Date post: | 26-Dec-2015 |
Category: |
Documents |
Upload: | brenda-berry |
View: | 220 times |
Download: | 0 times |
Chapter 1The Regulation of
Employment
Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
1-2
Learning Objectives (1)
• Describe the balance between freedom to contract in general, and the regulatory environment that governs work, specifically
• Identify who is subject to which employment laws, and understand the implications of each law for both the employer and employee
• Note the differences between workers who are employees vs. independent contractors, and apply the various tests used to distinguish them
• Appreciate the many, serious risks of worker misclassification
1-3
Learning Objectives (2)
Articulate the various ways in which the concept “employer” is defined by the various employment-related regulations
Understand the role and effects of non-compete agreements in the employment context, their relationship to trade secret protection, their permissible parameters in most states, and the implications of their invalidity in some other states.
1-4
Intro to the Regulatory Environment (1)
Freedom to contract Employment relationship is a contract: the exchange
of labor for compensation
Most private-sector employment relationships are “at-will” agreements (more on this in Ch. 2)
An employee may choose to work or not to work for a given employer
An employer may choose to hire or not to hire a given applicant, and either party may terminate the relationship at any time, with some exceptions
1-5
Intro to the Regulatory Environment (2)
Congress and states enact laws when they believe that the employee is not on equal bargaining footing with the employer Minimum wage, overtime, safety and health
Collective bargaining rules
Refrain from using certain criteria (race, gender) to arrive at specific employment decisions
Exceptions to at-will doctrine
Query: Is this regulation really necessary?
1-6
Is Regulation Necessary? Opponent view
The market will work to encourage employers’ rational, non-biased behavior
Employers should have freedom to make business decisions
Proponent view
Human beings do not always (usually?) act rationally
Discrimination is unjust and continues on conscious and unconscious levels. People can tend to appreciate similarity, and distrust difference and The Unknown.
Market imperfections: biased firms can remain competitive while discriminating
Social contract: Best angels stand for equality of opportunity
1-7
Classifications of workers: two types
Employee Traditional law of master and servant → law of
agency
Employee serves employer/principal’s interests as its agent, according to instructions (under its control)
Independent contractor Person who contracts with a principal to perform a
task according to his or her own methods
The principal does not have right to exercise control over the physical details of the work
1-8
Examples: Employees v. Ind. Contractors
Discrimination: Title VII applies to Employees, not to Independent Contractors
Employer payroll deductions Employee → Employer responsible for deductions
Independent Contractor → responsible for their own taxes, including deductions
Benefits Not required, but Employee eligible to receive them
Independent Contractor → no access to Employer benefits
1-9
Why Use Ind. Contractors? Specialized skills or Intermittent need
Seasonality
Cost factors No overtime
Avoids work-related expenses (e.g., insurance)
Avoids Overhead – pay-for-production, not time
Liability of contractor for mistakes
1-10
Costs of Miss-Classification Inaccurate classification of workers is a violation
of Federal tax laws
The National Labor Relations Act of 1935
The Fair Labor Standards Act of 1938
Employee Retirement Income Security Act
Social Security Act
State worker’s compensation and unemployment compensation laws
CA: willful miss-classification subject to severe penalties
The fines for each violation are substantial
1-11
Indep’t. Contractors: Safe Harbor (IRS) The business must have never treated the worker as an
employee for the purposes of employment taxes for any period
All federal tax returns with respect to this worker were filed consistent with the worker being an independent contractor
The company has treated all those in positions substantially similar to that of this worker as independent contractors
The company has a reasonable basis for treating the worker as an independent contractor
1-12
Definitions of “Employee” (1)
Legislative definitions are circular, unhelpful to classification process
Courts use tests to analyze workers in context Common-law agency test: critical factor – the right to
control (exercised or not)
Economic realities test: critical factor-- whether a worker is economically dependent or is in business for her/himself
Case: Murray v. Principal Financial Group
Case: Juino v. Livingston Fire District 5
1-13
Definitions of “Employee” (2)
Tax penalties for miss-classification onerous
IRS institutional preference for employee status
Taxpayer may apply to IRS for Determination
IRS 20-Factor Analytical Tool Elements that reflect control or independence
Useful as a general guide, but not a “tally” out of 20
See Opening Scenario 3
1-14
Contingent Workers and Joint Liability
Contingent or temporary workers Often supplied by ‘temp’ or staffing agency
Same classification issues (usually employee)
Staffing firms and clients: Joint Employers? Staffing firms and their clients may have joint liability
for workers
Contract with Agency needs clarity re employer duties
Precautions during engagement to reduce risk of joint liability
1-15
Definition of “Applicant” To fulfill their purpose, some regulations cover
certain prospective employees (e.g., Title VII).
To be covered as an “Applicant:”
Person submits expression of interest, reflecting basic qualifications for a posted position;
Employer considers person for employment in a particular position;
Person does not remove him/herself from selection process or signify disinterest
1-16
Management Considerations (risk reduction)
Classification stakes are high: a written document can help identify the nature of the worker’s relationship, but the “duck test” rules
Independent contractor is best paid on the basis of results rather than time
Minimum-necessary training should be provided to an independent contractor
If independent contractor requires assistance, s/he should supply it
1-17
Definition of “EmployER” Important to recognize that entity must be an
“Employer” for many regulations to attach.
Issues may arise when: an entity claims to be a private membership club
the entity is a multinational company
the entity is close to lower jurisdictional limits of federal laws (Commerce Clause proxy)
The entity supplies goods or services to government
1-19
Non-compete Agreements (1)
An agreement by which the employee agrees not to take certain types of jobs or otherwise enter into competition with the employer, within a specified region, for a specific period of time after departure– a Big Gotcha in terms of “switching costs.” May also cover disclosure of employer’s confidential information.
States vary widely as to whether they will enforce employee non-compete agreements (most will, but not CA)
Non-competes may have “forum selection clauses” that stipulate the state’s law that applies to it. They don’t always work.
1-20
Non-compete Agreements (2)
What constitutes a valid non-compete? It protects a legitimate business interest, and is
ancillary to a legitimate business relationship
It is “reasonable” in geographic territory, industry scope, and duration period, and is not contrary to the public interest
Inter-company agreements not to hire-away each other’s employees should be avoided (anti-trust concern)
Variations include non-solicitation of customers or suppliers, no raiding of former colleagues
1-21
Non-competes and Trade Secrets Trade secret: information that has value, in part
because it is held confidential, and company takes reasonable steps to protect it from disclosure
Non-disclosure agreements (NDAs): Broad definitions of “confidentiality”
Clear that duties continue after termination, as long as info remains confidential
Doctrine of Inevitable Disclosure
1-22
Management Tips Important to evaluate and properly classify
workers; mistakes are costly
Hiring an independent contractor is not a safe harbor from liability
Staffing firms’ contracts must be carefully negotiated to clearly spell-out responsibilities and covered risks
Non-competes and NDAs may be evaluated and used to protect legitimate business interests