CHAPTER 12
Employment Law I: Employee rights
Chapter Goals
This is an inherently interesting area of law where the cases will speak well to the students. As a
consequence, a very conventional approach to this material has been taken and given somewhat less
attention to the public policy issues that dominate other chapters. Rather, students can see in this chapter
as a useful, readily digestible opportunity to be immersed in some of the details of the law. Likewise a
lesser degree of attention is given to the free market/government intervention debate that is the central
theme in the book. Perhaps more than any other in the text, this is a pragmatic chapter that provides
tangible lessons in dealing with the law in day-to-day business practice. Of course, those lessons will be
particularly helpful for students whose life work will involve human resources responsibilities.
Chapter Learning Objectives
After completing this chapter, students will be able to:
1. Distinguish between an employee and an independent contractor.
2. Identify potential legal challenges an employer faces in the hiring process.
3. Describe employers’ liability under the doctrine of “respondeat superior.”
4. Analyze claims of negligent hiring, supervision, and retention.
5. Explain employees’ rights under the Fair Labor Standards Act.
6. Describe the role of the Occupational Safety and Health Administration (OSHA) in protecting
employees’ health and safety at work.
7. Describe the benefits, coverage, and requirements for bringing a successful claim under workers’
compensation law.
8. Discuss workplace drug testing and the legal challenges it faces.
9. Describe the Family and Medical Leave Act (FMLA).
10. Distinguish between defined benefit and defined contribution pension plans.
11. Analyze whether a dismissed at-will employee may bring a claim of wrongful discharge.
12. Recognize the purpose and requirements of the employment eligibility verification form (I-9).
Chapter Outline
I. Introduction
According to the American Lung Association’s Tobacco Policy Project/State Legislated Actions on
Tobacco Issues (SLATI), as of 2013, 29 states and the District of Columbia have laws protecting smokers
from adverse employment action based on smoking tobacco.
Managing Lawsuits
Addressing and mitigating the risk of employment-related lawsuits has become an important
consideration in management decision making. As union strength has declined, government
regulations and court decisions have arguably broadened employee rights. These increased legal
protections, a volatile economy, downsizing, weakened employer–employee loyalty, and other
forces have contributed to higher levels of employee litigation.
Part One—The Employment Relationship
Job Classification
Employment-related legal rights and responsibilities depend on the type of relationship the
employer decides to build with the worker. The traditional, stable model of long-term direct
employer–employee relationships now is often replaced with new, flexible, nontraditional staffing
arrangements including outsourcing and employee leasing, along with the use of freelancers and
temporary agencies.
These contingent workers, along with independent contractors, who are increasingly relied on to
perform specific, shorter-term, nonrecurring jobs, permit employers to rapidly and inexpensively
inflate or shrink their workforces as competitive and regulatory conditions change. Employers who
choose to provide health and retirement benefits for their traditional employees need not do so for
their contingent workers.
A firm might contract with professional employer organizations (PEOs) to take responsibility for and
administer its payroll and human resources operation.
Employee or Independent Contractor?
Degree of control is the dominant test in determining whether a worker is an employee or
independent contractor. Where an employer controls or has the right or ability to control the
worker’s performance, the worker is likely to be considered an employee.
CBS used the distinction between “independent contractor” and “employee” to successfully appeal
the FCC’s fine after Justin Timberlake and Janet Jackson appeared to cooperatively expose Ms.
Jackson’s breast at the end of their performance during the 2004 Super Bowl halftime show which
CBS broadcast. CBS argued that the performers were independent contractors, not employees,
and therefore CBS could not be held liable for actions taken outside their control. In 2012, the U.S.
Supreme Court declined to review the federal appellate court’s decision to throw out the FCC’s fine.
A business that hires an independent contractor generally is not required to comply with a wide
range of employment and labor law standards that would apply were the worker is an employee.
Employers generally are not liable for employment discrimination claims by independent
contractors or for most torts committed by independent contractors in the course of work. While
employers are responsible for payroll taxes such as FICA and federal and state unemployment
insurance, as well as for withholding income tax from their employees, these tax obligations of a
business do not extend to its independent contractors.
Classification Problems
Employers anxious to reduce financial and legal burdens sometimes improperly classify workers as
independent contractors rather than employees. The Internal Revenue Service (IRS) has created a
Voluntary Classification Settlement Program under which employers who meet certain criteria are
able to reclassify workers as employees for employment tax purposes with partial relief from federal
employment taxes. [For IRS guidance on determining whether a worker is an employee or
independent contractor, see
www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-Self-Employe
d-or-Employee]
Selection and Hiring
An array of potential legal problems have risen from the increasingly complex process of choosing
and employing new workers.
Resume Fraud: A 2008 online poll of 3,000 hiring managers revealed that 49 percent had
uncovered a lie on a résumé, including exaggeration of job responsibilities and skills, false
claims regarding education, and inflated job titles.
Background Checks: Concerns ranging from résumé fraud to employee theft and
workplace violence may have led to background checks becoming an expected part of the
hiring process. Using credit checks in hiring arguably helps protect an employer against
fraud and employee theft, since applicants who have not handled their personal finances
responsibly might be more likely to engage in such misconduct. [For the full text of the EEOC
Enforcement Guidance on the Consideration of Arrest and Conviction Records in
Employment Decisions, see www.eeoc.gov/laws/guidance/arrest_conviction.cfm]
Inappropriate Questions: According to a recent survey, 22 percent of job seekers cited
interviewers “asking inappropriate questions” as a “top turn-off” in the interview process.
Furthermore, such questions as “How old are you?” and “Are you married?” also expose
employers to potential liability for discrimination.
Restrictive Covenants: Employers sometimes require employees to sign agreements
providing they will not compete with their employer, solicit its customers or employees, pass
trade secrets to others, and so on, for a specified period of time. California law, however,
prohibits noncompetition agreements in employment, with narrow statutory exceptions. Even
if such an agreement is enforceable, employers who take such actions as hiring a private
investigator to determine whether a former employee is in breach could face liability for
intrusion.
Arbitration: New employees are often expected to sign agreements specifying that disputes
with the employer will be settled by arbitration rather than by litigation. Employment
arbitration agreements have been supported by recent U.S. Supreme Court decisions, such
as Circuit City Stores, Inc. v. Adams upholding the enforceability of legitimate, equitable
employment arbitration agreement.
References: Employers often limit their references to purely factual details such as the date
of hire, date of departure, and job title. Broadly, a successful defamation suit requires the
following conditions: (1) A false statement (2) The statement must be “published” to a third
party. (3) The employer must be responsible for the publication (4.) The plaintiff’s reputation
must be harmed.
Truth is a complete defense in defamation cases, and managers who offer factual, honest
professional judgments are unlikely to face such claims. Further, many state courts provide
the protection of a qualified privilege.
Part Two—Liability
Job classification is an important first question in determining company liability for workers’ job-related
injuries, harm to others, and crimes. An enterprise ordinarily will not be liable for the acts of its
independent contractors. Employers, on the other hand, often bear legal responsibility for employees’
accidents or wrongs. That liability may spring from the doctrine of respondeat superior (let the master
answer), a form of vicarious liability (sometimes called imputed liability).
Scope of Employment
Employer liability for employee injuries, accidents, or wrongs is largely dependent on whether the
employee was on the job at the time of the incident in question. The following questions ordinarily
determine whether the harm occurred in the scope of employment:
Was the employee subject to the employer’s supervision?
Was the employee motivated, at least in part, by a desire to serve the employer’s business
interests?
Did the problem arise substantially within normal working hours and in a work location?
Was the act in question of the general kind the employee had been hired to perform?
A Side Order of Pistol-Whipping?
Harris placed his order with a cashier at a Kentucky Fried Chicken (KFC) restaurant in
Philadelphia, Pennsylvania, but hesitated in selecting his side orders that were part of the meal he
had selected. Another KFC employee, Henry, told Harris to “hurry up.” Harris replied, “I am not
dealing with you.” Henry then asked Harris: “Do you want the [expletive] chicken or not?” Taken
aback, Harris further hesitated; Henry pulled out a gun. While another employee yelled at Henry,
Harris tried to escape, but Henry followed and pistol-whipped Harris before he could leave the
restaurant, causing him injuries.
Harris sued KFC for negligently failing to conduct a criminal background check. In rejecting the
claim, the federal district court noted that KFC was not legally required to conduct a criminal
background check, and that Henry’s criminal history only would have revealed two prior convictions
for nonviolent crimes over 5 years old.
I. Hiring/Retention/Training/Supervision
A. Negligence
In addition to vicarious liability for employees’ actions, employers may be directly liable for negligence
in hiring an employee or retaining an employee who subsequently causes harm to a third party, or for
careless training or supervision. Note that under negligence liability an employer may be liable for acts
outside the scope of employment. The case that follows examines the law of negligent hiring,
supervision, and retention.
Legal Briefcase: Yunker v. Honeywell, Inc. 496 N.W.2d 419 (Minn. App. 1993)
Part Three—Fair Labor Standards Act
The Depression and its tragic suffering, even of those working hard, shattered many Americans’ faith in
the free market and led to government intervention including, in 1938, the Fair Labor Standards Act
(FLSA), which is directed toward these major objectives:
The establishment of a minimum wage that provides at least the foundation for a modest standard
of living for employees.
A flexible ceiling on hours worked weekly, the purpose of which is to increase the number of
employed Americans.
Child labor protection.
Equal pay for equal work regardless of gender.
Minimum Wage
In 2009, the federal minimum wage was increased to $7.25 per hour. Critics of a federally
mandated minimum wage argue that the government should not interfere in the marketplace, and
that increases in minimum wages threaten not only job growth but the livelihoods of many small
business owners. Supporters of minimum wage increases point to recent studies concluding that
raising the minimum wage does not lead to the loss of low-paying jobs More than 130
municipalities, many where living costs are particularly high, have adopted their own “living wage”
requirements.
Overtime
Most workers covered under FLSA must receive overtime pay of at least 1½ times their regular pay
rate for hours worked over 40 hours per week. However, FLSA also recognizes exemptions for
certain occupations, such as managers, outside salespersons, administrators, and professionals
with advanced degrees; these workers are referred to as “exempt” employees.
Misclassification of “non-exempt” employees who have overtime rights under FLSA is a common
basis for wage-and-hour claims against employers, which have led to high-profile settlements.
Off-the-clock claims in which employers are accused of not giving employees recorded credit for all
of the time they have worked sometimes spring from advancing technology.
In March 2014, President Obama directed the U.S. Department of Labor to address the changing
nature of the workplace by updating overtime protections consistent with FLSA’s intent. [For
President Obama’s Memorandum for the Secretary of Labor, see
www.whitehouse.gov/the-press-office/2014/03/13/presidential-memorandum-updating-and-moderni
zing-overtime-regulations]
Student Interns
To address potentially abusive situations in which employers seek “free labor,” the U.S. Department
of Labor in 2010 issued a test for unpaid internships to determine whether the interns are
employees with wage rights or trainees who are receiving an educational opportunity for their sole
benefit and are thus excluded from FLSA protection.
If interns, on the other hand, are assisting with the employer’s daily operations such as clerical
work, then they have a right to minimum wage and overtime. [For the six criteria of the U.S.
Department of Labor’s test for unpaid internships, see
www.dol.gov/whd/regs/compliance/whdfs71.pdf]
Part Four—Health and Safety at Work
Gordon Jones
Chris Jones testified as the surviving brother of Gordon Jones, one of 11 workers killed in the 2010
oil well explosion in the Gulf of Mexico. “[Gordon] was tragically killed aboard the Deepwater
Horizon while earning his living as a mud engineer for MI SWACO, a contractor for BP [British
Petroleum]. As of this writing, individual managers face manslaughter charges stemming from the
fatal 2010 explosion.
Fifteen Die in 2005 Refinery Blast
The 2010 Gulf of Mexico oil well explosion echoed the 2005 disaster at the BP oil refinery in Texas
City, Texas. Workers were doing their day’s work by restarting a unit that had been down for repair
when a gasoline overflow exploded, injuring 170 and killing 15.
In August 2010, BP agreed to pay $50.6 million in fines for failing to fix safety hazards at the Texas
City refinery after the 2005 explosion.
Deaths, Illnesses, and Injuries
Some workplaces are unacceptably risky, but America has achieved considerable progress in
building safety on the job. The overall job safety improvement should be viewed in the context of
the U.S. labor shift away from such industries as manufacturing to service roles.
I. OSHA
A federal agency, the Occupational Safety and Health Administration (OSHA), is responsible for ensuring
safe workplaces. The 1970 Occupational Safety and Health Act imposes a general duty on most
employers to provide a workplace free of “recognized hazards causing or likely to cause death or serious
physical harm to employees.” Employers have an absolute duty to remove any serious and preventable
workplace hazards that are generally recognized in the industry and are known to the employer or should
be known to the employer. That general duty is then supplemented with numerous specific standards.
[For the OSHA home page, see http://www.osha.gov]
A. Standards
OSHA, under the U.S. Department of Labor, promulgates and enforces health and safety standards
that identify and seek to correct specific workplace hazards and problems. In 2012, culminating a
rule-making process that began in 2006, OSHA issued a revised the Hazard Communication
Standards to align with an international system adopted by the United Nations in 2002.
B. More New Standards?
The protracted development of OSHA regulations typifies the ongoing ideological and practical conflict
over imposing additional safety rules in American workplaces. Some of the competing considerations
are illustrated by recent disputes over ergonomics and workplace violence.
Ergonomics
Repetitive motion and overexertion injuries, such as carpal tunnel syndrome and back strains,
account for about one-third of workplace injuries. Employers often try to address these problems
with ergonomics, “the science of fitting the job to the worker.” After years of work, OSHA issued
ergonomics standards in 2000, but Congress repealed those rules in 2001 after business
complaints about the costs of implementation. OSHA now employs a system of voluntary
ergonomics guidelines, but critics consider weak and vague.
Violence
Workplace shootings have made for sadly familiar headlines, with no particular job site immune
from such tragedy. Should OSHA create specific duties for employers regarding workplace
violence? Would those rules be effective? Or will the market and naturally evolving workplace
conditions provide the most effective and efficient protection?
Responses to these questions might be informed by legislation enacted in more than 20 states
prohibiting employers from banning firearms in parking areas, and employers’ reactions to these
laws. Concerned with maintaining workplace safety, employers have focused on spotting and
protecting against employees’ aggression through trainings and increased security when, for
example, terminating an employee.
C. Variances
Employers may seek both permanent and temporary variances (exceptions) from OSHA standards. A
permanent variance may be granted only if the workplace will be as safe as if the standard were
enforced. A temporary variance permits additional time to put in place the necessary compliance
measures. Employees have a right to a hearing to contest variances.
Mine Safety
On Monday, April 5, 2010, an explosion at the Upper Big Branch Mine-South in Montcoal, West
Virginia, owned by a subsidiary of Massey Energy, Inc., killed 29 miners. In 2009, the Upper Branch
Mine suffered a “significant spike in safety violations” leading the U.S. Department of Labor’s Mine
Safety and Health Administration (MSHA) to issue 515 citations and orders at that mine, and
another 124 by April 2010.
In January 2011, MSHA announced a court order requiring Massey to comply with a plan to ensure
the miners’ health and safety.
II. OSHA Information Requirements
A. Right to Know
OSHA has adopted an employee hazard communication standard to protect employees from dangers
associated with chemicals and other toxins in the workplace. Chemical manufacturers and importers
must develop material safety data sheets (MSDS) for all chemicals. Employers must then label all
chemical containers so that employees will know about the chemical and its dangers, and employers
must educate employees about chemical hazards and how to deal with them.
B. Records
As a general rule, businesses must maintain records listing and summarizing work-related injuries,
illnesses, and deaths. A summary of those records must be posted at the job. Notice of any OSHA
citations of imminent dangers on the job must also be posted at the job site. OSHA recently reformed
and simplified the record-keeping process. A recent federal appellate decision suggested that requiring
record keeping of all workplace injuries may be more efficient than analyzing whether such an injury is
work-related.
C. Enforcement
OSHA’s most publicized enforcement mechanism is the unannounced on-site inspection. Inspections
arise at the initiative of the agency itself or at the request of employees or their representatives. The
inspections must be conducted in a reasonable manner during working hours or other reasonable
times, and ordinarily they must not be announced in advance. Employers can demand a warrant prior
to inspection.
To enhance efficiency, OSHA practices a targeted, site-specific inspection plan designed to identify
and monitor the workplaces most likely to have safety and health problems.
Citations
Citations may be issued if violations are discovered during the inspection process. Immediate,
serious threats can be restrained with a court order. Following a citation, the employer may ask to
meet with an area OSHA official to discuss the problem.
Often a settlement emerges from these meetings. Failing a settlement, the employer can appeal to
the independent OSHA Review Commission and thereafter to the federal court of appeals.
Violations may lead to fines and/or imprisonment.
Firmer Enforcement?
As part of the Obama administration’s efforts to increase enforcement and become more
aggressive in protecting workers’ safety, OSHA, in 2010, announced its Severe Violator
Enforcement Program (SVEP).
SVEP concentrates on employers who have demonstrated indifference to their safety obligations
by engaging in willful, repeated, or “failure to abate” violations. SVEP uses mandatory follow-up
inspections, press releases, and increased fines, among other tools, to send a clear message that
such conduct will be rigorously addressed by OSHA. OSHA makes public its list of severe violators.
[For the current SVEP logs, see https://www.osha.gov/dep/]
III. Workers’ Compensation
Normally, when an employee is injured or dies on the job, the employee or the estate may not sue for
damages. Rather, recovery is limited to the fixed sum provided for by the workers’ compensation statute,
regardless of fault.
Early in the 20th century, the states began enacting workers’ compensation laws to provide an
administrative remedy for those who are injured or killed on the job. Workers or their families could apply
for compensation based on illness, injury, or death.
Often a claims examiner will verify the nature and severity of the injury. Although workers’ compensation
is generally the exclusive remedy for workplace injury or death caused by employers’ negligence, many
states recognize an exception for intentional torts. In most states, employers are compelled to participate
in workers’ compensation, depending on state law, either by purchasing insurance privately, by
contributing to a state-managed fund, or by being self-insured.
No Joke?
Matthew Simms worked as a server in the Manassas, Virginia, location of a national chain restaurant.
During his work shift, Simms walked into the kitchen to enter an order into a computer and to print a
check for a customer. Three other employees in the kitchen who were Simms’s friends started throwing
ice at him, apparently as a joke. As Simms lifted his hand in an attempt to block the ice, he felt his left
shoulder dislocate.
Simms was taken to a hospital for treatment of his injury. As a result of the injury, Simms alleged he was
unable to use his shoulder in daily activities and was unable to work for a period of time. Should Simms
receive workers’ compensation for his injuries? Explain.
A. Benefits
Medical and rehabilitation expenses along with partial income replacement are provided according to
state law. The amount of the income award is normally a percentage of the worker’s salary either for a
specified period or indefinitely, depending on the severity of the injury. Injury benefits normally amount
to one-half to two-thirds of regular wages. Death benefits ordinarily are tied to the wages of the
deceased.
B. Coverage
Certain employment classifications such as agriculture may be excluded from workers’ compensation,
but about 90 percent of the labor force is covered.
C. Legal Requirements
In general, injuries, illnesses, and deaths are compensable where the harm (1) arose out of the
employment and (2) occurred in the course of employment. Workers’ compensation provides a form of
no-fault protection in the workplace. Workers give up the right to sue, and employers participate in an
insurance system that recognizes the inevitability of workplace harm.
Although workers’ compensation recovery is the exclusive remedy for workplace injury, illness, or
death, some jurisdictions allow litigation in cases of intentional torts and/ or gross negligenc. [For the
Workers’ Compensation Research Institute, see http://www.wcrinet.org
D. Litigation
Notwithstanding its no-fault character, workers’ compensation has generated many lawsuits. The Wait
case that follows raises some current issues regarding workers’ compensation for the telecommuting
employee.
Legal Briefcase: Wait v. Travelers Indemnity Company of Illinois 240 S.W.3d 220 (Tenn. S.Ct.
2007)