wage and OT while receiving formal vocational training (6 criteria).

Interns: “primary beneficiary test” determines paid (employee) or unpaid status – seven factors consider educational vs. commercial elements of relationship; concern for worker displacement (Dept of Labor enforcement re F L S A rules).

Volunteers: unpaid workers limited to work for public service, religious, humanitarian or similar non-profit organizations; for-profit entities excluded.

Contingent Workers and Joint Liability

Important to know whether staffing agency or client bears contingent employment burdens, potential liabilities.

Staffing firms can be employer.

Example: worker is paid by agency, training provided.

Provide workers’ compensation coverage.

Client can also be (‘joint’) employer: 6 factors, including:

Training provided; hire/fire control, supervision exercised by client (this can be difficult to avoid, in practice).

Location, Continuity of assignment.

‘Joint and several liability’ of both firms.

Contract of engagement sets terms – recommend careful review and negotiation to protect client firm.

‘Third Party Interferer’ liability if client discriminates illegally.

‘Applicants’ coverage

Workers who seek employment are protected from hiring discrimination Further, when must hiring documents be retained by employers?

Four general requirements for ‘Applicant’ protection and documents retention (per federal O F C C P):

Person submits expression of interest for specific opportunity.

Employer considers person for such opportunity.

Person possesses basic qualifications for position.

Person does not remove self from consideration.

E E O C Unform Guidelines on Employee Selection in accord.

Management Tips: Worker Status

Understand inherent difficulties and important consequences of worker classification.

Written agreement recommended, with understood classification by the parties (not dispositive – see ‘duck tests’).

If employment contemplated, indicate its duration or ‘at-will’ (see chapter 2).

If independent contractor contemplated, articulate worker’s control and outcomes anticipated. Deadlines preferred over set hours.

Specify responsibilities for taxes, expenses, materials and tools.

Preferable to pay independent contractors for results rather than time.

Employer-provided training is a strong indication of employee status.

Independent contractors hire their own assistance.

For close questions, seek legal advice, or file for I R S advice ruling, Form SS-8.

Remember that the writing is important, but the actual performance is key to proper classification. Training/oversight of the relationship may be necessary.

Defining ‘Employer’

Important to determine who must comply with laws.

Usually Supervisors rarely personally liable for on-job misconduct

evident (‘private clubs,’ Indian tribes exceptions).

Commerce Clause of U S Constitution limits federal power to regulation of ‘interstate commerce.’ Federal laws reflect that limit per threshold size of covered employers. Examples:

Civil Rights Act (1964): 15+ F T E’s during 20+ weeks of year.

Age Discrimination in Employment Act (1967): 20+ F T E’s during 20+ weeks.

Americans with Disabilities Act (1990):15+ F T E’s.

Fair Labor Standards Act (1938): 2+ F T E’s and $500K annual revenue, or direct worker participation in interstate commerce.

Note that many states have similar laws with lower size thresholds.

Non-compete Agreements 1

Every employee owes ‘duty of loyalty’ while employed

‘Non-compete’: Employee specifically agrees not to:

enter into competition with the employer for a specified period of time and/or within a specified region, or

solicit employees or customers, or

disclose employer’s trade secrets and other confidential information.

Powerful deterrent to switching jobs, thus favoring employers.

Trend toward broadening non-compete terms to more jobs.

2023 Proposed F T C Rule would invalidate most non-competes.

23 States prohibit or restrict non-competes in employment context. Public Policy choice to not discourage worker mobility.

Other states limit coverage by profession or ‘reasonableness’ of terms.

Non-compete Agreements 2

What constitutes a valid non-compete?

It protects legitimate business interests and is ancillary to a legitimate business relationship.

It is no more broad than necessary to protect those interests.

It is “reasonable” in job scope, territory and duration, in the context of the job and specific industry.

It is not contrary to the public interest.

Note that they are usually included in job offer to ensure enforceability as contract law ‘consideration.’

Non-competes and Trade Secrets

Trade secrets: information that has value because it is secret, and company takes reasonable steps to keep it so.

May include confidential information, customer preferences, marketing strategies, etc.

Non-disclosure Agreements (N D A’s) with key employees should include Trade Secrets coverage.