Avoiding The Courthouse: A Step-By-Step Program For Complying With Basic Employment Laws

Co-written by Susan S. Sampson, Esq. And Kathy A. Krysiak, Esq.

Companies that fail to comply with basic employment laws undertake serious legal risks. As of the time this article was written -- early 2001 -- high profile companies are suffering publicly and in the courts due to their poor employment law practices. For example, Coca-Cola Company is attempting to settle a class action lawsuit for race discrimination. Microsoft Corporation has struggled with a lawsuit brought by temporary and independent contractors who contend they were denied employee benefits. Several other notable corporations, including Taco Bell and Wal-Mart, face class actions brought by employees claiming they should have received overtime pay.

Despite the costs that cases of this sort impose on employers, companies of all sizes and levels of experience continue to fall short in complying with basic state and federal employment laws and regulations.

Given the breadth and complexity of today's employment laws, the costs of compliance are significant. Keeping abreast of even the most basic legal requirements may seem daunting. Still, however difficult it may be to learn and comply with applicable employment laws, the cost of non-compliance is even greater.

This article provides an overview of the areas of employment law that most commonly give rise to issues in the workplace. By following the 17 "Steps" laid out below considerable progress can be made toward preventing workplace disputes.

STEP 1: Be Aware Of The Broad Application Of Anti-Discrimination Laws

Both federal and state anti-discrimination laws make it unlawful for employers to make employment decisions based upon any one of an increasingly broad range of prohibited categories, which differ from state-to-state but which typically include race, color, religion, national origin, age, gender, sexual orientation, national origin, disability, and veteran status. The anti-discrimination laws also protect employees from retaliation for having complained about, or having supported another employee's complaint about, discriminatory treatment.

Contrary to some employers' beliefs, the anti-discrimination laws do not apply solely to current employees. Rather, such laws prohibit discrimination and retaliation in all phases of the employment process, including interviews, hirings, compensation, benefits, promotions, and terminations. The anti-discrimination laws, therefore, afford protection to both prospective and current employees. In some instances, even former employees enjoy protection.

Employers should also be aware that certain anti-discrimination laws govern conduct outside the traditional employment context. The Massachusetts Equal Rights Act, for example, prohibits most forms of discrimination in the making and enforcement of contracts, including those entered into by independent contractors. Many other states have enacted similar legislation. Employers, therefore, cannot insulate themselves from liability merely by characterizing their employees as independent contractors.

None of this is to suggest that employers are powerless to protect themselves. By training and educating one's workforce, as well as strictly enforcing internal anti-discrimination and harassment policies, employers can markedly reduce their exposure. This is particularly true in light of recent United States Supreme Court decisions that afford employers some protection from liability - or at least from awards of punitive damages - when they have engaged in meaningful, good faith efforts to discourage discrimination and harassment in the workplace.

STEP 2: Examine Pre-Employment Practices

An employer's anti-discrimination responsibilities begin even before a single applicant is interviewed. Employers must ensure that their recruiting methods, job descriptions, and pre-hire tests do not violate applicable laws. Such violations may occur when recruiting methods - whether word-of-mouth, newspaper, or on-line - fail to reach certain protected classes, or when a pre-hire test or job description targets non-essential qualifications and tends to exclude members of a protected class. Employers may also subject themselves to liability by making impermissible inquiries during interviews or on employment applications. These include inquiries regarding applicants' marital status, children, medical conditions, certain criminal records, national origin, and disabilities.

Employers should assess the diversity of the population to whom their recruiting methods are directed, and determine whether any word-of-mouth or referral programs may have a disparate impact on a particular protected class. Effort and care should also be taken when drafting job descriptions and preparing job-related tests. Likewise, personnel involved in interviewing should be educated as to the proper areas of inquiry, and employment applications should be reviewed for legal compliance.

Both the federal Americans with Disabilities Act and the Massachusetts anti-discrimination statute prohibit medical inquiries and tests during the pre-hire stage. As a general rule, medical inquiries and examinations cannot be utilized before an employee is offered employment. At the pre-offer stage, employers are limited to posing questions that are not disability-related and which merely seek to elicit information concerning an employee's ability to perform specific job-related functions. Once, however, a conditional offer of employment is extended to an employee, the employer may require a medical examination and make disability-related inquiries so long as such examinations and inquiries not only are made of all entering employees in that particular job category but are job-related and justified by business necessity.

STEP 3: Carefully Prepare Written Offers Of Employment

An offer of employment has much more significance than merely inviting an individual to join a company. Indeed, mishandling an offer of employment can expose an employer to a host of potential liabilities. Typical mistakes include promises of employment for a specific period of time; promises that employment may be terminated only for poor performance; the failure to make clear that the employee must hold the company's proprietary and confidential information in confidence; and, in instances where stock options are part of the compensation package, the failure to clearly set forth the prerequisites to an employee's grant of options.

To best minimize liability, a company should ordinarily extend employment offers in writing. A basic offer letter identifies the employee's position and start date; defines salary only in terms of the amount to be paid at each pay date (as opposed to referencing an annual salary); and makes clear that the granting of any stock options is subject to the board of directors' approval. In addition, and perhaps most fundamentally, offers should clearly state that employees are employed at-will, are not granted employment for a specific term or period, and may be terminated at any time, for any or no reason, with or without notice. Finally, having employees sign a copy of their offer letter will go a long way toward avoiding battles over the actual terms and conditions of their employment.

STEP 4: Properly Classify Workers As Employees Or Independent Contractors

Despite repeated efforts by employers, classifying workers as independent contractors is not the panacea some may think. Far too many employers classify their workers as independent contractors, even where all the facts and circumstances point to the existence of a genuine employment relationship. This is a dangerous practice - considerably more dangerous than most employers appreciate. The distinction between employees and independent contractors is both critical and real. Employees, but not contractors, are entitled to the benefit of federal and state wage laws, including overtime and minimum wage provisions. Employers typically must withhold taxes from wages paid to employees, but not independent contractors. In addition to withholding employees' income taxes, employers must withhold social security taxes (often referred to as "FICA" - Federal Insurance Contributions Act) and pay a Federal Unemployment Tax Act tax. Furthermore, only employees are generally eligible for participation in retirement and benefits plans.

The consequences of incorrectly classifying workers are considerable. As Microsoft Corporation can attest, an employer that classifies true employees as independent contractors bears the risk that its workers will sue for benefits and other privileges under company plans that, according to their terms, apply to all employees of the company. Likewise, if governmental taxing authorities conclude that employees have been treated as independent contractors, an employer not only may be assessed all unpaid employment taxes, plus interest and penalties, but will risk...

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