821
Chapter 34
Employment, Immigration,
and Labor Law
See Separate Lecture Outline System
INTRODUCTION
Every business student should have a basic familiarity with general laws in the area of employment. This chapter looks
at some of the significant laws that regulate employment and the workplace. Unions and collective bargaining, the
employment-at–will doctrine, employees’ privacy rights, workers’ compensation, workplace safety, whistleblowing, and
retirement and security income are among the topics discussed.
822 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
ADDITIONAL RESOURCES—
VIDEO SUPPLEMENTS
The following video supplements relate to topics discussed in this chapter—
PowerPoint Slides
To highlight some of this chapter’s key points, you might use the Lecture Review PowerPoint slides compiled for
Chapter 34.
Business Law Digital Video Library
The Business Law Digital Video Library at www.cengage.com/blaw/dvl offers a variety of videos for group or
individual review. Clips on topics covered in this chapter include the following.
• Ask the Instructor
Monitoring Employee E-mail and Internet Usage: When an employer monitors employee email and internet usage,
why isn’t that a violation of the constitutional right to privacy?—The constitutional right to privacy protects us from
government intrusions. Thus, employers in the private sector are free to monitor their employees in any number of
ways, subject only to specific state laws.
• Legal Conflicts in Business
because he shared company secrets with a competitor. How did the company find out? They monitored the
reason is not clear. Can the firm use the Employment at Will concept in this way?
• Drama of the Law
Employment Issues: Drug Testing of Employees—Employee drug testing from the point of view of both the
employer and employee. When an employee is randomly screened for drugs, what are the legalities involved.
Employment Issues: Electronic Surveillance of Employees—Is the monitoring the actions and conversations of an
employee the employer’s right? Are personal rights violated when on is electronically monitored by management?
Employer’s Duty of Care and Issues of Compensation: Free Oil Changes are Costing a Lot—What is an employer’s
responsibility to their employees? Is it mandatory or voluntary to compensate an employee for working overtime or for
an injury sustained while on the job?
Family Related Issues: Family and Medical Leave Act—The need may arise for an employee to take an extended
leave of absence. When the employee temporarily vacates their position, employment issues and rights are brought to
the forefront.
CHAPTER 34: EMPLOYMENT, IMMIGRATION, AND LABOR LAW 823
• Real World Legal
Pharzime Corporation, Scene 2—A new pharmaceutical sales rep confides his anxiety about an aggressive
marketing strategy for off-label uses of an FDA-approved drug. A veteran sales rep assures him that the strategy is
appropriate. The scene addresses corporate culture, whistleblowing, and the legality and ethics of marketing drugs for
off-label use.
ADDITIONAL BACKGROUND—
Employment Relationships before the Twentieth Century
In the early years of this nation’s history, most Americans were self-employed. For these individuals, problems
arising from employment relationships did not exist. For those who were employed, employers usually determined the
terms of employment.
Generally, contract, tort, and agency law governed employment relationships before the twentieth century.
Most employment contracts were considered to be “at will,” which meant either party could terminate the contract at
any time for any reason, unless a particular period was specified. Generally, employers could fire workers for good,
bad, or no cause in response to changing economic conditions. If an employee was injured on the job, it was difficult
for him or her to recover from the employer, because an employee was considered to have assumed the risks of
employment when he or she accepted the job.
With increasing industrialization, the size of corporate employers and the number of workplace hazards increased.
Employers discouraged employees’ collective activities to improve conditions, but as labor gained political influence,
824 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
legislators responded with minimum wage, maximum hour, child labor, and other laws. At the end of the nineteenth
century, the courts generally sided with business and struck many of these laws as unconstitutional.
CHAPTER OUTLINE
I. Employment at Will
Under the at-will employment doctrine, employers can fire workers for good, bad, or no reasons.
ANSWER TO VIDEO QUESTION LTR. A
In the video, Laura asserts that she can fire Ray “For any reason. For no reason.” Is this true? Explain your answer.
Under the employment-at-will doctrine, either party may terminate an employment contract at any time and for any
A. EXCEPTIONS TO THE EMPLOYMENT–AT-WILL DOCTRINE
1. Exceptions Based on Contract Theory
Some courts have held, based on employees’ reasonable expectations, that an implied contract exists
2. Exceptions Based on Tort Theory
3. Exceptions Based on Public Policy
Under this exception (the most widespread common law exception to the at-will doctrine), an employer
may not fire a worker in violation of a fundamental public policy. The policy must be clearly expressed in
statutory law. Firing workers who refuse to perform illegal acts violates public policy. Whistleblowers may
be protected for public policy reasons. Federal and state statutes may also offer protection
CHAPTER 34: EMPLOYMENT, IMMIGRATION, AND LABOR LAW 825
ANSWER TO VIDEO QUESTION LTR. B
What are the exceptions listed in the chapter to the employment-at–will doctrine? Does Ray’s situation fit into any
of these exceptions? Three main exceptions to the employment-at-will doctrine are discussed in the chapter. Courts
sometimes make exceptions based on contract theory, such as when an employer’s manual, a personnel bulletin, or
the employer (verbally) states a policy that the employee will be fired only for good cause. Other exceptions are based
on tort theory, such as when the employer makes false promises to an employee who relies on these promises to her
or his detriment. Exceptions may also be based on public policy, such as when the employer fires a worker for reasons
that violate a fundamental public policy of the jurisdiction. Ray’s situation does not give rise to a contract or tort
exception under the facts presented in the video. (He does not allege that he understood that he could only be fired
ANSWER TO VIDEO QUESTION LTR. C
Would Ray be protected from wrongful discharge under whistleblowing statutes? Why or why not?
Whistleblowing statutes are typically aimed at protecting whistleblowers from employer retaliation. A whistleblower is
an employee who tells a government official, upper-management authority, or the press that her or his employer is
engaging in some unsafe or illegal activity. That is not the situation in the video. Ray has not “blown the whistle” on
Laura’s advertising firm by telling anyone else about the advertisements that he considers to be false and misleading.
Therefore, most states’ whistleblowing statutes would not apply.
B. WRONGFUL DISCHARGE
Federal statutes and state court rulings provide exceptions to the at-will doctrine in actions based on a wrongful-
discharge theory. Punitive damages have been awarded against employers.
ANSWER TO VIDEO QUESTION LTR. D
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sue for wrongful discharge in this situation? An employer faced with this situation can argue that the employee was
terminated because he refused to do what he was hired to do—produce advertisements. There was no discrimination
or retaliation involved in this termination, just professional differences. An advertising firm has a legitimate interest in
the kind of advertisements that its employees produce and should be able to terminate employees who refuse to do
the work assigned to them. The employer can assert that Ray was not asked to commit a crime; he was only asked to
do the job on schedule and to be creative. Public policy considerations should weigh in favor of the employer here,
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A. CHILD LABOR
Children under fourteen can work in only limited occupations, children under sixteen cannot work full-time
except for a parent under certain circumstances, and children under eighteen cannot work in hazardous jobs or in
jobs detrimental to their health and well being.
B. MINIMUM WAGES
The current federal minimum wage is stated in the text.
C. OVERTIME PROVISIONS ABD EXEMPTIONS
CASE SYNOPSIS—
Case 34.1: Smith v. Johnson and Johnson
McNeill Pediatrics is a subsidiary of Johnson & Johnson (J&J). Patty Lee Smith was a McNeill “Senior Professional
Sales Representative,” although she did not actually sell a drug—she only extolled its benefits. She was told to target
ten doctors per day, with revisits each quarter. Specific strategic plans to maximize results were at her discretion. Her
base salary was $66,000, with potential bonuses. She was never paid overtime. She filed a suit in a federal district court
against J&J, seeking overtime pay under the Fair Labor Standards Act (FLSA). J&J argued that she was an administrative
employee exempt from FLSA. The court agreed and issued a judgment in J&J’s favor. Smith appealed.
The U.S. Court of Appeals for the Third Circuit affirmed. An administrative employee exempt under FLSA is
performance of . . . non-manual work directly related to the . . . general business operations of the employer . . . and
…………………………………………………………..……………………………………………………………………
Notes and Questions
Suppose that Smith’s job title had been “Product Publicist,” or “Administrative Employee,” or “Outside
Salesperson,” instead of “Senior Professional Sales Representative.” Would the result have been different? Explain. No,
the result would not have been different. The reasoning behind the court’s decision focused on the duties of the
employee, not the specific job title.
ANSWERS TO QUESTIONS AT THE END OF CASE 34.1
1. Is it unfair to exempt employees to deprive them of overtime wages? Why or why not? The general argument
2. J&J argued that Smith was exempt under either the administrative employee exemption or the outside salesperson
exemption. The district court found, though, that Smith did not qualify for the outside salesperson exemption. What
single fact might have made Smith ineligible for the outside salesperson exemption? The important fact in the district
court’s reasoning was that Smith did not actually sell the drug Concerta, a controlled substance, because such sales are
prohibited by law. Although she promoted the benefits of the drug to physicians and hospitals, she did not make any
actual sales of the drug. The district court pointed out that making sales was an essential requirement in determining
whether a person qualified as an outside salesperson.
ENHANCING YOUR LECTURE—
EMPLOYMENT ISSUES IN THE VIRTUAL
WORKPLACE
Over thirty million workers in the United States telecommunicate, up from fewer than twenty million at the end of
the last decade. Between eight and ten million U.S. workers now telecommunicate full-time—never laying eyes on, or
feet in, a physical office building. As often happens, though, a spurt in technology—mainly due to the growth in
Internet use—has caused real-world conditions to leap ahead of the law. After all, virtually all state and federal
statutes governing employment were drafted when the only workplace was the traditional workplace.
DO OVERTIME AND MINIMUM-WAGE LAWS APPLY TO THE VIRTUAL WORK FORCE?
CHAPTER 34: EMPLOYMENT, IMMIGRATION, AND LABOR LAW 829
requirements. They must be (1) highly skilled in computer analysis, programming, or related work; (2) involved in the
application of systems analysis, techniques, and procedures or in the design, development, creation, or testing of
computer programs; or (3) involved in the modification,, or creation or testing of machine operating systems.
Just because employees work in a remote location—telecommute—does not mean that they are exempt from the
overtime-pay requirements or the minimum-wage laws. Any employer who misclassifies employees as exempt from
these regulations may be subject to both criminal and civil penalties. Under all circumstances, employers are required
to monitor the hours worked by nonexempt telecommuting employees, even if doing so presents a challenge. Today
there are software programs that will monitor hours of work for a telecommuting employee.
NONEXEMPT EMPLOYEES IN COMPUTER-RELATED OCCUPATIONS
They are, consequently, subject to federal overtime regulations.
REGULATING THE SAFETY OF AT-HOME WORK SITES
The Occupational Safety and Health Administration (OSHA) did not issue a formal directive on home-office safety
until 2000. At that time, OSHA stated that it would not conduct home-office inspections and would not hold employers
liable for their employees’ home offices. It also stated that it did not expect employers to inspect the home offices of
their telecommuting employees.
Nonetheless, OSHA holds employers responsible for any situation in which hazardous materials or work processes
are provided or required to be used in an employee’s home office. Additionally, employers are required to keep OSHA
injury and illness records for any work-related injuries and illnesses that occur in home work environments (these
records will be discussed further later in this chapter). In contrast, OSHA has not applied these record-keeping
requirements to virtual workers working out of their cars, hotel rooms, and airports, for example. At some point in the
future, however, OSHA may audit remote work-sites and increase record-keeping requirements.
IMPLICATIONS FOR THE BUSINESSPERSON
1. Simply designating an employee as a telecommuting employee whose work site is no longer a physical office
2. Because OSHA may in the future change its audit requirements for remote work sites, businesses are well advised
to take reasonable preventive measures. That is to say, businesses should encourage remote employees to maintain
safe and healthful work environments away from the office.
FOR CRITICAL ANALYSIS
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CHAPTER 34: EMPLOYMENT, IMMIGRATION, AND LABOR LAW 831
III. Layoffs
Restructuring an operation or downsizing a workforce means a layoff.
A. THE WORKER ADJUSTMENT AND RETRAINING NOTIFICATION (WARN) ACT OF 1988
Employers with at least one hundred full-time workers must provide sixty–days’ notice before implementing a
mass layoff or closing a plant that employs more than fifty full-time workers. The intent is to give the about-to-be
unemployed time to look for new jobs and state agencies time to provide them with retraining and other
resources.
1. Mass Layoff
This is a reduction in force that, during any thirty-day period, results in an employment loss of at least 33
2. Notification Requirements
3. Remedies for WARN Act Violations
These include fines of up to $500 per day. Employees can recover up to sixty-days’ back pay and job
benefits, plus attorneys’ fees. Discrimination claims are possible (see Chapter 25).
B. STATE LAWS MAY ALSO REQUIRE LAYOFF NOTICES
Many states have similar or stricter notice requirements that cover more employers and employees.
IV. Family and Medical Leave
The Family and Medical Leave Act (FMLA) of 1993 protects employees who need time off work for family or medical
reasons. Most states have similar laws.
A. COVERAGE AND APPLICATION
CASE SYNOPSIS—
Case 34.2: Darst v. Interstate Brands Corp.
Krzysztol Chalimoniuk worked for Interstate Brands Corp. (IBC). He requested leave under the Family and Medical
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…………………………………………………………..……………………………………………………………………
Notes and Questions
What might have done in this case to have avoided the litigation and other costly consequences? The employer
might at some point have taken a more proactive role in encouraging its employee to seek treatment. The employee’s
family members might have confronted him with his behavior and convinced him to seek treatment sooner.
ANSWER TO “THE ETHICAL DIMENSION” QUESTION IN CASE 34.2
Did IBC take unfair advantage of the “letter of the law” by not granting Chalimoniuk a little more leave time? After
all, he was, in fact, dealing with his problem. Explain your answer. We do not have all the details in this case, but
ANSWER TO “THE LEGAL ENVIRONMENT DIMENSION”
QUESTION IN CASE 34.2
Although IBC won this suit, defending the case was costly. How can employers avoid such litigation? Keeping
workers fully aware about their rights under various federal laws can help, but FMLA has some complicated provisions
that are difficult to understand. We cannot expect that these complicated rules will be easily transmitted to all
workers so they are informed of their rights. Nevertheless, giving workers clear information about the rights, and limits
to rights, under various statutes, may help reduce confusion and, eventually, some litigation.
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B. BENEFITS AND PROTECTIONS
During the leave, an employer must continue the absent employee’s health-care coverage as if the employee
C. VIOLATIONS
Remedies for violations include damages, job reinstatement, promotion, costs, and fees.
V. Worker Health and Safety
A. THE OCCUPATIONAL SAFETY AND HEALTH ACT
The Occupational Safety and Health Act of 1970 provides for workplace safety standards with oversight by the
Occupational Safety and Health Administration (OSHA).
1. Requirements
Employers must comply with specific safety standards and notice, recordkeeping, and reporting
requirements for their industry.
• Employers with eleven or more employees must keep occupational injury and illness records for each
2. Enforcement Procedures and Violations
B. STATE WORKERS’ COMPENSATION LAWS
These laws establish state procedures for compensating most workers, including minors, injured on the job. A
state agency or board administers workers’ compensation claims.
1. Workers’ Compensation Requirements
2. Workers’ Compensation versus Litigation
In return, workers cannot sue for the injuries, even if caused by an employer’s negligence (and employers
cannot argue standard negligence defenses).
VI. Income Security
834 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
A. SOCIAL SECURITY
The Social Security Act of 1935 provides for old-age retirement, survivors, disability, and hospital insurance
(OASDI); employers and employees contribute under the Federal Insurance Contributions Act (FICA).
B. MEDICARE
Medicare is administered by the Social Security Administration for people sixty-five years of age and older and for
some under sixty-five who are disabled. Details regarding contributions are included in the text.
C. PRIVATE PENSION PLANS
D. UNEMPLOYMENT COMPENSATION
Under the Federal Unemployment Tax Act of 1939, employers pay into a fund that compensates unemployed
individuals. The text notes some of the details.
E. COBRA
The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 prohibits the elimination of a worker’s
medical, optical, or dental insurance coverage on the voluntary or involuntary termination or reduction in hours
of the worker’s employment.
1. Procedures
2. Payment
If a worker opts to continue coverage, he or she must pay a premium plus an administrative fee. Penalties
for violations include up to 10 percent of the annual cost of the group plan or $500,000, whichever is less.
F. EMPLOYER-SPONSORED GROUP HEALTH PLANS
VII. Employee Privacy Rights
The law protects the privacy of employees in a number of areas.
A. ELECTRONIC MONITORING
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Private employers can use filtering software to block their employees’ access to certain Web sites—the First
Amendment’s protection of free speech prevents only government employers from restraining speech by
blocking Web sites.
1. Employee Privacy Protection
Privacy rights are protected at common law (invasion of privacy) and under the U.S. Constitution (First,
2. Electronic Communications Privacy Act
Electronic monitoring may violate the Electronic Communications Privacy Act (ECPA) of 1986, which
3. Stored Communications
The Stored Communications Act prohibits intentional, unauthorized access to stored electronic
communications.
ENHANCING YOUR LECTURE—
HOW TO DEVELOP AN INTERNET POLICY
Employers that make electronic communications systems (such as access to the Internet and e-mail) available to
their employees face some obvious risks. One risk is that e-mail could be used to harass other employees. Another risk
is that employees could subject the employer to liability by reproducing, without authorization, copyright-protected
materials on the Internet. Still another risk is that confidential information contained in e-mail messages transmitted
via the Internet could be intercepted by an outside party. Finally, an employer that monitors employees’ Internet use in
an attempt to avoid these risks faces yet another risk: the risk of being held liable for violating the employees’ privacy
rights. If you are an employer and find it prudent to monitor employees’ Internet use, you should take certain
precautions.
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SPELL OUT PERMISSIBLE AND IMPERMISSIBLE INTERNET USES
Employees should be told which uses of the firm’s communications system are permissible and which uses are
prohibited. To clarify Internet policy standards, develop a comprehensive policy setting forth your standards of
Internet use and illustrate through specific examples what kinds of communications activities will constitute
impermissible uses. It is also important to let employees know what will happen if they violate the policy. The policy
might state, for example, that any employee who violates the policy will be subject to disciplinary actions, including
termination.
CHECKLIST FOR THE EMPLOYER
1. Inform employees that their Internet communications will be monitored, why monitoring is necessary or desirable,
2. Obtain employees’ written consent to having their electronic communications monitored.
3. Develop a comprehensive policy statement explaining how Internet communications should and should not be
B. OTHER TYPES OF MONITORING
1. Lie-Detector Tests
The Employee Polygraph Protection Act (1988) prohibits the use of lie detectors by most employers (not
2. Drug Testing
a. Public Employers
Drug tests have been held constitutional when there was a reasonable basis for suspecting a
government employee’s use of drugs or when drug use in a government job could threaten public
safety.
b. Private Employers