Chapter 38
REGULATION OF EMPLOYMENT
RESTATEMENT
The employment relationship is one in which an employee undertakes to perform services or do work under the
direction and control of an employer in exchange for compensation. An employee can be both an employee and
an agent, but must be given authority to contract in order to be an agent.
There are three forms of agreements covering employment contracts: individual employment contracts,
collective bargaining contracts and employment-at-will agreements. Collective bargaining contracts are
negotiated with unions and cover the nature of work, wages, benefits, promotions, layoffs, seniority provisions,
and grievance procedures.
Most employees are simply employees-at-will or employees who serve at the will or discretion of the employer.
However, recently, some courts and states have begun to carve out exceptions for employment-at-will discharges
particularly when public policy dictates. Public policy dictates protection for employees who have reported
violations of employers. A restriction on termination of such employees prevents retaliatory conduct. There is
also an obligation of good faith applied to employment-at-will discharges. However, termination for cause is
always permitted as in cases where an employee has not performed duties, engaged in disobedience, disloyalty,
theft, drug possession or use, misconduct or incompetence.
Employees have certain duties to employers including the preservation of trade secrets and inventions of their
employer or developed while employed there.
Employees also have certain rights in the employment relationship. Those rights include wage protections such
as minimum compensation, maximum hours and overtime protection. There are also prohibitions on child labor
including age and activity restrictions.
The National Labor Relations Act (NLRA) governs the right of employees to unionize and bargain collectively for
the terms and conditions of employment. The NLRA applies to companies with income of $500,000 or more and
is enforced by the NLRB. The NLRB governs the union election process and controls the rights of employees.
Employees can’t be discharged for union activity and employees have limits on union activities on employer
premises. Employers have the duty to bargain collectively for the union agreement. Employees have the right to
strike in the event no labor agreement can be reached. Unions and their officers and spending are also
regulated by federal law.
All employee pension plans are subject to the protectionary provisions of ERISA. ERISA requires vesting within
certain time periods, adequate funding of pension plans and annual reporting to employees. Employees also
have certain statutory protections for employment security. Unemployment compensation, family and medical
leave and social security benefits provides sources of income security when events beyond employees ’ control
occur.
Employees are afforded some job security in the form of unemployment compensation, retirement benefits under
social security and medical leaves with protection for job and position.
The Occupational Safety and Health Act (OSHA) provides standards for workplace conditions and requires
employers to post employee rights and report accidents. If an employee is injured, the injury is covered under
workers’ compensation. Workers’ compensation systems are state-administered programs that provide
employees with scheduled compensation for injuries awarded automatically for workplace injuries, regardless of
fault.
Employees have some rights of privacy, but as technology evolves, courts have been finding that e-mail,
computer information and voice mail are the property of the employer and must be turned over upon request.
Drug testing is an area that many have argued violates employee privacy. Nonetheless, workplace safety issues
take priority, and drug-testing programs are permitted.
Federal regulations impose penalties against employers who knowingly hire illegal aliens. Upon hiring employers
must verify the employee ’s status and complete an I-9 form. The employee must have a green card or a state
driver’s license and social security card.
STUDENT LEARNING OUTCOMES
LO.1: Explain the contractual nature of the employment relationship.
LO.2: Explain how whistleblower protection under Sarbanes-Oxley is limited to conduct in violation of fraud or
securities laws.
LO.3: Explain how Dodd-Frank expands whistleblower protection to a wide range of financial services
employees and provides incentives for whistleblowers.
LO.4: Explain how the National Labor Relations Act prohibits employers from firing employees attempting to
form a union and requires employers to bargain with certified unions in good faith over wages, hours,
and working conditions.
LO.5: Explain how ERISA protects employee pensions and benefits.
LO.6: Explain the essentials of unemployment benefits, family and medical leaves, military leaves, and Social
Security benefits.
LO.7: Explain how OSHA is designed to ensure workers’ safe and healthful working conditions.
LO.8: Explain the three types of benefits provided by Workers’ Compensation statutes.
LO.9: Explain the sources of privacy rights and applications to telephone, e-mail, and property searches.
LO.10: Explain an employer’s verification obligations when hiring new employees.
INSTRUCTOR’S INSIGHTS
Break the chapter down into eight components – related Learning Outcomes are indicated in ( ):
1. What is the nature of the employment relationship?
Explain the creation of the employment relationship (LO.1)
Discuss the characteristics of the employment relationship
2. What are the labor relations laws and what do they require? (LO.3)
Explain the National Labor Relations Act and its requirements on union elections and activity (LO.4)
Cover the process of collective bargaining (LO.4)
3. What are the benefits in an employment relationship and how are they regulated?
Explain federal regulation of pension plans (ERISA) (LO.5)
Discuss unemployment compensation
4. What regulations exist for employee security? (LO.6)
Discuss unemployment compensation
5. What regulations for protection of employee safety exist? (LO.7)
Cover the standards for workplace safety
Discuss employer duties for workplace safety
6. What are the compensations for employees’ workplace injuries? (LO.8)
7. What are the rights of employees in the workplace?
Explain employee privacy rights (LO.9)
Discuss the issues of employer monitoring of e-mail and telephone conversations (LO.9)
8. What are the laws on employees and immigration? (LO.10)
CHAPTER OUTLINE
I. What is the Nature of the Employment Relationship?
A. Characteristics of relationship
B. Creation of employment relationship
C. Duration and termination of employment contract
1. Most of the students work as at-will employees and have not had much exposure to lengthy written
2. Discuss the Age Discrimination in Employment Act, which protects employees from discrimination
based on age
3. Employment-at-will doctrine and developing exceptions
CASE BRIEF: Adams v. Uno Restaurants, Inc.
794 A. 2d 489 (R.I. 2002)
FACTS: After several years of employment by defendant, while working his nighttime line
cooking shift, Adams noticed that the kitchen floor of the restaurant was saturated with a foul
smelling liquid coming from the drains. Adams left work complaining of illness and contacted
the Department of Health about the drainage problem in the restaurant’s kitchen. Upon
returning to the restaurant a few days later, Adams was ordered into his manager’s office.
Adams was reprimanded for stealing a softball shirt and taking home a work schedule. A
shouting match ensued and Adams was charged with disorderly conduct, however the charges
were later dropped and have since been expunged from his record. Adams contends that he
was unlawfully terminated only because he notified the Board of Health regarding the
unsanitary kitchen conditions.
ISSUE: Was Adams wrongfully terminated in violation of a state whistleblower statute?
REASONING: The confrontation between Adams and his employer was designed by the employer to provoke
a reaction from plaintiff that would serve as an excuse to fire him, a pretext for the real reason –
plaintiff’s phone call to the Board of Health. The wrongful termination and criminal charges
which ensued from the verbal altercation were sufficient to establish damages for emotional
distress. Adams loss of security clearance in the National Guard and his clear emotional
distress over missed military opportunities caused him compensable emotional distress.
4. Employer reactions
CASE BRIEF: Semple v. Federal Express Corp.
2008 WL 1793481 (D. S.D. 2008); affirmed 566 F. 3d 788 (8th Cir. 2009)
FACTS: John Semple was terminated from his employment with FedEx for falsification of
company documents. He appealed his termination through internal FedEx procedures without
success and thereafter sued the employer in federal court, contending that his termination was
in violation of the “public policy exception” to the employment at-will doctrine in that his
termination resulted from his filing internal grievances regarding harassment by his superiors
and that he was protected by the employee handbook exception to the at-will doctrine. The
employer disagreed.
ISSUE: Was John Semple an at-will employee?
REASONING: When he was hired, John Semple signed an employment contract that included the following
statement:
I also agree that my employment and compensation can be terminated with or without
cause and without notice or liability whatsoever, at any time, at the option of either the
company or myself.
The Employee Handbook stated in part:
The employment relationship between the Company and employee may be terminated
at the will of either party as stated in the employment agreement signed upon
application for employment. As described in that agreement, the policies and
procedures set forth in this manual provide guidelines for management and employees
during employment, but do not create contractual rights regarding termination
otherwise.
Semple was an employee at-will. No public policy prevented FedEx from terminating Semple’s
employment. Moreover, FedEx has not surrendered its statutory right to terminate employees at
will based on its Employee Handbook.
DISCUSSION POINTS: Have the students discuss the Semple v. Federal Express Corp. case in which the
employment contract and the employee handbook both preserved the employer’s
at-will termination powers.
5. Justifiable discharge
a. Nonperformance; fraud in obtaining employment; disobedience; disloyalty; dishonesty;
possession or use of drugs; misconduct; incompetency
D. Whistleblower protection under Sarbanes-Oxley and Dodd-Frank Acts
1. Title VIII of Sarbanes-Oxley provides protections for corporate whistle-blowers
2. Protection for employees who testify and/or assist on prosecution for
a. Mail, wire, bank or securities fraud
3. Protected even if incorrect if there is a reasonable belief
4. Procedure for protection
a. Must file with Department of Labor – OSHA
5. Dodd-Frank expansion
a. Covers all employees working in financial services industries
b. Whistleblowers are paid between 10 and 30% monetary rewards if SEC recovers
E. Duties of the employee
1. Services
2. Trade secrets
3. Inventions – may be covered in the employment contract
F. Rights of the employee
1. Compensation
2. Federal wage and hour law
a. Subminimum wage provisions
b. Wage issues
CASE BRIEF: McLaughlin v. Richland Shoe Co.
486 U.S. 128 (1988)
FACTS: An action against an employer for violating the Fair Labor Standards Act must be brought within
two years unless the violation was willful, in which case it may be brought within three years.
McLaughlin, the secretary of labor, brought suit against the Richland Shoe Company for failing
to pay the minimum wage. Richland claimed that the suit was barred because more than two
years had elapsed. McLaughlin claimed that the violation was willful, in which case the action
was properly brought because three years had not expired. The parties disagreed as to what
proof was required to establish that the violation was “willful.”
ISSUE: What constitutes a willful violation of FLSA?
HOLDING AND
REASONING:
To be “willful” within the statute, the violation must be intentional or made with reckless
indifference as to whether the statute has been satisfied. Because the case had not been tried
II. What are the Labor Relations Laws and What Do They Require?
A. The National Labor Relations Act
1. Passed in 1935
2. Section 7 allows unionization and collective bargaining
B. The National Labor Relations Board
C. Election conduct
D. Union activity on private property
E. Firing employees for union activity
CASE BRIEF: NLRB v. Transportation Management Corp.
462 U.S. 393 (1983)
FACTS: Santillo was a bus driver for the defendant. He had been active in discussing with other drivers
the possibility of joining the Teamsters Union. His supervisor was upset with Santillo ’s conduct.
Santillo was fired for leaving his keys on the bus and taking unauthorized breaks. An
administrative law judge found that the reasons for discharge were a pretense and that he was
terminated for his interest in the Teamsters Union. The Board adopted the administrative law
judge’s finding. The First Circuit Court of Appeals refused to enforce the Board ’s order.
Appealed to the U.S. Supreme Court.
ISSUE: Is it an unfair labor practice for an employer to discharge an employee ostensibly for violation of
an otherwise unenforced company rule when the real and unstated reason for the dismissal was
the employee’s union activity?
HOLDING: Yes. The Board was justified in concluding that Santillo would not have been discharged had
REASONING: The dispute in this case was first heard by an administrative law judge. There was no jury, just
a judge who hears only labor cases like Transportation Management. This hearing was a type
of binding arbitration, which can be challenged only at a Court of Appeals. What is useful to
note is that the administrative law judge cut right to the heart of the issue and rendered a
decision that was later upheld by the Supreme Court. The precision (and likely swiftness) of the
administrative judge’s original decision can be explained by the level of experience that such a
judge brings to such a hearing.
DISCUSSION POINTS: Have the students discuss wrongful termination of an employee because of his/her
union activity using the NLRB v. Transportation Management Corp. case.
F. Duty of employer to bargain collectively
G. Right to work – the NRLA allows states to enact right -to-work laws, which allow the worker to choose not
to join a union
CASE BRIEF: Eastern Airlines, Inc. v. Airline Pilots Association International
970 F. 2d 722 (11th Cir. 1990)