Understanding Employment Laws

Understanding Employment Laws

If you are your company's only employee, worrying about whether an employee will sue you should be the last thing on your mind. But if you have even one additional employee – the possibility exists. Here's how you can limit the likelihood of employee litigation.

The key is to know and understand which laws and guidelines apply to your company. Start with the number of people you employ. "Employees" refers to full-time workers, part-time workers, and temporary or seasonal workers. ("Employees" does not refer to independent contractors, vendors, etc.)

All of your policies and practices, regardless of the size of your company, must meet the laws overseen by the Equal Employment Opportunity Commission (EEOC), especially in regard to hiring practices, discrimination, and workplace fairness.

Other laws your company may be subject to:

  • If you have fifteen or more employees: You must comply with all Americans with Disabilities Act (ADA) requirements, all Pregnancy Discrimination Act (PDA) requirements, and Title VII of the Civil Rights Act. If you have less than 15 employees, the government assumes that the cost of meeting ADA requirements may be prohibitive and limit your ability to do business.
  • If you have twenty or more employees: In addition to the above, you must comply with all Consolidated Omnibus Budget Reconciliation Act (COBRA) requirements for companies and all Age Discrimination in Employment Act (ADEA) requirements.
  • If you have fifty or more employees: In addition to all of the above, you must comply with all Family and Medical Leave Act (FMLA) requirements.

Again, keep in mind that an employee is an employee, whether full-time or part-time. While you may not be required to offer FMLA to a part-time employee, that employee is counted toward your total head-count. Also, keep in mind that companies with federal contracts may be required to follow employment laws based on the value of those contracts and not on the number of their employees. (For example, signing a federal contract to provide services for more than a certain amount of money could automatically trigger your company's need to comply with all federal employment guidelines, even if you have fewer than fifteen employees.)

State Laws Vary

State and local employment laws can also apply. A number of states enforce anti-bias laws for companies with one or more employees. Some states also follow a different definition of what constitutes an "employee." Other states follow a broader definition of "discrimination" and include marital status and sexual orientation, categories not covered under federal civil rights laws.

In other words, you must know federal guidelines and your state's employment guidelines. You can get state-specific information from the Department of Labor website or from a local business law attorney.

Now let's look at a few of the most common employment law issues.

Intellectual Property

Every successful business takes advantage of its ideas – its intellectual property. Intellectual property does not only refer to inventions or breakthroughs; it also refers to processes, procedures, customer information… anything that sets your business apart and makes it unique.

To keep your intellectual property safe, start with non-disclosure agreements (also called confidentiality agreements). You may require representatives from other companies to sign confidentiality agreements before you give them access to sensitive information. You can also require employees to sign confidentiality agreements to ensure they do not share sensitive information with competitors.

But keep in mind that employee-confidentiality agreements are difficult to enforce. One way to ensure your intellectual property stays your intellectual property is to limit access to sensitive information. Employees who do not need access to customer credit card information should not be given that access. Employees who do not need access to customer billing records should not be given that access. Not only will you avoid potential losses but you will also protect the employee from unjustified accusations.

Non-compete agreements can also be used to limit the loss of intellectual property. For example, you may require an engineer to sign a non-compete agreement, stating she will not open a competing business within a certain distance of your company. Non-compete agreements tend to be easier to enforce than employee-confidentiality agreements, if for no other reason than you usually know when a former employee starts a rival company; you may never know what information a former employee shares with his or her new employer.

Employee Relations

The most common complaints made by employees are on the basis of discrimination or harassment. Reasons for complaint include (but are certainly not limited to):

  • Deciding who should be offered employment (and how that process takes place)
  • Under what terms and conditions employment is offered
  • Deciding who to promote, transfer, train, or provide other benefits to
  • Deciding under what conditions an employee can be disciplined, what that discipline includes, and how that discipline will be carried out
  • Deciding when and under what conditions to fire an employee
  • Sexual or racial harassment

Those are the basics; the possibilities are almost unlimited.

As an employer, how do you avoid discrimination or harassment? Here are some basic steps:

  • Develop clear policies stating harassment and discrimination will not be tolerated
  • Ask all staff and new employees to read and sign a copy of the policies
  • Display your policies prominently
  • Provide training on discrimination and harassment
  • Establish a formal process for handling complaints (ensuring confidentiality as well)
  • Respond quickly and seriously to all complaints, and investigate those complaints thoroughly
  • Deal with offenses consistently and in compliance with your policies as well as with state and federal laws

Employment law is such a broad and complex subject that many lawyers choose to specialize in this area. Consider consulting with an experienced attorney to ensure your company not only meets current laws and guidelines but also has an effective process in place to handle, quickly and fairly, any complaints.

Employee Status

For tax purposes, workers are classified either as exempt or non-exempt. Exempt employees do not qualify for overtime; non-exempt employees do qualify for overtime.

The difference is critical. While many small business owners assume an employee is exempt if she or he is paid on a salary basis, it may in fact not be the case depending on the duties that person performs. In simple terms, an employee performing a repetitive task is in most cases considered non-exempt and therefore qualifies for overtime pay – even if the employee has a lofty job title.

To qualify as an exempt employee, the employee's job duties must fall under one of the following categories:

  • The employee works in a management role, with his or her primary responsibility being to manage, supervise, or oversee other employees. Typically, to be considered "management," the employee must have the authority to discipline, hire, and fire employees and to use judgment in making business decisions.
  • The employee works in an administrative role, handling office duties in support of general business operations, with some independent judgment and discretion allowed. Administrative assistants, for example, are often considered exempt employees.
  • The employee's work requires advanced knowledge gained through specialized study. Teachers, engineers, attorneys, and accountants all have advanced knowledge gained through specialized study.
  • The employee serves as an outside salesperson who regularly works away from the company's place of business.

If an employee falls under one of these categories, he or she is exempt and does not qualify for overtime while performing normal job duties. ("Normal" means performing job functions as listed in the employee's job description.) An employee who does not fall under one of the above categories is non-exempt and does qualify for overtime pay; failure to do so could open your company up to complaints and lawsuits.


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