The Most Common Reasons U.S. Employers Get Sued
This article was written by Jonathan Strassberg, US Attorney at Law/Solicitor of England & Wales at Truecourse Ltd.
If you are a European SME expanding to the U.S. how do you grasp the 3 tiers of employment law, federal, state and local? There is a lot to take in when it comes to employment law in the U.S., one place to start is by understanding the most common employment battles companies face. Let’s get started with federal laws and then move to state and local jurisdictions.
Federal Laws Employers Should Know To Avoid a Lawsuit
While there are at least 13 federal laws governing employment, for purposes of the average SME wishing to avoid a lawsuit, the most important one is the Fair Labor Standards Act (FLSA), which governs hours worked and wages. The federal laws set minimum standards of compliance for not only the FLSA, but also discrimination, family medical leave, disabled workers, and so on. However, the states are free to establish higher standards as well as establish other protections not present on the federal level. It’s here, on the state level, that most employment law is found and where most lawsuits are filed.
The Fair Labor Standards Act (FLSA)
The FLSA primarily governs minimum wage and overtime pay. It divides workers into two classes:
Workers that get the full protection of the law.
Workers that are exempt in whole or in part.
As you might imagine, the vast majority of employees are not exempt and have a right to be paid 150% of their hourly wages for hours worked in excess of 40 hours/week. The exempt employees fall into 4 categories but are generally those with executive responsibilities, specialized or professional qualifications, or broad authority and leeway in judgment in carrying out their responsibilities.
Naturally, many employers want as many of their workers as possible to be exempt and thereby avoid the 150% wage rule, and that’s where the federal lawsuits come in. The federal penalties and civil settlements can be significant. So, taking advice on the federal FLSA is important, but must be in combination with any state FLSA that may also apply. Yes, there are both federal and state versions of the FLSA and this is where things start getting complicated.
Common Reasons Employers Get Sued
Some of the most common reasons why U.S. employers get sued by their workers, in no particular order, are:
1. Fiddling With Wages
Fiddling with wages refers to an employer withholding or docking wages, paying wages less than twice per month and illegal reductions in overtime rates. Many states require wages to be paid at least twice per month unless the worker is exempt from the FLSA or signs a clear written consent, which comes as a surprise to UK companies new to the U.S. employment landscape. Docking wages for losses or damage caused by a worker is also prohibited in most states. Additionally, all states prohibit lowering overtime pay below 150% of wages.
2. Misclassifying Workers as Independent Contractors
Misclassifying workers as independent contractors is not only a violation of both state and federal laws but is an open invitation for lawsuits. Employers often misclassify workers to avoid payroll taxes as well as benefits payments. If a worker agrees to be treated as a contractor, it doesn’t automatically make them one, nor does it prevent a future lawsuit from that worker. If a worker is not classified correctly, the employer will always be vulnerable to serious fines and penalties in addition to a lawsuit from workers. For more information on this topic, click here.
3. Misunderstanding At-Will Employment
In the U.S. the law says you can fire a worker for any reason, at any time, with no notice, correct? Well, partially correct…but in reality, this is not the case. The ‘At-Will’ employment doctrine doesn’t protect employers from implied contracts of employment that vitiate at-will status. Implied contracts can be found in an employee handbook; or inactions taken or words spoken by an employer, even inadvertently. Moreover, under no circumstances can a worker be fired for illegal reasons, for instance, based upon illegal discrimination. So, if you’ve fired a worker without documenting poor performance and did not provide a written reason, it is possible that the worker and their lawyer will find that the reason for the firing was illegal.
4. Unlawful Pre-Employment Questions
Poorly drafted or administered interview questions can lead to a claim of discrimination or violation of federal or state protection when the interviewee doesn’t secure the job. Therefore, it is important that all interview questions are screened for such inadvertent fallout. For example, asking what year someone was born, whether they own their own home, have a disability, or are married, can all be interpreted and claimed as having illegal motivations. Many jurisdictions make it illegal to ask about salary history as well as prior arrests. Furthermore, running a credit check without proper written consent is illegal.
5. Failure to Follow Company’s Own Handbook or Policies
If your employer handbook has a grievance or disciplinary procedure that you do not follow, that’s an invitation to a lawsuit. A similar situation arises where there’s a review procedure in a handbook that isn’t adhered to. The typical example is a worker whose poor performance is softened by a compassionate supervisor in his reviews and who is later fired. A lawsuit can be based upon the discrepancy between the performance reviews and the termination. Consistent, clear, and transparent documentation with workers is always key.
6. Discrimination Treatment
Employment laws vary from state to state, California is very protective of workers rights, with New York and Massachusetts following closely behind. Southern, midwestern and some western states tend to have a slightly more relaxed regulatory environment. In every case, state law must be researched and understood in order to avoid unnecessary litigation and be aware of what is classed as discrimination treatment.
7. Poorly Handled Termination
Just because you’ve managed to rid yourself of a poor performing worker doesn’t mean your troubles are over. The manner in and documentation in which you terminate the worker is crucial. Did the termination follow a poor performance review? Are there any facts from which a claim of discrimination could be made? Have you obtained a mutual release through a valid separation agreement? If the employee is over 40 years old, have you protected yourself from a claim under the Older Workers Benefit Protection Act? The wrong answer to any of these questions can result in an expensive dispute resolution.
Local Laws U.S. Employers Should Know to Avoid a Lawsuit
Once an employer has gained familiarity with federal and state laws, local laws may also be important. This is certainly the case with large, “blue state” cities, such as New York City. NYC, Chicago and Los Angeles all have their own minimum wage and paid sick leave laws, in addition to about 33 other cities. Certain cities require employers to post workers’ rights in conspicuous areas. For example, San Francisco requires paid parental leave and healthcare security ordinances. The list is varied, extensive and must be researched and complied with to avoid litigation or penalties.
Keep on Top of U.S. Employment Law to avoid Lawsuits
It’s important to bear in mind that U.S. employment law is constantly evolving on the federal, state and local levels. Employers must keep abreast on an annual basis of changes in their jurisdictions, and should factor this process in as part of an annual legal health check. An ounce of prevention is worth a ton of cure.
If you’d like to learn more about how PGC can help you to employ workers in the U.S., get in touch to find out how we can help you navigate the complex U.S. market and ensure you remain compliant.
Disclaimer: PGC does not endorse any personal views or opinions of the author. All information here is for general informational purposes only and is not intended to be a substitute for professional and/or legal services.