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Employer Liability.

By John Dietz - Email Editor

Date : May 20, 2008

Helping our readers recognize the potential for deleterious situations in their companies when it comes to liability is one of our educational goals at Trust Makers. Employer and employee relationships are a liability right from the start. In this newsletter, we concentrate on identifying issues that every employer must be acquainted with and understand regarding their specific state law and reducing the legal responsibility in labor relationships.

Employee Classification

Contractual agreements begin with the identification of the “parties” and what “title” you bestow upon these parties. Misidentifying the classification of employees is a mistake often made by business owners and often not challenged until a dispute ends up in a court of law. First, Employment Law, due to public interest, favors the employee. With that said, many entrepreneurs attempt to avoid benefits, tax hassles, unemployment tax, FICA and social security by making everyone an Independent Contractor. It may work, but it may not. Check your state’s status on “employee” and use this general guideline to determine what specific constraints are imposed.

Another important aspect is if this person wants to be classified as an Independent Contractor because they will be missing benefits that are imposed by state and federal law.

Treatment of All Employees as “Salaried”

Is there anything wrong with treating all employees as salaried instead of calculating hours and overtime pay?

Under both state and federal law, certain employees are exempt from overtime requirements and can be paid a straight salary no matter how many hours a week they work. Employees who do not qualify for an exemption are entitled to overtime pay, and can’t agree to forego overtime pay in exchange for receiving a salary.

An exempt employee normally is a high-level executive, administrative or professional employee. Other types of exempt employees are certain artists or outside salespeople. All others generally are non-exempt. Titles are irrelevant to the determination of whether an employee is exempt or non-exempt.

Merely placing an employee on a salary does not exempt that employee from wage and hour laws. While a non-exempt employee legally can be paid in the form of a “salary,” that employee earns overtime the same as hourly wage earners.

Benefits

If you have classified employees, you will be required to comply with all benefits laws. Every state has a number of work hours for “full-time” versus “part-time” status, with full-time employees qualified for the minimum benefits required by law.

Vacation, sick and personal day policies rank high on the list. These benefits also vary and should not be lumped together unless the employer adopts a Paid Time Off (PTO) policy. In most states, employer’s cannot vest the right to these benefits and then take them away if they are not used within a certain time period. Most states do not have a legal requirement to provide vacation, but if it is given, it cannot be taken away because vacation policy is viewed as wages compensation. In most states the employer has the right to manage the vacation, including determining the times an employee may take such time off. If the working relationship is terminated, for any reason, the employer is still likely to be obligated to pay the employee for their vacation time. Employers should be very critical in determining when and how vacation time is vested. Most states ban “use it or lose it” policies on vacation time.

Paid Time Off policies are determined within the company contracts and have become good replacements to the legal dilemma and confusion of terms. Check the laws to find out if you give employees “no question” PTO days for personal issues whether these do or do not accrue year to year if unused.

Law does not govern sick days, but rather the employer is bound to the contracts that they create. It is possible to force employees to use PTO or vacation time as sick days. The employer should make sure to have a clear-cut policy on “sick days.”

Determined Work Hours

Many employers make the mistake of allowing employees the choice to work hours whenever they want. Though this may work out, in the courtroom, when the state standards for work hours are enforced, the employer will have a difficult time winning any disputes. Questions of over time and break time may be some of the disputed issues by the employee. Management and high level employee positions also have separate allowances for the scheduling of work time.

Management Training

One of the biggest problems an employer may have in court is defending claims against untrained management. State laws for training and certification vary by occupation. There are certain management skills pertaining to dealing with people and problems and accidents that all employers should provide during employee training. The employer should keep accurate documents and maintain management skills in areas such as sexual harassment, blood born pathogens, occupational hazards, service of alcohol and biohazards.

Employee Termination Mistakes

In every state, an employee is due their pay, regardless of how they were terminated. This also means vacation pay due at termination. The circumstances of termination will determine when the employer must pay the owed wages. If the employee owes the company money, a different situation will arise and the employer will be within their legal rights to withdraw this against the earned wages.

This is one of the most common disputes in Employment Law. The employer must have all documentation dated and timed. The Employment Board in every state will not tolerate any excuse from the employer.

Non-Compete Agreements

An employer can require an employee as part of the employment agreement, to sign a non-disclosure agreement; However, it is a state-by-state issue on the rights to work pertaining to non-compete agreements. In some states, these agreements are illegal and in other states, there are restrictions. The question is, is the agreement enforceable in your state?

A court is most likely to enforce this type of agreement if they are reasonable. Not permitting a person to earn a wage is going to be contrary to public interest. There must be a legitimate need to protect the employer’s business within a reasonable scope of terms.

Non-compete agreements are enforceable only if they impose reasonable restraints on employment. There are generally five criteria for determining the reasonableness of a non-compete agreement: (1) the duration of the restriction; (2) the geographic scope of the restriction; (3) the degree of protection afforded to the employer; (4) the extent to which the restrictions affect the employee’s ability to pursue a trade; and (5) the extent of interference with the public interest.

Being an employer is a responsibility not for the meek. Exposing some of these liabilities and writing about them reminds me how important it is to follow the principles of Asset Protection in every endeavor you choose. As we say, at Trust Makers, we help you keep what you earn!

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