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Essentials of Business Law, 9th edition
INSTRUCTOR’S MANUAL
Chapter 31 The Employer–Employee Relationship
LESSON OVERVIEW
Chapter 31 intends to describe the employer–employee relationship. The chapter elucidates the duties
of an employer and employee to each other, distinguishes between employees and independent
contractors, discusses the doctrine of employment at will, lists some typical clauses in an employment
contract, identifies some typical policies contained in an employee handbook, and describes how
employers expose themselves to legal liability when they provide employee references. Finally,
students’ understanding of the topics is evaluated through objective-type questions, discussion
questions, and case scenarios. Students are encouraged to conduct their own research through the use of
the Internet and other sources.
CHAPTER OUTLINE
A. DUTIES OF EMPLOYER AND EMPLOYEE TO EACH OTHER (p. 522)
B. EMPLOYEES VERSUS INDEPENDENT CONTRACTORS (pp. 522-524)
1. Independent Contractors (pp. 523)
2. The Internal Revenue Service Test (p. 524)
C. THE DOCTRINE OF EMPLOYMENT AT WILL (p. 524)
D. EMPLOYMENT CONTRACTS (p. 525)
E. EMPLOYEE HANDBOOKS (pp. 525-526)
F. EMPLOYEE REFERENCES (pp. 526-527)
1. Invasion of Privacy (p. 526-527)
2. Defamation (p. 527)
3. Negligent Misrepresentation (p. 527)
G. Fair Labor Standards Act of 1938 (p. 528)
H. CHAPTER SUMMARY (pp. 528)
I. CHAPTER ASSESSMENT (pp. 529-533)
1. Matching Key Terms (p. 529)
2. True/False Quiz (pp. 529-530)
3. Discussion Questions (p. 530)
4. Thinking Critically About the Law (pp. 530-531)
5. Case Questions (pp. 531-532)
6. Case Analysis (pp. 532-533)
7. Legal Research (p. 533)
KEY TERMS
Key terms are listed at the beginning of the chapter, posted in the student textbook margins, and placed
in bold in the copy. They are listed here for your quick reference.
§ respondeat superior (p. 522)
§ independent contractor (p. 523)
§ employment at will (p. 524)
§ employment contract (p. 525)
§ employee handbook (p. 525)
§ Fair Labor Standards Act of 1938 (p. 528)
LEARNING OUTCOMES
The chapter Learning Outcomes will help you and the students discover the concepts and information
that should be understood upon completion of the chapter. You may want to access the PowerPoint
(PPT) slides for Chapter 31 when you begin the study of the chapter and discuss each Learning
Outcome. Each Learning Outcome will be covered separately in the Instructor Notes, but they are
shown here in total as an overview of the sections being presented in Chapter 31. The corresponding
text page numbers and PPT slides are listed next to each outcome. These slides should be used to
reinforce the main points of the lecture.
After completing this chapter, the students will be able to:
1. Describe the duties of an employer and employee to each other. (p. 522, PPT slides 2-4)
2. Distinguish between employees and independent contractors. (pp. 522-524, PPT slides 5-8)
3. Explain the doctrine of employment at will. (p. 524, PPT slides 9-10)
4. List some typical clauses in an employment contract. (p. 525, PPT slides 11-12)
5. Identify some typical policies contained in an employee handbook. (pp. 525-526, PPT slides
13-14)
6. Explain how employers expose themselves to legal liability when they provide employee
references. (pp. 526-527, PPT slides 15-18)
7. Discuss the impact of the Fair Labor Standards Act on the employer-employee relationship. (p.
528, PPT slide 19)
LECTURE OUTLINE
A. DUTIES OF EMPLOYER AND EMPLOYEE TO EACH OTHER
The employer owes several legal duties to his or her employee. An employee must obey his or her
employer’s lawful orders concerning the employment, exercise good faith toward the employer, and do
his or her work carefully and conscientiously.
The acts of an employee committed while performing duties are considered the acts of the employer.
This comes from a legal doctrine known as respondeat superior, a Latin term meaning “let the master
answer.”
B. EMPLOYEES VERSUS INDEPENDENT CONTRACTORS
An employee is distinct from an independent contractor.
1. Independent Contractors
An independent contractor is a person or firm that performs services for another.
Independent contractors are not under the direct control of the person who engages
them.
2. The Internal Revenue Service Test
The Internal Revenue Service publishes a kind of test that is used to aid individuals in
determining whether or not a worker fits the status of an employee or an independent
contractor. It also determines whether the individual receives a W-2, a tax form provided
to employees; or a 1099, a tax form provided to independent contractors.
C. THE DOCTRINE OF EMPLOYMENT AT WILL
Deeply rooted in U.S. tradition is the doctrine of employment at will, which states that, just as an
employee may choose to terminate his or her employment at any time he or she wishes, so too an
employer may terminate an employee’s employment at any time for a good reason, a bad reason, or no
reason at all.
D. EMPLOYMENT CONTRACTS
There are many instances in which an employer and employee enter into a formal, written employment
contract that specifies that the employer agrees to pay, and the employee agrees to work, for a
specified period of time at a specified salary.
E. EMPLOYEE HANDBOOKS
Many employers provide employees with employee handbooks, manuals that contain the many
policies of the firm. The employee handbook contains the following information:
• History of the company, including its mission and philosophy
• Hiring procedures, including a statement that the company complies with federal and state
antidiscrimination laws
• Hours of employment, including how schedules are crafted and time card policies
• Payment of salaries, including the conditions under which employees may receive advances
• Salary increments and promotions, including procedures for employee evaluation and appeals that
may be available
• Termination procedures, including exit interviews and the requirement that employees must return all
company property
• Benefits, including those legally required––unemployment insurance, social security contributions,
and workers’ compensation; and those not legally required––such as medical insurance, disability
insurance, vacation and personal days, sick leave, holidays, education benefits, and profit-sharing
• Leaves of absence, including maternity leave, jury duty, military leave, and leaves for marriage or
religious purposes
• Safety and security, including medical and security emergencies, vandalism, tobacco and alcohol
policies, drug testing, and computer usage and passwords
• Miscellaneous policies, including parking regulations, lost and found, employee dress codes, eating
and drinking on company premises, telephone usage, business travel, and employees’ right to access
their personnel files
F. EMPLOYEE REFERENCES
Often, employers are asked to provide references for employees who are currently working for them or
who have worked for them in the past. Employers need to be extremely careful as to how they respond
to these requests. A negative reference can give rise to two kinds of lawsuits brought by current or
former employees.
1. Invasion of Privacy
Disclosing personal, irrelevant information about a former employee amounts to
invasion of privacy, irrespective of whether such information is true or false. An
employer can safely disclose information about a current or former employee in the
following areas:
• The employee’s prior employment and educational history
• The employee’s character as such relates to the job
• The employee’s performance capabilities
• The employer’s willingness to rehire the employee
2. Defamation
A current or former employee may sue his or her employer for defamation if the
employer provides information to a third party that is untrue, irrespective of whether or
not it relates to the employee’s job performance. Such defamation is considered slander
if spoken, or libel if written.
3. Negligent Misrepresentation
Employers attempt to reduce their risk of liability in providing references by
withholding negative reference information or simply not responding to reference
requests. However, if a prospective employer hires an employee based on an incomplete
reference, and then suffers damages that may have been avoided had the previous
employer provided an accurate reference, the prospective employer may sue the
previous employer for negligent
misrepresentation.
G. FAIR LABOR STANDARDS ACT OF 1938
The Fair Labor Standards Act of 1938 (FLSA) is a law that sets standards for the minimum age an
employee can be, the minimum wages an employee can earn, and the rate at which an employee is paid
if he or she works more than a certain number of hours in a given workweek. Currently the federal
minimum wage is $7.25, and the overtime pay rate for employees who work more than 40 hours in a
workweek is one and a half times their regular wages. Many industries are covered by FLSA; however,
four categories of employees are excluded from coverage: executives, professional employees, outside
sales associates, and administrative employees. Of course independent contractors are not covered by
the provisions of the FLSA.
INSTRUCTOR NOTES
A resulting answer or explanation is provided below for each Learning Outcome in Chapter 31. Every
outcome is also mapped to corresponding text page numbers, PPT slides, and relevant chapter
assessment exercises and activities for ease of reference and use.
LO1. Describe the duties of an employer and employee to each other.
An employer must pay an employee the agreed-upon wage for his or her services and provide the
employee with a safe and sanitary workplace, proper tools for the job to be performed, careful and
competent employees with whom to work, and an environment free of discrimination and harassment.
The employer also must warn an employee of any danger that exists in connection with the work. The
employee must obey his or her employer’s lawful orders concerning employment, exercise good faith
toward the employer, and do his or her work carefully and conscientiously.
Text Pages: 522
PowerPoint: Slides 2-4
Discussion Questions: 17
Thinking Critically About the Law: 23
Case Questions: 28
LO2. Distinguish between employees and independent contractors.
Unlike employees, independent contractors can sue their employer for on-the-job injuries. An
employer is also liable for an employee’s torts, but not those of an independent contractor, that are
committed within the scope of employment. The Internal Revenue Service publishes a kind of test that
is used to aid individuals in determining whether or not a worker fits the status of an employee or an
independent contractor.
Text Pages: 522-524
PowerPoint: Slides 5-8
Discussion Questions: 18
Thinking Critically About the Law: 24
Case Analysis: 33
LO3. Explain the doctrine of employment at will.
The doctrine of employment at will states that, just as an employee may choose to terminate his or her
employment at any time he or she wishes, so too an employer may terminate an employee’s
employment at any time for a good reason, a bad reason, or no reason at all.
Text Pages: 524
PowerPoint: Slides 9-10
Discussion Questions: 19
Thinking Critically About the Law: 25
Case Questions: 29
LO4. List some typical clauses in an employment contract.
Employment contracts frequently have clauses related to maintaining confidentiality with respect to
trade secrets, restrictive covenants, and agreements to arbitrate in the event of a dispute between the
parties.
Text Pages: 525
PowerPoint: Slides 11-12
Discussion Questions: 20
Case Analysis: 31
LO5. Identify some typical policies contained in an employee handbook.
Typically, an employee handbook contains the history of the company, hiring procedures, hours of
employment, payment of salaries, salary increments and promotions, termination procedures, benefits,
leaves of absence, safety and security, and miscellaneous policies.
Text Pages: 525-526
PowerPoint: Slides 13-14
Discussion Questions: 21
Thinking Critically About the Law: 26
Case Questions: 30
LO6. Explain how employers expose themselves to legal liability when they provide employee
references.
Employers who are asked to provide references for employees who are currently working for them or
who have worked for them in the past need to be extremely careful. A negative reference can give rise
to two lawsuits brought by current or former employees: invasion of privacy and defamation.
Text Pages: 526-527
PowerPoint: Slides 15-18
Thinking Critically About the Law: 27
Case Analysis: 32
LO7. Discuss the impact of the Fair Labor Standards Act on the employer-employee relationship.
The Fair Labor Standards Act of 1938 (FLSA) is a law that sets standards for the minimum age an
employee can be, the minimum wages an employee can earn, and the rate at which an employee is paid
if he or she works more than a certain number of hours in a given workweek. Currently the federal
minimum wage is $7.25, and the overtime pay rate for employees who work more than 40 hours in a
workweek is one and a half times their regular wage. Four categories of employees are excluded from
coverage: executives, professional employees, outside sales associates, and administrative employees.
Independent contractors are also not covered by the provisions of the FLSA.
Text Pages: 528
PowerPoint: Slide 19
Discussion Questions: 22
