Chapter 14Employent Law
Written By: Matt Sanderson & Jason Edwards-- Edited by Nicholas Schworrer & Shelby Pieper
Revised By: Tiffany DeOrnellis, Robin Martz, Adam Trusty, Josh Sievers, Daniel West
This chapter focuses on the crucial and delicate employer-employee relationship of today’s workplace. It deals with the latest topics that have attracted much attention from society including: employment discrimination, employment at will, employee privacy, and common law claims for wrongful discharge. These topics, along with others, are discussed in depth throughout the chapter.
- The Doctrine of Employment at Will
The doctrine of employment at will states that either party in an employment relationship can terminate the job at any time with good or no reason at all. However, if an employment contract exists, then both parties are subject to the terms of that contract. Additionally, employers cannot terminate employees based on discrimination, family or medical leave, refusal to commit illegal acts, or whistle blowing.
A whistleblower is any person who raises concerns about fraudulent or illegal activities within an organization. A whistleblower may bring these accusations to another member of the organization. An example of this would someone telling their supervisor that they witnessed a fellow employee stealing from the company. An individual may also bring it to the attention of someone outside of the organization, such as a government regulatory body, a watchdog agency, or even to the media in some situations. A famous example of a whistleblower that did this would be Jeffrey Wigand; Wigand revealed his companies manipulation of nicotine in cigarettes and many other concealed health concerns to the public at large on the television program 60 Minutes.
- Exceptions
Many states have common law that gives employees some rights to receive damages for wrongful discharge or unjust dismissal from a job. There are also employee protections set up in Title VII and various other similar legislatures.
- Public Policy Exception
Suits against former employers can be brought up and won under the public policy exception if the employee was fired because they refused to commit an unlawful act, had to perform an important public duty such as whistle blowing or jury duty, or were exercising their legal rights. There may also be some cases dealing with labor contracts with a union when the employee should bring a suit against their employer.
- Contracts
A case can also be brought against the employer because the employer broke a contract with an individual employee. Employees can also bring up charges against employers if the employers fail to fulfill the promises made to the employees during job interviews, orientation, or benefit plans. To avoid wrongful termination suits employers must follow the termination procedures set forth in the employee handbook or by company policy. Fraud can also give rise to liability.
3. Discrimination Laws.
Discrimination laws limit what an employer can legally do. These laws are discussed throughout the chapter. Remember, however, that discrimination laws only cover certain protected categories.
II. Legislation Protecting Employee Health and Well-Being
Workers Compensation Laws are designed to protect workers who are injured on the job and to provide a means of financial support should they become permanently disabled. Before Workers Compensation was implemented it was difficult for employees to sue employers for negligence. Prior to workers compensation, when someone was hired for a job the risk that was involved within the job was an assumed risk. This meant that a person accepting a position or job automatically assumed the risks that came along with it. Employees would get hurt and be financially unable to pay for the medical bills so they would turn to the employers for help. The employers claimed the employee had assumed the risk by taking the position thus they were not responsible for the bill. In 1911 state workers compensation statutes were instated to fix these problems3.
A. Basic Features of Workers Compensation
Workers compensation only protects employees while at work; not independent contractors. If a worker is not covered by workers compensation, they are covered by a similar alternative system. The only employers that are exempt from purchasing workers compensation insurance are employers with three or fewer employers.
Although workers compensation law guidelines may vary from state to state, they all entail the same basic features. This allows employees to recover under strict liability and eliminates the need to prove employer negligence. Workers compensation also eliminates three classic defenses employers use to deny negligence. The first defense it negates is contributory negligence. Contributory negligence is a case in which both parties contribute to the action in question. Secondly, workers compensation eliminates the argument discussed earlier, assumption of risk. Finally, workers compensation eliminates “the fellow-servant rule.” The fellow-servant rule states that an employee injured at work has to bring a case against the employee causing the injury rather than the employer. Workers compensation is the option for immediate action given to employees who are hurt and have injuries that can be covered by the plan. If an injury is intentionally brought onto employees by the employers, the case is usually handled outside of workers compensation (see OSHA).
Studies have shown that workers compensation greatly increases the probability of the injured employee recovering financially. The recoveries usually include: medical expenses (including rehabilitation programs), disability benefits, specified recoveries for loss of certain appendages or body parts, and death benefits are given to the survivors and the dependents of the dead.
Perhaps the biggest benefit to the employer is that the amount recovered under each workers compensation case is often less than it would be if it was a negligence suit. Unfortunately in response to this workers often deny being covered by workers compensation so they can file a tort case against their employers3.
1. The Work Related Injury Requirement
Employees are only excused from work to recover from work related injuries. Excessive absences due to non-work related injuries are liable for punishment. To be considered work related the injury must arise out of the employment or happen during the course of employment.
A close connection between the nature of the job and the injury are required for an injury to be classified as arising out of the employment. Various tests were created to define the connection between the injury and the nature of the job. The first test is the increased risk test. In this test, the injured employee recovers only if “the nature of her job increases her risk of injury above the risk to which the general public is exposed.” The second test is the positional risk test. In this test, the employee recovers from injury if the job caused the employee to be at the place and time where the injury occurred.
To be covered under the course of employment, the injury must have happened within the time, place, and circumstances of the employment. Courts generally go against supposed cases claiming injuries and mental problems directly related to horseplay. Courts almost always recommend that the case be held outside of workers compensation in cases in which the injury is self-inflicted. If an employee’s preexisting condition is aggravated, the case is usually covered under workers compensation.
B. The Occupational Safety and Health Act
According to the Supreme Court the Occupational Safety and Health Act of 1970 (OSHA) is “for the purpose of ensuring safe and healthful working conditions for every working man and woman in the nation.” This act requires employers to provide employees with a working environment that is free from hazards that may cause death or physical harm. OSHA administers a set of publicly released requirements that employers must abide by based on their specific type of business. It is a constitutional right for an employee to be able to request that an employer be reviewed under OSHA’s standards. OSHA must first have a warrant, and like most warrants it must have probable cause. These requirements apply to all businesses that deal with interstate commerce except: the US government, the state and their political subdivisions, and certain industries regulated by other federal legislation are exempt from this legislation3.
C. The Family and Medical Leave Act
Congress instated the Family and Medical Leave Act in 1993 and the act “covers those employed for at least 12 months, and for 1,250 hours during those 12 months, by an employer employing 50 or more employees.” Under this act, those eligible, are entitled to a total of 12 work-weeks of leave during any 12 month period for one or more of the following reasons: the birth and care of a child, adoptions, care for a family member with a serious health problem, or an employee’s own serious health problems. In addition to this, upon the employee’s return, the employer is required to give the employee the same or an equivalent position. Also, the employer cannot deny the employee any benefits acquired before the leave began. Top management of the thecomponyis excluded from protection.
II. Legislation Protecting Wages, Pensions, and Benefits
Social security was instated in reaction to what the executive powers at that time thought were the dangers of the modern American life (poverty after retirement, unemployment, and the burdens of widows and fatherless children). The premise of social security is to provide financial assistance to retired employees. FICA (Federal Insurance Contributions Act) was instated in order to finance this operation. FICA has the power to make a flat rate tax on all employee income below a certain base figure. Not only does the employer pay this amount (currently 7.65% of the first $110,000 of income as of 2012), but the employee is required to match the employer’s payment. If an individual is self-employed then, they are required to pay both parts of the self-employment tax (15.3%). The self-employment tax covers the liability for FICA of both the employee and employer in a single tax.
FICA also oversees and funds other types of financial assistance available to workers. It allots survivor’s benefits to family members of deceased workers, gives disability benefits to the handicapped, and pays a major portion of all medical benefits for the elderly under the Medicare System.
The Medicare System is for people age 65 or older. It also covers people younger than 65 with certain disabilities. Essentially the Medicare System does three things. First, it deals with hospital insurance, helping to cover inpatient care in hospitals, nursing facilities, hospices, and home health care. Second, Medicare aids in medical insurance. It helps cover doctors’ services, outpatient care, and some preventative services. Finally, Medicare helps with prescription drug coverage. Medicare helps cover the cost of prescription drugs to make them more affordable2.
- Unemployment Compensation
Unemployment compensation is a system that makes payments to unemployed or displaced workers. Although unemployment compensation has the same principles throughout the country, each state has its own guidelines that fall under federal rules. Generally states require that the employee has been employed for a certain amount of time and has earned a certain amount of money in order to be eligible for unemployment compensation. However, if an employee is fired or quits for certain reason, they can be denied benefits. In most states, strikers are not eligible. In order to continue to receive unemployment benefits, the individual must provide proof that they are actively seeking employment and are not currently employed. The money is collected from employers with both a state and federal tax. The amount of tax can be reduced if the employer has a record of low layoffs. The federal tax is given back to the states which administers the program (subject to some federal regulation). The amount paid is a certain percentage of income up to a cap. The time that it is paid is typically 26 weeks though in times of high unemployment it may be lengthened to 39 or 52 weeks.
B. Employee Retirement Income Security Act of 1974
Prior to 1974, employers were not required to disclose financial information about pension plans to their employees and often these plans were mismanaged. A few of the most common abuses were: arbitrarily ending participation in the pension plan, arbitrary benefit reduction, and inappropriate use of theplan funds. The response to these actions was the Employee Retirement Income Security Act of 1974 (ERISA). The act is administered by the Department of Labor and the Internal Revenue Service.
ERISA established a set of standards for pension plans but does not require an employer to offer such plans to employees. ERISA checks for abuses and requires employers to uphold the provisions set forth in the pension plan. This act requires that the managers of the pension funds diversify the plan’s investments to avoid large monetary loss because the employee is placing trust in the employer to appropriately control the plan assets. ERISA also requires the administrator to keep accurate records and provide annual reports to the plan participants and give details of the contents of the report.
Pension plans can provide some tax benefits if they are considered to be a qualified plan. Qualification entails three requirements. The first is that it must offer a “joint-and-survivor annuity” option to retirees. This option allows for the retiree to collect a fixed annual amount until death and then the surviving spouse receives a reduced annual amount until their death. The second is that the plan cannot discriminate based on compensation level or job title, it must be equally available to all employees. And finally the plan must follow certain vesting requirements. Vesting is the point at which an employee is guaranteed certain retirement benefits no matter if they remain within the employment of the company. ERISA keeps employers from extending vesting dates to avoid future pension obligations that they agreed to for employees who are fired or change jobs3.
Smith has been an employee for Jones Company for seven years. Jones offers their employees a pension plan. Smith participates in the pension plan offered by Jones. The following shows how the pension plan could be vested for Smith.Defined Benefit Pension Plan / Defined Contribution Pension Plan
Option 1 / Option 2 / Option 1 / Option 2
Years of Emp. / % Vested / Years of Emp. / % Vested / Years of Emp. / % Vested / Years of Emp. / % Vested
1 / 0% / 1 / 0% / 1 / 0% / 1 / 0%
2 / 0% / 2 / 0% / 2 / 0% / 2 / 20%
3 / 0% / 3 / 20% / 3 / 100% / 3 / 40%
4 / 0% / 4 / 40% / 4 / 100% / 4 / 60%
5 / 100% / 5 / 60% / 5 / 100% / 5 / 80%
6 / 100% / 6 / 80% / 6 / 100% / 6 / 100%
7 / 100% / 7 / 100% / 7 / 100% / 7 / 100%
- The Fair Labor Standards Act of 1938
The Fair Labor Standards Act of 1938 (FLSA) regulates wages and hours by giving employers two guidelines they must follow. The FLSA sets a minimum wage which changes over time due to inflation or other factors. The current federal minimum wage is 7.25 per hour. Missouri’s minimum wage will increase to $7.35 on January 1, 2012. Employers have to pay the higher rate (state or federal.The FLSA also requires that employers pay employees a time-and-a-half (1 ½) rate for working time over forty (40) hours within a work week. However, there are some employees, who are exempt from this requirement, including: seasonal workers, casual babysitters and paid companions for the elderly or infirm, fishermen, etc.
The coverage of FLSA is complicated. Generally, it applies to “significantly” sized businesses that are dealing in interstate commerce. Federal, state and local governments are also included in this coverage.
FLSA forbids child labor and the shipment of goods produced by child labor throughout the United States. It is deemed oppressive child labor if the company has employed any 14-15 year old children, unless allowed by FLSA. In addition, child labor laws state that a business may not employ children of the ages of 16-17 to work in occupations deemed hazardous by FLSA.
IV. Equal Opportunity Legislation
- Equal Pay Act
The Equal Pay Act (EPA) was amended to the FLSA in 1963 and made it illegal to discriminate the amount of pay a worker received based on his or her gender. In order for a worker to have a case against the employer based on the EPA the worker must show they meet all of the substantially-equal-work requirements. That is to say, the plaintiff is being paid less than another worker because of sex when they are putting in equal effort, are equally skilled, have the same amount of responsibilities, and have similar working conditions. It should be noted that working conditions do not need to be identical, merely similar.
If there are inequalities in pay but the jobs are found to be substantially equal then the employer must prove the pay difference is based on seniority, merit, quality or quantity of work, or anything other than gender. If any of the first three defenses are to be used the employer must also show a system of how their pay grade works to both genders equally. The fourth is a catchall for any other foreseeable issues.
If the employee wins a suit filed under the EPA they are to be paid the amount of back pay lost due to discrimination. It is important to note that minimum wage disputes and overtime disputes are not covered here. The EPA is enforced by the Equal Employment Opportunity Commission (EEOC). Violations may also violate the Civil Rights Acts (below).
V. Title VII of the Civil Rights Act