A BAKER S DOZEN: SELECTED LABOR AND EMPLOYMENT ISSUES FACED BY U.S. EMPLOYERS

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1 A BAKER S DOZEN: SELECTED LABOR AND EMPLOYMENT ISSUES FACED BY U.S. EMPLOYERS Employers developing a workforce in a new country often are surprised by the different types of employment laws maintained in the new jurisdiction. Others are surprised by the enforcement policies of a new country, which may stress different areas of law at different times. While one country may focus on regulatory compliance (such as immigration and payroll taxation), another may focus on individual rights (such as limiting the reasons for termination, setting severance pay, or establishing proactive antidiscrimination policies). The United States adds an additional layer of complexity for new employers. In addition to nationwide federal regulation, each individual state is free to adopt its own employment laws. Employers establishing operations should carefully examine not only federal employment laws, but also laws regulating employment in each state where they will maintain employees. This can be especially difficult for wine industry employers, who may have many workers in one state but a handful of distribution employees throughout the country. The following is a list of several general employment-law subjects, with citation to some relevant laws and resources, commonly faced by U.S. employers. 1. Immigration and Right-to-Work Regulation a. All countries regulate work performed by non-citizens and residents of other countries. One of the most common mistakes, in all countries, is working while on a tourist or expired student visa. b. United States: Unlike most areas of employment law, the United States has a unified national immigration policy. All employers must verify the employment eligibility of new workers within 72 hours of employment. Failure to verify, and to maintain appropriate documentation, may lead to civil and criminal penalties. Employment verification is required under the Immigration Reform and Control Act ( IRCA ), administered by the United States Citizenship & Immigration Services ( USCIS ). IRCA also prohibits discrimination based on citizenship and national origin. This aspect of the law is enforced by the United States Department of Justice.

2 Page 2 1. General information for employers: 2. Discussion of unfair employment practices: c. Advice: Ensure that workers complete appropriate employment eligibility verification, which is explained on USCIS Form I-9. Ensure that all employees are treated the same way regardless of appearance or nationality. 2. Labor Relations and Collective Bargaining a. Many countries regulate different economic sectors via national or industry-wide labor unions or labor/management organizations. b. United States: There are no nationwide industry organizations. The emphasis is on individual rights; collective bargaining occurs only when employees of a single employer have selected a labor union as their bargaining representative. Direct bargaining between an employer and groups of employees (such as adjusting workplace grievances by committee) is unlawful. 1. National Labor Relations Act ( NLRA ): Primary law governing the selection of bargaining representatives by employees of private employers. Protects employees right to collective action including organizing, collective bargaining, strikes and picketing, secondary boycotts, and many related issues. Administered by the National Labor Relations Board: 2. Agricultural Labor Relations: Agricultural employees are excluded from the NLRA. They may have similar rights under state law, such as the California Agricultural Labor Relations Act ( ALRA ): 3. Public Works: Employers performing work with public funding may be required to offer benefits similar to those received by unionized employers in the same area. Prevailing Wage standards may apply to both federal- and state-funded projects. Example: Davis-Bacon and Related Acts ( DBRA ):

3 Page 3 c. Advice: Seek advice immediately if management is approached by a labor representative or union organizer. Ensure that management does not implement its own committees or groups for the purpose of negotiating or bargaining with groups of employees regarding their terms and conditions of employment. 3. Termination of Employment a. Some countries impose significant restrictions on employers ability to terminate employees, or require substantial severance payments when employees are terminated with proper cause. b. United States: Almost all states presume that employment is at will and may be terminated, with or without notice, at any time. 1. Exception: Most states recognize implied contract claims, where an employee alleges that she reasonably believed (based on employer promises or policies) she could only be terminated for cause. 2. Exception: Where a written contract for a specific period exists, at will employment is not presumed. c. Advice: All employers should maintain express at will language designed to avoid implied contract claims. Express employment contracts should be carefully drafted for a specific duration with provisions for termination for cause. 4. Wage Payment and Hours Worked a. Minimum rates of pay and maximum hours worked are often set by national policy. b. United States: Federal law regulates hours worked by minors, minimum wages, and premium pay for hours worked (but state law also applies). 1. Fair Labor Standards Act ( FLSA ) prohibits certain types of work, and regulates hours of work, for children between 14 and 17 years. 2. FLSA also sets a basic national minimum wage, and requires premium ( overtime ) pay for hours worked over 40 in a week. See

4 Page 4 3. FLSA also sets specific exemptions to overtime requirements, allowing flat salary pay to exempt employees (e.g., executives and outside salespeople). 4. State law often imposes higher minimum wage and overtime standards. c. Advice: Employers should be familiar with both federal law and any applicable state laws. See They should also become familiar with the methods used to calculate overtime and premium pay, including the concepts of workweek and regular rate of pay. Finally and perhaps most important employers should carefully examine all salaried employees to ensure that they truly are exempt under state and federal law. 5. Employee Benefits a. In many areas of the world, minimum employee benefits (such as vacation and healthcare) apply to some or all employment. b. United States: Employee benefits generally are not required beyond basic minimum wage obligations. Vacation, paid sick leave, meal and rest breaks, and other benefits are not typically required by law. 1. Exception: State law sometimes imposes significant additional requirements on employers. 2. California, for example, requires most employers to provide documented meal breaks and rest periods. 3. Many states also regulate accrued benefits such as vacation and paid time off. It may be unlawful to forfeit such benefits once accrued. 4. There is no general rule prohibiting employers from modifying or terminating unaccrued benefits at any time without employee consent. c. Advice: United States employers have broad discretion to adopt and change most employee benefits when desired. Management should, however, carefully review state laws governing the treatment of accrued benefits (such as vacation).

5 Page 5 6. Health and Pension Plans a. Most governments regulate the administration of employee trust funds, especially pension benefit funds. b. United States: Most private employer-sponsored health coverage ( welfare benefit ) and retirement savings ( pension benefit ) plans are covered by federal law: the Employee Retirement Income Security Act ( ERISA ). 1. State laws regulating the administration of covered plans are preempted. 2. ERISA requires strict funding, notice, plan documentation, reporting, and (with pension benefit plans) discrimination testing. 3. Failure to comply can result in civil and criminal penalties, and loss of tax qualification for the employer and employees. 4. ERISA also requires continuation of health coverage under Consolidated Budget Reconciliation Act of ( COBRA ) amendments. Failure to provide notice or coverage results in penalties and potential liability for lost coverage. 5. ERISA may require continued coverage even after one company shuts down, if other related companies continue to offer employee coverage. ERISA may also require coverage of employees in other countries if plan language is not carefully drafted to exclude extranational workers. c. Advice: Employers should carefully review their obligations under both ERISA and COBRA prior to offering welfare or pension benefits. They will be required to adopt carefully crafted plan terms, a summary plan description and if employing over 20 workers COBRA continuation coverage. See

6 Page 6 7. Equal Employment Opportunity Law a. Equal Employment Opportunity ( EEO ) law is designed to ensure equal access to the workplace for applicants and employees who fall into various protected groups. b. United States: EEO law covers a broad array of protected categories. 1. Discrimination: Federal law, Title VII of the Civil Rights Act of 1964 ( Title VII ), prohibits discrimination based on race, color, religion, sex, or national origin. Similar laws have been expanded to cover many additional categories such as age over 40 (Age Discrimination in Employment Act), pregnancy and childbirth (Pregnancy Disability Act) and citizenship status (IRCA, supra). Many state laws expand beyond these categories to cover issues such as sexual orientation, medical condition, and association with members of other protected classifications. 2. Harassment: Sexual harassment is prohibited by both Title VII and many state laws, such as California s Fair Employment and Housing Act. State laws frequently expand protection to employees with fewer than the 15-worker Title VII minimum. In California, for example, sexual harassment is prohibited for employers with only one employee. 3. Policies: State and federal laws require that employers both notify employees of their rights and take reasonable precautions to prevent and promptly correct unlawful discrimination and harassment. Failure to provide notice or maintain reasonable policies increases the likelihood of liability and, in some states, is a grounds for a separate legal claim. c. Advice: Employers should be aware of the federal and state EEO laws applicable to them. Every employer should obtain appropriate workplace postings and distribute reasonable policies covering both (1) an explanation of applicable law, and (2) an appropriate procedure for making complaints of suspected discrimination or harassment. Employers should also train managers to avoid inadvertent conduct that could lead to liability, such as asking prohibited employment inquiries (e.g., what is your maiden name (marital status) and when did you graduate from high school (age) ). See

7 Page 7 8. Leaves of Absence a. Most industrialized countries provide expansive protection for certain types of leave, such as illness and pregnancy leave. b. United States: Traditionally did not have laws requiring leave. Over the past two decades, federal law has expanded to require several types of leave to qualified employees: 1. Family and Medical Leave Act: Provides up to twelve weeks of leave per year for an employee s own serious medical condition, to care for certain ill family members, or to bond with a new child. Applies only to employers with 50 or more employees within 75 mile radius, and only to qualified employee with sufficient tenure and work hours. See 2. Americans with Disabilities Act: Does not require specific leaves, but unpaid leaves of absence have been found to be reasonable accommodation of qualified disabled employees. 3. Military Leave: Requires protected leave and reinstatement for members of uniformed services. 4. Additional state-law leaves: Most states require additional leaves of absence in various situations such as: pregnancy, occupational injury, jury or witness duty, voting in public elections, civil service, and school or parenting duties. California is especially generous in requiring leaves of absence in specific situations. c. Advice: Though most leaves of absence are unpaid, they frequently create increased management, placement and overtime costs. For this reason, employers often resist providing leaves of more than a few days. It is important to (1) become familiar with the state and federal leave laws applicable to an employer by virtue of its size, and (2) ensure that appropriate policies (and workplace postings) are in place. 9. Disability Accommodation a. Uniform standards governing disability accommodation have been developing, but are not always well-established, across the world. European employment regulation historically implemented quota-based

8 Page 8 systems designed to create specific amounts of employment for disabled citizens. b. United States: Disability law evolved at about the same time as modern Family and Medical Leave laws. 1. Americans with Disabilities Act ( ADA ): National law requires employers with 15 or more employees to make reasonable accommodations for qualified applicants and employees with disabilities. It is enforced by the Equal Employment Opportunity Commission: 2. ADA also implemented broad public access rules for businesses with publicly accessible locations. 3. The scope of qualified individual, disability and reasonable accommodation has developed rapidly over the past fifteen years. See 4. Disability accommodation now requires an interactive process where the employer works with an employee to identify reasonable accommodations when it knows or should suspect that the employee is disabled. 5. State laws can enhance or overlay the federal ADA requirements. California s Fair Employment and Housing Act ( FEHA ), for example, requires accommodation by employers with only 5 or more employees. c. Advice: Determine whether an entity has enough employees to be covered by state or federal disability accommodation law. If so, ensure (1) that appropriate policies are in place to guide management through its obligations and the interactive process, and (2) that appropriate notices and postings are in place under state and federal law. 10. Workers Compensation and Occupational Safety and Health a. Jurisdictions have different methods for ensuring who bears the cost of workplace injuries and who is responsible for workplace safety. b. United States: States typically govern payment of medical and disability payments to injured workers, while both state and federal law governs workplace safety. The two subjects are closely related, however, with violations in one context often creating liability in the other.

9 Page 9 1. Workers Compensation: Every state requires coverage providing both medical treatment of and compensation for occupational injuries. a. Employers typically pay insurance premiums based on the type of work performed by employees. b. Maintaining insurance usually prohibits additional civil liability against an employer for injuries. c. Failure to maintain coverage can result in fines, criminal penalties, and in California a stop order closing the business. 2. Occupational Safety & Health: Governed by both the federal Occupational Safety and Health Administration and individual states: a. Workplace safety duties set by standards developed by multi-partisan standards boards. b. Specific state standards can exist alongside general federal requirements. c. Violation of OSH standards can result in penalties, individual liability, and increased workers compensation liability. c. Advice: It is imperative to obtain workers compensation coverage prior to starting a business. It also is prudent to investigate OSH standards applicable to individual business under state and federal law (such as maintaining an Injury and Illness Prevention Program in California). Employers should inquire whether their workers compensation carrier provides no-cost workplace analyses as part of its coverage. 11. Restrictive Covenants and Trade Secrets a. Different standards apply worldwide to employers ability to impose restrictive covenants (such as non-compete agreements) on current and former employees. There are no uniform standards regarding the validity or enforcement of such agreements. Standards protecting trade secret and proprietary information also vary widely between developed and developing countries.

10 Page 10 b. United States: Similar inconsistency exists with respect to both restrictive covenants and the definition of trade secret information. 1. Most states allow reasonable non-compete agreements that are limited in time and geographic scope. 2. Some states, such as California, radically limit the use and enforcement of such agreements. 3. Most states have adopted similar rules under a Uniform Trade Secrets Act ( UTSA ), but many possess different standards defining confidential and proprietary information. c. Advice: Employers should carefully examine any restrictive covenants to ensure that they are enforceable in each state where an employee will perform services. Only California absolutely prohibits noncompete agreements. Employers should also craft Trade Secret and Confidentiality of Information Agreements that (1) identify the type of information that is protected, (2) list specific restrictions on the use of and access to such information, and (3) impose penalties on employees who either disclose confidential information or violate policies designed to protect it. 12. Employee Privacy and Data Security a. Privacy and the security of private personal data is a hot topic throughout the world. b. United States: There is no general right to privacy in employment in the United States, where most constitutional protection extends only to government action. 1. Statutes: Over the past decade, federal statutes passed to confer privacy or specific types of information, such as healthcare and medical data under the Health Insurance Portability and Accountability Act ( HIPAA ). Credit and financial information is protected by the Fair Credit Reporting Act ( FCRA ), which also applies to employers. 2. State law: States have passed their own laws governing privacy, such as California s Confidentiality of Medical Information Act ( CMIA ) and Investigative Consumer Reporting Act ( ICRA ). California also has a constitutional right of privacy applicable to private action.

11 Page Data Security: In the past two years, approximately two dozen states have passed laws requiring disclosure or loss of personally identifiable data (such as Social Security Numbers on a stolen laptop). c. Advice: Violation of recent privacy legislation both state and federal carries serious potential civil and criminal liability. Employers should become aware of all privacy statutes applicable to their business and take steps in advance (such as establishing separate employee medical files and data security procedures) to avoid breaching applicable law. 13. Payroll Taxes (and Independent Contractor Status) a. In many countries, the classification of a worker has little effect on taxes payable for his services. b. United States: Unites States payroll taxes include federal contributions (such as social security), state and federal personal income tax withholding, and state payroll taxes such as unemployment and disability insurance contributions. 1. Failure to pay payroll taxes often results from misclassification of employees as independent contractors. 2. Federal and state agencies apply different tests (such as 20 factor and economic reality tests) when determining whether an individual is an independent contractor. See 3. Failure to classify employees properly, or to make appropriate payroll tax deductions, can lead to state or federal audits and substantial interest, penalty and personal income tax liability. c. Advice: Ensure that the personnel charged with payroll calculation are familiar with all applicable state and federal standards. Many employers make mistakes when allocating payroll duties to inexperienced staff. Employers should also be suspicious of any independent contractor relationship other than those of true outside vendors (such as plumbers and independent consultants), as misclassification has resulted in widespread recent litigation throughout the United States.

12 Page 12 ADDITIONAL RESOURCES It is virtually impossible to identify all laws and regulations applicable to all employers due to variations among different states and industries. Fortunately, almost every state has government, professional and human resources organizations maintaining checklists for different types of businesses. In California, state EEO and disability law is described at Wage, occupational safety and health, and workers compensation administration is accessible at National and state Chambers of Commerce also provide web-based resources for employers; California s largest employer advocacy group maintains an excellent human resources site, Similar resources are available for employers in most states (though there is no substitute, of course, for qualified legal counsel.) Richard Rybicki is an attorney with Employment Law Advocates, a Professional Corporation, focusing on the representation of management in labor and employment law issues. Mr. Rybicki can be reached at (707) or

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