Contributed By Barnes & Thornburg LLP (Indianapolis - HQ)
The “Gig” Economy
In many respects, the law has struggled to keep up with rapid advances across industries. Employers have warmed to the “gig” economy approach, sometimes relying heavily on transient, temporary and short-stint workers, many focused on particular projects or ventures. With industry experts predicting a steady increase in the gig economy, employers need to understand the challenges and risks. While the economy has drastically changed, applicable U.S. law has not.
Employers (or entities contracting for services or personnel) must consider the costs, savings and potential risks related to particular choices in this framework. Misclassifying workers as “independent contractors” who should be classified as “employees” leads to legal issues, including in the following areas: collective bargaining; taxes; wage and hour compliance; benefits; and anti-discrimination laws.
All of these areas are based on workers having “employee” status. Independent contractors typically have no such protections under federal and most state employment laws. The question regarding whether a worker or group of workers is properly classified can easily lead to disputes before administrative agencies and state and federal courts. See more detailed information on the independent contractor relationship in 2.1 Defining and Understanding the Relationship.
Artificial intelligence is capable of streamlining and focusing decision-making processes, but the risk for employers is that the assumptions used may have an inadvertent discriminatory impact on a legally protected class of employees. The fact that a computer program has sorted employment candidates, for instance, will not protect an employer from potential liability under a federal or state employment statute (such as Title VII of the Civil Rights Act of 1964) if disparate impact occurs in relation to age, race, disability or any other protected characteristic. A disparate impact is a legal concept that results in liability even in the absence of wrongful intent when statistical evidence would indicate that a facially neutral policy or practice has a disproportionate adverse effect on a legally protected group of individuals.
Cyberspace and Social Media
In the information age, current and former employees, and even current and former applicants, have the ability to publicly vent their opinions about their employers to a wide audience.
Under the National Labor Relations Act, U.S. employers cannot preclude many forms of free expression related to work matters and work conditions (and cannot easily take adverse action against those engaging in such free expression). Employers, however, can restrict the sharing and/or misappropriation of their confidential information and trade secrets, including in on-line forums.
Technology has allowed employers to be flexible with their workforce, allowing employees to address work issues outside of the traditional office environment. However, hourly workers not exempt from the requirements of the Fair Labor Standards Act (“FLSA”) likely will need to be paid for work performed after hours. U.S. employers need to have clear policies that address their compensation policies with respect to the use of these devices and after hours work.
While U.S. employers have adopted and implemented longstanding policies prohibiting harassment based on legally protected characteristics, the attention placed on this issue by the “Me Too” movement and the publicity generated in recent high-profile cases has initiated a seeming cultural shift from preventing conduct that is illegal to promoting a respectful and inclusive work environment. This shift can be seen in the types of training being provided by employers (more focused on civility training and respect), as well as the focus of anti-harassment policies. The promotion of environments that encourage reporting and offer multiple avenues to bring concerns forward, coupled with an appropriate response to the behaviors at issue, are important components of such a program.
Late last year, Congress passed a comprehensive tax reform bill. Section 162(q) of the Internal Revenue Code now eliminates a tax deduction in a sexual harassment or sexual abuse settlement if the settlement or payment is subject to a nondisclosure agreement. Accordingly, while settlement payments made to claimants in connection with employment-related disputes are generally treated as deductible business expenses, this tax benefit no longer exists for confidential settlements involving a claim of sexual harassment. This provision forces companies to choose between economic incentives and public scrutiny in an attempt to create greater transparency and accountability for unlawful sexual conduct in the workplace.
In Indiana, absent a contract or policy to the contrary, private sector employees do not have “due process” rights like their public sector counterparts.
Most companies prefer to operate union-free for various reasons, such as avoiding limitations on dealing directly with their employees and minimizing the risk of work stoppages. Union membership has been on a significant decline in the United States for decades, with private sector union membership hovering around 6.5% now, but their ranks remain strongest on the coasts (e.g., New York, California, etc.). The South historically has the lowest unionization rate, but many states in the Midwest, including Indiana, have seen their union numbers dwindle increasingly in recent years. Indeed, Indiana saw a 12.5% decline in union membership from 2016 to 2017. Indiana is a “Right to Work” state. As a “Right to Work” state it is unlawful for a collective bargaining agreement in Indiana to require employees to pay union dues.
The National Labor Relations Board (“NLRB”) is vested with enforcing the National Labor Relations Act (“NLRA”), which provides workers with certain rights with respect to unionizing and discussing, protesting, etc. their terms and conditions of employment. The NLRB governs private sector labor relations in the United States, and its regulations and administrative decisions apply to all 50 states. It consists of five members appointed by the president, so their views can change from administration to administration. Because the law is national in scope, no specific region, generally speaking, has a “leg up” on another when it comes to U.S. labor law.
There are a variety of different types of service arrangements in the United States. As a result, it is important that the parties agree on the terms and conditions at the outset of their relationship, and ensure that the agreement reached is consistent with applicable law. Failing to properly do this at the commencement of the engagement not only creates unnecessary uncertainty, it increases the organization’s legal exposure with regard to future disputes.
The default service relationship in the United States is that of employer and employee. Most states, including Indiana, are “at-will” employment jurisdictions, meaning that either party (the employer or the employee) can terminate the relationship at any time and without having to provide a reason – provided, of course, that the termination decision is not otherwise prohibited by law (i.e., due to discrimination or retaliation). In some situations, employees may have contracts specifying the terms and conditions of their employment. Such contracts are not required in the United States, but occasionally may be warranted depending on certain factors such as the type of employee in question (i.e., an executive). Barring a formal written contract, terms regarding the employment relationship typically are relegated to documents such as offer letters, job descriptions, employment policies or employment handbooks.
Joint employment is not the norm and applies only in limited circumstances – usually in a legal proceeding as a mechanism by which an employee attempts to recover damages against a third party. However, to show that a third party is a joint employer, the third party must do more than simply allow another employer’s employee to work at its facility. Instead, the third party must have exerted significant control over the employee. Factors to consider in determining joint employer status are: (1) supervision of employee’s day-to-day activities; (2) authority to hire or fire the employee; (3) promulgation of work rules and conditions of employment; (4) issuance of work assignments; and (5) issuance of operating instructions.
Under the NLRA, the NLRB currently may find two or more entities are joint employers if they are both employers within the meaning of the common law and if they share or codetermine matters governing the essential terms and conditions of employment. The primary inquiry by the NLRB is whether the purported joint employer possesses the actual or potential authority to exercise control over the primary employer’s employees, even if the authority has not been exercised. This current NLRB joint-employment standard could change through case law or rule making.
The importance of control in a relationship also extends to the determination of whether a worker is an independent contractor. Contracting is very popular in the United States: the number of contractors as a percentage of the workforce has doubled since the 1990s. See GAO-15-168R Contingent Workforce. As contracting has grown in popularity, it has attracted more scrutiny from the courts, lawmakers and administrative agencies. Accordingly, simply describing a worker as an independent contractor is not sufficient – what matters is how the parties act in practice based on the totality of the circumstances. The law in this area is rapidly evolving and there are no rigid rules for determining whether a person is an independent contractor or an employee. Various jurisdictions and administrative agencies in the United States have adopted different tests to determine whether an individual is an independent contractor. For its part, Indiana has adopted a relatively moderate approach, distinguishing employees from independent contractors based on the following types of factors: the extent of control which, by the agreement, the employer may exercise over the details of the work; whether or not the one employed is engaged in a distinct occupation or business; the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision; the skill required in the particular occupation; whether the employer or the worker supplies the instrumentalities, tools and the place of work for the person doing the work; the length of time for which the person is employed; the method of payment, whether by the time or by the job; whether or not the work is a part of the regular business of the employer; whether or not the parties believe they are creating the relationship of employer and employee; and whether the principal is or is not in business. While no one factor is dispositive of a person’s status, the extent of control over the work performed by the worker is regarded by Indiana courts as the single most significant factor in determining the existence of an employer-employee relationship.
Most typical workplace scenarios in the United States do not involve franchising. While there is some overlap between the terminology of an independent contractor and that of a franchise, the structure of the relationship is different: a franchise involves a relationship whereby the franchisee undertakes to conduct a business or sell a product or service in accordance with the methods and procedures prescribed by the franchisor, and the franchisor undertakes to assist the franchisee through advertising, promotion and other advisory services. Franchises in Indiana are governed by state statute. The Indiana Franchise Act distinguishes franchise contracts from other agreements by way of a three-prong test: (1) a franchisee is granted the right to engage in the business of dispensing goods or services, under a marketing plan or system prescribed in substantial part by a franchisor; (2) the operation of the franchisee’s business pursuant to such a plan is substantially associated with the franchisor’s trademark, service mark, trade name, logotype, advertising, or other commercial symbol designating the franchisor or its affiliate; and (3) the person granted the right to engage in this business is required to pay a franchise fee.
Internships have been the subject of considerable scrutiny in the past few years – notably from the standpoint of whether private businesses can rely on unpaid interns. The U.S. Department of Labor’s Wage and Hour Division has developed a test for evaluating whether an individual constitutes a “trainee” (intern) for the purposes of the FLSA. The following factors are considered in determining whether a for-profit employer lawfully can utilize an unpaid intern: the extent to which the intern and the employer clearly understand that there is no expectation of compensation – any promise of compensation, express or implied, suggests that the intern is an employee – and vice versa; the extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions; the extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit; the extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar; the extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning; the extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern; and the extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship. See Fact Sheet #71: Internship Programs Under The Fair Labor Standards Act, available at https://www.dol.gov/whd/regs/compliance/whdfs71.htm#2.
Indiana, like most states, is an employment “at-will” jurisdiction. This means that if there is no contract setting forth a specific term for the employment relationship or limiting the means by which an employee can be terminated, the employer can lawfully terminate the employee at any time without giving notice of the termination or providing a reason for the termination – as long as the termination is not otherwise prohibited by law. Of course, the at-will relationship does not extinguish or limit any other statutory or legal right an employee has under applicable federal, state or local laws, and employers must comply with all laws that govern the employment relationship in the jurisdiction in which the employee works. Thus, clear documentation and communication of the basis for the termination decision will serve employers well should their decision be challenged under the various civil rights or leave laws applicable to the specific situation.
Although Indiana is an employment-at-will jurisdiction, an employer can forfeit its at-will right to terminate an employee by promising employment for a fixed period of time or stating that employment will only be terminated under certain circumstances. Either situation may create a “contract of employment.” Similarly, promises that an employer makes to a prospective employee regarding compensation also may be enforceable. Consequently, if employees are promised a set wage rate, commission benefit or bonus, they may sue to enforce such promises. It also should be noted that there are some judicially created exceptions to the at-will doctrine. These exceptions include the following types of situations: firing an employee for refusing to engage in illegal conduct, firing employees for exercising their rights under the Indiana Worker's Compensation Act, firing employees for reporting financial misconduct, or firing them for serving on a jury.
Employers may create enforceable employment contracts if they choose to do so. Typically, contracts are entered into in limited situations involving high-level or critical employees, such as senior executives, research scientists, etc. Any employment agreement that is entered into between an employer and employee will be subject to the same general parameters applicable to any regular contract: whether there was an offer and acceptance for the terms embodied in the agreement and whether there was consideration provided for the promises contained in the agreement.
The terms of an employment agreement will vary significantly depending on the circumstances and the parties at issue. Agreements can be limited to specific issues such as restrictive covenants. On the other hand, agreements also can cover most of the terms of employment. In those cases, the agreements will tend to cover the employee’s duties and responsibilities, compensation and benefits, the term of the relationship and the parameters by which the relationship can be terminated – including whether it is terminable for cause and the circumstances defining cause. Such agreements also typically address whether the employee would be eligible to receive severance and the terms and conditions associated with the severance package, including whether the employee is required to release any claims they may have against the company before receiving such severance.
Offer letters are commonly used to communicate the basic terms of employment to a prospective employee. Typically, these identify the type of job that is being offered to the employee (probationary, temporary, part-time, full-time), the department the person will be working in, who they will report to, and their wages or compensation structure. The offer letter also presents an opportunity to provide a copy of the job description which may go into more detail about the requirements for the position, as well as covering any unique aspects of the offer, such as whether the employee will be required to abide by restrictive covenants (which usually will be set forth in a separate agreement) as a condition of accepting the position. Offer letters for at-will employees should also contain appropriate language that affirms the at-will nature of the employment relationship. Because the contents of an offer may become the basis for a later claim of breach of contract or a promissory estoppel claim, many employers require that the employee sign the offer to acknowledge receipt and acceptance of the terms that are specified.
Most employers provide employee handbooks to inform employees about the company, and the policies and regulations that the company has adopted for the workplace. Handbooks are reference tools which help to promote consistency in the workplace and ensure that all members of management and all employees understand the company’s requirements, policies and benefits. Handbooks can address a wide array of employment terms, including – among other things – the company’s nondiscrimination and harassment policy, the regular hours of operation, exempt and non-exempt status, how requests for leave should be made and handled, employment benefits, discipline and discharge procedures, and the usage of company property and equipment.
Indiana courts have held that employee handbooks generally do not create an enforceable contract between an employer and employee. However, this view is not universally shared – other states and the federal courts have held that employee handbooks can create enforceable rights. Thus, to protect against potential claims in this regard, many employers incorporate disclaimers in their handbooks that the document does not create a contract with the employee, that the employment relationship is “at will,” and that the terms of employment can be revised at the employer’s discretion.
Exempt and Non-Exempt Status
Exempt and non-exempt status in the United States is determined by the FLSA as well as individual state laws addressing this issue. The FLSA applies to all businesses or similar entities that have annual sales or business of at least USD500,000 or to individuals who are engaged in interstate commerce or in the production of goods for interstate commerce. The FLSA imposes various requirements on employers, including obligations to make and preserve records on employee pay; child labor restrictions; minimum wage; and overtime at time and a half the regular hourly rate for all hours worked in excess of 40 hours in a seven-day workweek.
Generally, to establish that an employee is exempt from the FLSA’s overtime requirements, an employer must show that an employee (a) is paid on a salary or fee basis, (b) is paid the minimum salary (currently USD455) per week, and (c) primarily performs so-called white-collar duties that are excluded from the overtime requirements. An employee’s “primary duty” is defined by the regulations as the “principal, main, major or most important duty that the employee performs.” In assessing whether or not an employee properly is exempt based on the performance of his or her primary duty, the regulations look to the character of the employee’s job as a whole, not what a company labels an employee. Although there are several exemptions, the ones most commonly used by employers are the “white collar” exemptions – executive, professional and administrative. In order to come within the scope of the executive exemption, an employee who is paid on a salary basis at the threshold level must also have the primary duty of managing the business (or a department of the business), customarily and regularly direct the work of at least two other full-time employees or their equivalents, and have the authority to hire and fire other employees or have his or her suggestions and recommendations on key personnel decisions such as hiring, firing and promotions be given “particular weight.” The professional exemption requires that employees – in addition to being paid the required amount – perform work requiring advanced knowledge in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction, or work which requires invention, imagination, originality or talent in a recognized field of artistic or creative endeavor. The administrative exemption requires – in addition to being paid the required amount – that employees exercise discretion and independent judgment with respect to matters of significance to the business. This area has been the subject of considerable and ongoing litigation. Accordingly, prudent employers identify the proper classification which may be applicable to workers before the commencement of the employment relationship. Indiana generally does not impose stricter requirements on employers in the delineation of whether a position is exempt or non-exempt.
Immigration and Related Foreign Workers Issues
Employees who are not U.S. citizens or permanent residents must have some form of work authorization from the federal government to be employed, and employers must verify this information when completing an I-9 form within three days of the start of employment. The I-9 form is a document that must be completed by all new hires to verify eligibility to be lawfully employed in the United States. With immigration law having become ever more complex and confusing over the past several decades, adjudication of petitions for work authorization being more closely scrutinized, and compliance investigations (with severe consequences for errors) on the rise, it is ever more important to grasp the possibilities, requirements and responsibilities in this area and to develop legal, effective strategies for proceeding.
The Hiring Process
While the I-9 process requires that an employer review documents sufficient to complete an I-9 form and establish both identity and work authorization, employers also may be subject to charges of discrimination or document abuse by requiring too many or specific documents as a part of that process, or by asking the wrong questions during an interview process. For example, applicants may not be asked if they are U.S. citizens or if they have a green card (or be asked to show employment authorization) prior to hiring. An employer may ask if a potential hire is currently authorized to be permanently employed in the United States and if the person will need now or in the future the company’s sponsorship for a work visa or permanent resident status. Applicants should not be told that only citizens are hired. Applicants should not be told that the organization does not sponsor visas – unless that truly is the case. Employers also should be aware that some categories of work authorization must be paid for by the employer and may not be paid for by the employee; others may be paid by either or the cost divided up. Importantly here, punitive agreements to pay the employer back for immigration or work authorization related costs generally are unenforceable, although in certain cases a forgivable loan agreement, which reduces over time, may be permissible. Also, because no entity can predict with certainty whether a governmental agency will grant a request for work authorization or permanent residence, a company may choose to state that it will attempt to assist a worker with these efforts, but it should not promise to obtain any specific result. While in the past, the focus may have been on ensuring that protected classes and foreign workers were not discriminated against, recent compliance and enforcement measures indicate that the Government may take equally aggressive measures against actions that are deemed discriminatory toward U.S. workers (citizens and permanent residents).
Corporate Structure and Relationships
An entity with operations in at least one foreign country may wish to consider whether or not common ownership and control (at least 51%) exists with the planned U.S. operation; if it does, the organization may be able to transfer specialized knowledge or managerial and executive employees from the foreign operation to the U.S. entity after one year of qualifying service. Specialty occupations (those occupations requiring at least a relevant bachelor’s degree) may also potentially be filled by foreign professionals. However, demand far exceeds the number of available H-1B visa slots and new H-1B slots are typically used within the first few days of filing each year. H-1B is a status potentially available for foreign workers where the position to be filled is a specialty occupation and for which the foreign worker has earned at least a relevant bachelor’s degree or the foreign equivalent. Some exceptions exist to this quota system in that workers previously granted an H-1B in the last six years may be exempt from the cap, while some university and research or nonprofit employers may not be subject to the cap. Because workers who were previously counted under the cap are not again subject to the cap within those six years, many organizations take advantage of this to hire existing H-1B workers from other organizations (which also means an organization could easily lose an H-1B to another entity as well). Importantly, a relatively new exception to the cap exists for entities having a formal affiliation agreement with a university or research institution; structured correctly, this can be a valuable tool for H-1B for an otherwise-cap-subject employer. For organizations originating in certain foreign countries having treaties of commerce and navigation with the United States, those companies may be able to establish U.S. organizations or activities utilizing citizens of that country to work in the United States in “E status.” E status requires that a qualifying entity be an organization of a treaty country (i.e., the company is considered a “national” of that country), and that the individuals working under E status share that same nationality; if these conditions are met, certain acts of commerce or corporate activity may qualify for E status.
Employing Recent University Graduates and Use of e-Verify
Another source of professional employees is new foreign graduates of U.S. colleges and universities. While some of these recent graduates are hired in H-1B or some other moderate-term employment status, many are employed for a short time, post-graduation, in Optional Practical Training (OPT) status. This is a process by which the university may grant up to 12 months of practical training authorization (minus time spent working as a student) in order for the individual to work in a field related to his or her studies. This is a relatively simple and inexpensive option for employers, albeit very short-term. At the end of this time, the employer must either discontinue employing the person, or move him or her to another status, such as H-1B status. However, for graduates in certain STEM fields, the initial 12 months of OPT may be extended by up to an additional 24 months of STEM OPT – if the university agrees. Important aspects of this 24-month potential extension of work authorization include the requirement that the employer develop a specific training plan, the job to be done must be one of the approved STEM occupational fields on the government list (and must be related to the field that the person studied), and the employer MUST be a participant in e-Verify. E-Verify is not required for the initial OPT employment, but an employer must participate in e-Verify in order to qualify to utilize STEM OPT. Decisions about location of hiring sites and storage and maintenance of I-9 records may also be impacted by the decision to utilize e-Verify (or its mandatory use, where required).
Maintenance of Status and Compliance Issues
Compliance with I-9 regulations and rules affiliated with non-U.S. workers and various work-authorized statuses have also increased in importance in the past several years. Federal agencies such as ICE and the Department of Labor have greatly increased their investigation and routine compliance monitoring, as well as having expanded methods for the general public or interested parties to report violations. Fraud, noncompliance and even some unintentional errors can lead to the loss or denial of work authorization, large fines, and in the most egregious cases, even criminal charges for responsible management or ownership. This stresses the importance of accurately completing immigration and I-9 paperwork, correcting any mistakes, and ensuring that any terms and conditions of the status are followed and that any material changes are examined for potential consequences. A robust system of tracking I-9 expiration dates and compliance and for monitoring and requesting or renewing any needed work authorizations is necessary. Most non-immigrant work authorizations need to be periodically renewed, and many statuses have a maximum number of years for which it may be used. Many are also employer and location specific and do not directly transfer to another employer, or even another job within the same employer. As a part of certain processes, such as H-1B and labor certification, as well as the H2 program for filling temporary or seasonal needs, information such as the job availability and wage or wage range may be required to be disclosed publicly via prominent posting or notice to the relevant union.
To the extent the company desires to remain union-free, the importance of hiring a strong human resources and employee relations staff who can establish a positive culture and get buy-in from the managers cannot be overstated. The vast majority of union campaigns start because of perceived toxicity in the workplace (e.g., favoritism, no outlets for employees to express their views, etc.). Being union-free vests the organization with the autonomy to make decisions about policies and other terms and conditions of employment. If the employees are represented by a union and/or ever vote a union into the workplace, an employer has a legal obligation to bargain virtually every potential change to workers’ terms and conditions employment with the union. Accordingly, many employers strive to remain union-free in order to enjoy maximum flexibility.
If an entity acquires a business where employees are represented by a union, the entity may have options under the NLRA depending on the nature of the transaction. If the acquisition is a stock transaction, a stock purchaser is almost always bound by the existing collective bargaining agreement with the union. If, however, the acquisition is an asset purchase, the purchasing entity generally has the right to either assume or not assume the existing collective bargaining agreement. If there is continuity in the “employing industry” (with the most significant factor being the continuity of the workforce), the purchasing entity of the assets becomes a “successor” with an obligation to recognize and negotiate with the union. Depending on the specific facts, a “successor” may be able to establish “initial terms and conditions” of employment prior to negotiating with the union.
The pre-hire and interviewing process is a significant opportunity for Indiana employers to use the process wisely to identify and hire the strongest candidate for the positions in question. Prior to the employment interview, employers should consider requiring applicants to complete an employment application which accurately describes prior educational and work history, reasons for leaving prior employment, references, and any special skills. While many applicants currently seek to replace completing the work history part of the application with a resume, employers should consider requiring the applicants to complete the application as well, as the questions on the application seek additional information not included on a resume, such as dates of employment and reasons for leaving.
As a best practice, the employment application should include a certification by the applicant that he or she provided complete, accurate and truthful information on the application. This certification provides employers with a means to limit or mitigate damages in an employment discrimination case. The employment application also should contain an affirmation of the “at-will” nature of the employment relationship, and employers should refrain from making verbal or written assurances of “long term” or “permanent” employment, or other statements that could adversely affect the employer’s ability to successfully assert that the employee was employed at will at a later time. In addition, to the extent that any post-offer testing is to be conducted, employers should include that information in the employment application to ensure that applicants are aware of the requirements and allow them to request reasonable accommodations, if needed.
The employment application and the interview process, as a best practice, should not ask questions or elicit information about legally protected characteristics, such as age, national origin/race, religious practices, pregnancy or desire to have children, sex, sexual orientation or gender identity, or medical conditions or disabilities, and similarly should avoid questions that would elicit this type of information.
A common aspect of the hiring process is a limited criminal background check for the successful candidate. While this due diligence provides benefits for employers, such as a defense to a negligent hiring claim and the avoidance of a high-risk hire, this is an area of the law that is currently evolving on the national, state and local level. The Equal Employment Opportunity Commission has taken the position that given the fact that minorities are disproportionately adversely affected with regard to both convictions and arrests, criminal convictions should only be considered if it is job-related to the particular position being sought. Employers should consider doing a case-by-case analysis, and review the type of conviction, the date of the conviction, the nature of the job in question, and any exceptional circumstances before making a decision about employment based on a criminal conviction. Indiana has enacted a law that makes it unlawful for employers to refuse to employ or discriminate against a person because of a conviction that has been expunged. In addition, numerous cities across the country have been enacting so-called “ban the box” laws that prohibit even having questions about criminal backgrounds on the employment application. For example, Indianapolis has enacted an ordinance applicable to any company doing business with the City. Thus, requests for background checks and the process must be appropriately tailored to the state and local laws, and proper authorization must be acquired when third party vendors are used for this purpose prior to completing the background checks.
Another common component of a background check involves credit checks. Again, because credit checks tend to disproportionately disqualify minorities, it is best practice to conduct a similar analysis of the job-relatedness of a credit check to the position in question to avoid unnecessary legal exposure.
The Americans with Disabilities Act (“ADA”) also imposes restrictions on employers with regard to what information can be sought or discussed during the hiring process. The ADA generally prohibits employers from any pre-employment inquiries about an applicant’s medical condition. Thus, the employer may not ask any questions designed to elicit medical information prior to a conditional job offer being made.
After a conditional offer of employment has been made, the employer may then conduct a post-offer medical examination, provided that this is required of all applicants for the position. However, to withdraw an offer of employment, the employer must be able to demonstrate that the individual is unable to perform the essential functions of the job in question, even with reasonable accommodations. Thus, to the extent that post-offer testing is to be completed, employers should ensure that the components of the test directly correlate to the essential functions of the position.
Employers may also require physical agility testing. Depending on how these tests are constructed, they may or not be considered a “medical examination” under the ADA. For example, if an agility test simply requires an employee to pick up products and carry them a certain distance, such a test would not be a medical examination. However, if the tester measures the employee’s physiological response to the activity (e.g., pulse and blood pressure), the test very well may be considered a medical examination subject to the ADA restrictions on such testing. Even such agility tests must be job-related and consistent with business necessity, in essence accurately depicting the physical demands of the position in question. As this is a highly technical area of the law, employers are well advised to seek legal assistance with these determinations.
The Genetic Information Nondiscrimination Act (“GINA”) similarly imposes restrictions on employers during the hiring process (and afterward), making it unlawful for employers to request genetic information with respect to employees. Because genetic information is defined broadly to include family medical history, employers should ensure that any post-offer medical examinations, even those conducted by occupational doctors, do not elicit this information.
Finally, the ADA requires employers to provide reasonable accommodation to disabled applicants to permit them to participate equally in the hiring process. While reasonable accommodations may take many forms, such as having an interpreter for a hearing-impaired applicant, administering a test in an accommodated format (more time, reading the questions, answering in a different format (e.g., dictating), ensuring access to the testing site, etc., the employer is not required to “carve off” essential functions of the position in question as such an accommodation would not be reasonable.
As an initial matter, determining the applicable law which governs a contractual restrictive covenant is of critical importance. The enforceability of restrictive covenants in the United States is heavily dependent upon state law, and the laws of the various states vary dramatically on this subject. For example, some states – such as California and North Dakota – consider non-competition and non-solicitation covenants to be void and unenforceable under almost all circumstances, whereas other states – such as Louisiana and Oklahoma – will enforce contractual restrictions, but only if they meet specific criteria set forth by state statute. Other states will enforce such restrictions, but only reluctantly and only if the terms are reasonable and narrowly defined. Indiana falls within this last category. Accordingly, careful attention should be paid to the state law controlling the covenant at issue, either set forth by the parties in the contract or which may be determined by the various jurisdictions where the parties are located.
Another fundamental point is whether consideration has been provided for the covenant; contractual provisions which lack consideration may be set aside as unenforceable. Like most states, Indiana will enforce an agreed-upon term if it is secured by adequate consideration. In that regard, Indiana recognizes that requiring an employee to sign a restrictive covenant as a condition of commencing a new employment relationship constitutes sufficient consideration to bind the employee to the covenant. Additionally, continued employment (i.e., demanding that an existing employee sign a restrictive covenant to keep their job) also is recognized in Indiana as sufficient consideration to bind an employee to a covenant – although it should be noted that other states have differing views on this subject.
Indiana will only enforce restrictive covenants if reasonable in scope and where the covenants do not unnecessarily interfere with a person’s livelihood. Accordingly, in order for a restrictive covenant to be enforceable, an Indiana employer must establish that it has a legitimate interest to be protected by the agreement, and that the restrictions imposed on the employee are reasonable as to time, activities and geographic area. To show a legitimate protectable interest, the employer has to demonstrate that the former employee has gained a unique competitive advantage or ability to harm the employer before it can seek the protection of such a covenant. In other words, not all employees in a company would be subject to a valid restrictive covenant – post-employment restrictions on workers such as menial laborers who have no knowledge that could harm the employer (i.e., such as a janitor or cashier) likely would be disregarded as unreasonably overbroad. On the other hand, if an employee has unique knowledge of a company’s trade secrets or proprietary business practices and methods which could be used for a competitor, an Indiana court may enforce the restrictions – provided that they also are reasonable in terms of time and geography.
There is no definitive test for what is reasonable in terms of time; this depends on the facts of each particular situation. Generally, two years is regarded by courts to be a reasonable period. With respect to geography, the reasonableness of an agreement’s geographic scope depends on the interest of the employer that the restriction serves. Correspondingly, blanket non-solicitation clauses which prohibit an employee from calling on all customers of a company – including those which predate the employee’s employment or which the employee never serviced, likewise are considered overbroad and unenforceable.
In the event some aspects of a restrictive covenant are unenforceable, there is a chance that a court may ignore or amend problematic terms to render the provision enforceable. However, as above, a court’s willingness to do this is dependent on state law, which can vary considerably on this point. In some states (referred to as red-pencil jurisdictions), if one aspect of a covenant is overbroad, this will invalidate the whole provision – a court will not take any steps to remedy the provision to enforce it. At the opposite end of the spectrum are states which will allow courts to modify or edit an overbroad covenant to make it enforceable (i.e., if four years is deemed too long, the court in one of these states would have the ability to strike out the “four” and insert a more reasonable figure – such as two years – in its place). Other states like Indiana (referred to as blue-pencil jurisdictions) have adopted a middle-ground position: these states will permit striking terms that are unenforceable, but they will not allow a court to modify, add or alter terms to render the provisions enforceable. Consequently, in these jurisdictions, if striking overbroad terms is ineffective to make the provision enforceable, the entire covenant would be rendered invalid.
Indiana has adopted the Uniform Trade Secrets Act, and as such, prohibits the misappropriation of trade secrets and provides certain remedies to employers for violations of the statute. The statute, however, does not protect all information that a company may regard as proprietary and confidential. Under the statute, a trade secret worthy of protection is information which (1) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. Stated differently, in order to be a “trade secret,” entitled to protection under the law, the information has to be valuable, and have been the subject of reasonable efforts to keep it secret.
Information that comes within the scope of a “trade secret” is protected from “misappropriation” – which is defined as (a) the acquisition of a trade secret by a person who knows or has reason to know that the trade secret was acquired by “improper means” (theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy or espionage), or (b) the disclosure or use of a trade secret without authorization by someone who used improper means to obtain the information or who knew, or had reason to know, that the information was protected by law. Assuming the information at issue meets these elements, then the statute provides trade secret holders with a variety of options, including obtaining an injunction to prevent the actual or threatened misappropriation of the trade secret, damages for actual losses suffered, as well as exemplary damages for willful or malicious acts, and attorney’s fees.
The trade secret statute does not protect all information that a company may regard as proprietary or which may be harmful if it were to be disclosed to a competitor. For example, information about operational costs and executive salaries may not – by themselves – provide economic value to the company (and therefore would not qualify as a “trade secret”) but this could damage the company if a competitor were to find out about it. The only way to protect information which does not qualify as a trade secret is by contract. Fortunately, confidentiality or non-disclosure agreements between employers and employees generally are enforceable in the United States, and with a few exceptions, they are not subject to the stringent requirements that states impose on non-competes and non-solicitation provisions. While such agreements still are considered restraints on trade, they tend to be treated much more leniently by the courts – including courts in Indiana.
With regard to privacy concerns in the private sector, this issue remains one of the most debated issues, and the laws vary from state to state on this topic. Generally speaking, even though the employee is on the company’s premises, they still enjoy a certain zone of privacy. For example, employers should refrain from searching an employee’s person or the interior of their private vehicle. An unwanted touching could be viewed as a battery that could subject the company and the particular manager to liability. Detaining an employee in a room and refusing to allow him or her to exit could be viewed as false imprisonment, resulting in the potential for liability.
Employers which provide electronic equipment for employees to use in connection with their job duties (i.e., such as laptops and internet access) generally are permitted to adopt policies notifying employees of the right to monitor the use of such equipment and reminding employees of their ownership interest in these devices. Employers can also impose reasonable requirements on how the employees can use the equipment. For the most part, these policies have been upheld on the grounds that employees have no reasonable expectation of privacy while using company equipment. However, this is not without limits. Employers cannot demand that an employee involuntarily turn over their private cell phone for examination, divulge their password to a personal email or social media account, or attempt to hack into the employee’s personal accounts – even if the employee used company equipment to access the private accounts. For example, in Purple Commc’ns, Inc., 361 NLRB 126 (2014), the NLRB held that “employee use of email for statutorily protected communications onnonworking time must presumptively be permitted by employers who have chosen to give employees access to their email systems.” In short, aside from issues relating to the terms and conditions of employment (i.e., wage/hours) on nonworking time, employers have had a fairly wide berth in terms of regulating access and content on the electronic devices and networks they make available for employees.
With respect to monitoring employee activities in the workplace, this generally is permitted under federal and state law; however, employers should exercise caution in doing so and should make sure that the employer’s actions are reasonable. Discreet surveillance programs long have found favor with the courts. The key question is whether the surveillance constitutes an invasion of the employee’s right to privacy. For the most part, the tort of invasion of privacy requires a plaintiff-employee to show (a) an intentional invasion, (b) that is highly offensive to a reasonable person and (c) which occurs where there is a reasonable expectation of privacy. Employees typically have no reasonable expectation of privacy on a factory floor. However, the same is not true for a bathroom locker room. Thus, an employer can conduct video surveillance of work areas, lunchrooms, offices, parking lots and any other area of its business, with the exception of those areas where employees have a reasonable expectation of privacy from visual observation (such as restrooms and showers).
There are a number of federal laws that prohibit discrimination, harassment or retaliation based on legally protected characteristics or legally protected activity. Legally protected characteristics include, by way of example, age, gender (potentially including sexual orientation and/or gender identity), pregnancy, race, color, national origin, disability, military or veteran status, genetic information, religion or citizenship status. In addition to federal laws, many states, as well as local governmental entities such as cities, counties and townships, have enacted laws which expand the coverage of legally protected characteristics. The Indiana civil rights laws generally follow their federal counterpart. However, Indiana law will also protect the off-duty use of tobacco, for example, for which there is no federal counterpart. Moreover, many counties and municipalities in Indiana have adopted ordinances covering such protected characteristics as gender identity, marital status, sexual orientation, etc. Thus, it is important to understand and abide by all the laws in the jurisdiction in which the employer is located.
Employers are well advised to ensure that supervisory training is periodically provided that identifies the types of behaviors that are inappropriate in the workplace, the methods to report concerns, their role as a member of the management team (both in communicating with applicants and employees and in the investigatory process), and how to appropriately document and issue any discipline needed. Employees should also receive training on the applicable policies, the types of behaviors that would violate the policies, the mechanism to report concerns, and the non-retaliation provisions of the policies. Many employers are also including diversity training designed to foster an inclusive and respectful workplace, and to discuss varying perspectives employees may bring to the workplace as a result of their life experiences.
The Occupational Safety and Health Administration (“OSHA”) is the federal agency charged with enforcing all applicable safety laws and regulations in the OSH Act. Roughly 22 states have applied for and have been granted authorization to establish state plans to administer and enforce the applicable safety and health compliance program in their states. While state plans must be at least as effective as the federal standards, states can be stricter than their federal counterpart with regard to regulatory compliance. Indiana has an approved state plan, and the Indiana Occupational Safety and Health Administration administers the OSHA statutory and regulatory mandates. Indiana typically follows the federal OSHA regulations and does not implement standards that are stricter than the federal guidelines. Generally, the employer’s obligation under the OSHA statute and regulatory framework runs to employees, not third non-employees or members of the public.
The Indiana worker’s compensation framework has several advantages for employers, including relatively modest statutory caps on benefits available under the Act, the ability of the employer to direct authorized medical care, and a robust exclusivity provision. The Indiana Worker’s Compensation Act is adjudicated through an administrative law structure, with hearings being held by a single hearing member assigned to that geographic location. Appeals from the decision of the single hearing member may be appealed to the full Board.
The provision of employee benefits and the documentation of employee benefit plans is largely a matter of federal law under the Employee Retirement Income Security Act of 1974 (“ERISA”). Generally, state law is preempted as it relates to employee benefit plans.
The Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) is an element of ERISA which requires that administrators of group health plans provide the option of purchasing continued health care coverage to employees and their qualified beneficiaries who would otherwise lose coverage as a result of a “qualifying event,” such as the termination from employment. The purpose behind COBRA is to provide employees with continuing health care coverage for a limited period of time as a “stop-gap” measure between the time they leave one employer and begin working for another. Under COBRA, after an employee undergoes a qualifying event, the employer is required to notify the plan administrator within 30 days. The administrator then must notify any employee/qualified beneficiary of his or her COBRA rights to elect continued health care coverage within 14 days. If the administrator fails to provide the requisite COBRA notice to the employee within 44 days of a qualifying event, the employee may seek a per diem penalty of up to $110 per day “from the date of such failure or refusal.” Whether the imposition of a per diem penalty is appropriate and the amount of such penalty, if any, are matters entrusted to the court’s discretion.
Federal courts have jurisdiction to interpret how ERISA applies to employee benefit plans and these interpretations can vary from geographic region to geographic region. The federal courts that have authority for interpreting ERISA as it applies to employers located in Indiana have generally been more employer-friendly in their interpretations.
The process associated with terminating an employee is not only the most difficult to handle from a human resource perspective, it also is the most likely to result in litigation.
If an employee is at-will, that fact should be disclosed up front to the employee so there are no surprises if they are terminated at a later point in time. The employer should – at a minimum – be able to point to evidence documenting that the employees were advised of their at-will status at the commencement of employment. Care must be taken throughout employment to ensure that the at-will status is maintained. A best practice is to ensure that at-will statements are included in the employment application, offer letters, and employee handbooks and acknowledgment forms.
Terminations by Operation of Contract and Severance
If the parties have entered into an employment agreement which addresses how the employment relationship will end, the terms of the agreement normally will govern the situation. Employers are well advised to pay close attention to the language of the employment agreement, especially where there are defined terms addressing termination for “cause,” “change of control,” and provisions describing the renewal of the contract. Employees in the United States typically are not entitled to severance unless the employer agrees to provide it pursuant to the terms of an agreement or policy. In either case, the employee’s entitlement to receive severance will be construed pursuant to the terms of the agreement or policy. Best practices dictate that when severance is provided, that severance payment should be contingent upon entering into a release and waiver of all claims against the employer (unless a waiver is precluded by explicit operation of law).
Separation Agreements and Releases
In the event employees are offered severance, this customarily will be contingent upon them entering into a release waiving any and all claims they may have against the company. Such release agreements are treated as contracts, and generally will be subject to enforcement in a similar manner. One caveat, however, concerns waivers for employees age 40 or over pursuant to federal law. The federal Age Discrimination in Employment Act (“ADEA”) prohibits discrimination against individuals age 40 or over and applies to companies with 20 or more employees. In order for a waiver of claims under the ADEA to be valid, it (a) must be written in plain language understandable by the average individual eligible to participate; (b) must specifically refer to ADEA claims and rights; (c) must not cover prospective (future) rights; (d) must be in exchange for valuable consideration in addition to any benefits or amounts to which the employee was already entitled; (e) must advise the employee, in writing, to consult with an attorney before signing; (f) must provide the employee 21 days to consider the agreement; and (g) must be revocable at least seven days after the employee signs it. In the case of a group termination – which can be as few as two employees – additional requirements apply. In those situations, age 40 or over employees must have at least 45 days (not 21 days) to consider the agreement (with a comparable seven-day revocation period), and the affected employees must be provided with a memorandum identifying (a) the class of employees eligible to receive the severance package; (b) the specific eligibility requirements; (c) time limits on participation; (d) ages of all employees selected for the program; and (e) the ages of all employees in the same job classification or organization who are not eligible or selected for the program.
Beyond federal law, some states (although not Indiana) require additional provisions to ensure that a release is valid. As such, the current state of the law in the applicable jurisdiction must be reviewed before any release is prepared and presented to an employee.
Terminating multiple employees also may trigger requirements under another federal law, the Worker Adjustment Retraining and Notification Act of 1988 (“WARN”), if a sufficient number of employees are affected. This law applies to any business that employs 100 or more employees (excluding part-time employees). Under the law, if an employment loss results in a “plant closing” or “mass layoff,” a qualifying employer must provide affected employees and certain government officials at least 60 days' advance notice of the event. Employers who fail to provide the requisite notice can be required to pay the affected employees’ back pay for each day of the violation, reimburse them for the loss of benefits and any medical expenses they incurred, and may also have to pay civil penalties.
In addition to the federal WARN Act, many states (and some cities) have their own mini-WARN acts. Indiana does not have a mini-WARN statute and follows the federal law.
Alternative Dispute Resolution
The law in the United States generally favors the private adjudication of disputes. This was codified in the Federal Arbitration Act (“FAA”) which demonstrates a liberal federal policy favoring arbitration agreements. In order for an agreement to arbitrate to be enforceable under the FAA, (1) there must be a valid written agreement that is binding under applicable state law; (2) the claims asserted must fall within the scope of the arbitration agreement; (3) the moving party must not have waived its right to arbitrate; and (4) the agreement to arbitrate must be a contract involving commerce.
Like the FAA, Indiana recognizes a strong policy favoring enforcement of arbitration agreements. Under Indiana law, once a party seeking to compel arbitration demonstrates the existence of an enforceable agreement to arbitrate a dispute, and that the disputed matter is the type of claim that the parties agreed to arbitrate, a court is required by statute to compel arbitration. In fact, Indiana law specifically provides that upon application of a party showing an arbitration agreement and the opposing party’s refusal to arbitrate, the court shall order the parties to proceed with arbitration.
Arbitration applies to employment disputes and can cover the full range of potential claims that employees can raise against employers, including tort claims and claims based on the violation of federal employment statutes. Indeed, the U.S. Supreme Court held in May 2018 that a valid arbitration agreement can waive an employee’s right to participate in a class or collective action.
Generally in Indiana, and most other states, employers can easily retain workers on an “at-will” basis so that no “breach of contract” claims can be brought against the company upon an employee’s separation. Care must be taken, though, to ensure that a company follows a state’s requirements for keeping employees at-will. In Indiana, employees generally are presumed to be at-will absent an agreement with the company to the contrary. A best practice in Indiana is to have “at-will disclaimers” included in offer letters as well as any employee handbooks/manuals that state all employees remain at-will unless the company enters into a written agreement stating to the contrary. In the event the company offers employment contracts to some or all of its workers, a company that violates those agreements – for example, terminating the workers for a reason arguably not provided for in the agreement – then the company may face contractual claims for breach of contract. To the extent claims for contractual rights are brought, they most often are filed in court but can, depending on the contract, also be pursued in arbitration.
In union environments, the labor agreement between the parties controls employees’ terms and conditions of employment, including termination decisions. Violations of labor contracts most often are adjudicated in arbitration, including disputes over employee discharges.
Damages for contractual claims most often are tied to the alleged harm suffered. For instance, if an employee had a five-year employment agreement and argued he or she was terminated improperly three years prematurely, the employee, if successful, would be entitled to three years of pay. It is important to note, however, that some contracts may provide for one or both parties to receive attorney’s fees or other, additional categories of damages in the event they prevail in a dispute under the agreement, which can be significant sums.
Indiana courts generally have found that employee handbooks do not create enforceable contracts between an employer and its employees. However, given that various other states and federal courts have in some circumstances held that handbooks may create enforceable rights, many Indiana employers include clear disclaimers that the handbook is not a contract, that the employees are employed at-will absent some clear agreement signed by an officer of the company, and that the policies may be changed at any time for any reason without prior notice.
While handbooks generally are not construed as contracts in Indiana, employers should consistently follow the terms of the handbook policies (absent exceptional circumstances) to avoid claims of disparate treatment based on a legally protected characteristic.
In a union environment, a labor agreement between the union and employer governs employees’ terms and conditions of employment, including employee terminations. Nearly every such agreement provides (either explicitly or implicitly) that a union employee can only be terminated with “just cause.” “Just cause” is a murky standard that is viewed differently by arbitrators, and union employee discharge cases most frequently are pursued in arbitration. Generally, the employer must show that the reason for the termination was justified, that the employee should have known the misconduct at issue could lead to discharge, and that the company consistently has imposed such penalty for similar violations in the past. In terms of potential damages in labor arbitrations related to employee terminations, generally only back pay and reinstatement are available as potential remedies.
When it comes to wage and hour compliance, the FLSA is the law of the land (supplemented by an array of state wage and hour laws). The FLSA requires that all covered non-exempt employees be paid at least minimum wage and overtime pay at no less than time and one half their regular rates of pay for all hours worked in excess of 40 in a single workweek.
The laundry list of potential wage and hour-related legal issues can seem daunting and include: classification of employees as exempt and non-exempt; classification of independent contractors and consultants; compensable vs. non-compensable work time; payroll docking policies and practices; “off-the-clock” and regular work time; meal periods, breaks and on-call time; overtime, commissions, bonuses, reimbursements and tip pooling; record-keeping and notice obligations; payments upon termination of employment; compensable time to be included in an employee’s hours, calculation of overtime, deductions from pay, and proper classification of employees as exempt under the FLSA. In addition to the FLSA, states can impose requirements on employers concerning pay. For example, Indiana law dictates when an employee must be paid and severely restricts when an employer can deduct money from an employee’s paycheck.
Claims under the FLSA often are brought in a class action under Federal Rule of Civil Procedure 23, or a collective action under Section 216(b) of the FLSA. Either framework allows a large number of employees citing similar alleged wage or compensation errors to join together against an employer to make claims for monetary and equitable relief. Potential damages include back pay, front pay, punitive or liquidated damages, and attorney fees. Additional wage claims and penalties are available on a state-by-state basis. Penalties under Indiana law can include an award of double damages and attorney’s fees for late payments or unauthorized deductions.
One way to try to combat the risks and costs of collective and class actions is to require employees to sign class action waivers, requiring employees with disputes to individually adjudicate dispute in arbitration. Such waivers must be carefully crafted to help ensure enforceability.
There are a variety of federal and state laws that protect employees who report perceived unlawful acts. Even if it is ultimately determined that the employee’s perception is wrong, the employee generally will still be protected unless the employer can establish that the employee knew he or she was making a false report. The types of conduct that afford this protection include on-the-job safety issues, violation of federal or state anti-discrimination laws, violation of the Affordable Care Act, wage payment violations, environmental violations, fraud against the government, financial misconduct including false reporting of financial information or tax evasion, and misappropriation or misuse of investor funds in a public company. To successfully defend against such a whistleblower claim, the employer must typically provide substantial evidence of its non-retaliatory reason for the discipline or discharge. Many statutes give the governmental entity authorized with evaluating these claims the power to reinstate a terminated employee before making a final decision on whether the termination was lawful.
The means by which a worker can present a claim against an employer in the United States are very broad. These can range from internal complaints to filing claims with government agencies to participating in arbitration to a full-blown lawsuit filed in court.
During employment, the most common way for an employee to present a claim against the employer is by way of a complaint to his or her supervisor/manager or to the human resources department (although it should be noted that nothing expressly prohibits an employee from pursuing a claim with a government agency or even filing a lawsuit while employed). This is why it is essential that supervisors/managers are properly trained on how to recognize and respond to such complaints. This also is why it is imperative that employers educate employees on the policies or procedures which apply to such complaints – so employees know how to make the complaints and employers can deal with them promptly. Employers receiving complaints should have HR procedures in place to address them – including interviewing the people in question, and taking steps to correct any problems. The investigation process and the outcome of the investigation should be well documented. There are no rigid rules on what steps an employer should take to investigate a complaint or who should be involved in the investigation. However, courts have inferred discriminatory motive from the failure to conduct a reasonable investigation. As a result, employers have a vested interest in carefully conducting investigations and dutifully maintaining records of each step in the process. Taking proactive steps to address concerns raised by employees can help fix actual problems in the workplace, can correct perceived bias, and – if nothing else – can be used as evidence that the company took the matter seriously in the event the case does proceed to litigation.
If the parties have entered into a valid arbitration agreement, the agreement typically will be upheld and the parties will proceed in the forum selected. The benefit to arbitration is that the parties have more control over the proceedings and the case usually proceeds faster than it would in court and at less cost. Still, in practice arbitrations tend to take months to resolve (as opposed to years in court). Arbitration proceedings include an abbreviated period of discovery in which the parties can collect documents from each other and obtain testimony from witnesses in advance of a final hearing in which each side will present their case and arguments to the arbitrator. Thereafter, the arbitrator will issue a decision. With few exceptions, arbitration decisions are final and are not appealable.
Another alternative dispute resolution procedure that is popular in the United States is mediation. In contrast to arbitration (where the dispute is submitted to one or more individuals to render a decision), a mediator acts as a go-between the separate parties and tries to structure a resolution. The mediator does not issue a final, binding decision (although the mediator certainly may provide input on how he or she perceives the relative strengths and weaknesses of the parties’ positions). The benefit of mediation is that it is fast and does not involve protracted litigation or discovery. Additionally, the parties can conduct multiple mediations (with the same or different mediators) if they choose to do so.
There are both federal and state administrative agencies which present an avenue for employees to pursue claims against an employer. Almost every state has a civil rights agency which can address claims of discrimination, harassment or retaliation. In addition, multiple cities have also enacted nondiscrimination ordinances and have a local agency that can investigate complaints. Employees also can submit worker’s compensation claims in the state in which they worked (or where the incident occurred), or file a claim for unemployment in that state if they are terminated. Separate and apart from the state agencies, the federal Equal Employment Opportunity Commission (“EEOC”) has jurisdiction over federal laws regarding discrimination, harassment and retaliation and employees in any state can file a charge with that agency. Employees in Indiana who seek to submit claims to the EEOC must do so generally within 300 days of the alleged discriminatory or retaliatory act (with the exception of the ADEA, which is 180 days).Thereafter, the EEOC will investigate the claim and determine whether it believes any violations took place. In many cases, the EEOC will dismiss the matter after conducting its investigation and issue a notice of rights to the claimant. Once it does so, the employee has 90 days, by law, to file a private lawsuit.Other federal agencies also have jurisdiction to decide employment disputes involving issues within their regulatory authority.
There are two parallel court systems in the United States – state and federal. Each state operates its own trial courts (called circuit or superior courts in Indiana). Decisions made by the trial courts are subject to appeal to intermediate appellate courts and, ultimately, each state’s Supreme Court. The federal system operates in a similar manner with trial courts (called federal district courts), then intermediate appellate courts (called circuit courts) and finally the United States Supreme Court. Generally, state courts have jurisdiction over claims involving state laws, state residents and actions that take place in the state; whereas federal courts have jurisdiction over federal statutes (which includes many employment laws), and disputes over a certain threshold dollar amount involving citizens of different states (called diversity jurisdiction).
Actions filed in court are subject to liberal discovery, which permits each side to obtain documents and question witnesses well in advance of the filing of a dispositive motion or trial. After the initial discovery period (which typically takes several months), the parties can file motions requesting that the presiding judge dismiss the case. If the case proceeds to trial, most cases will be tried before a jury, although in some limited circumstances – or by agreement – the parties can have the trial be decided by the judge (called a bench trial). Thereafter, the decision of the judge or jury can be submitted to an appellate court for review.
Damages and Remedies
There are a wide variety of remedies that can be recovered by parties in litigation, particularly in employment cases. Most statutes specify the nature of relief that may be recovered for violation of its provisions. Injunctive relief, which involves asking a court to order the other party to do something (or refrain from doing something) is often requested, but less often ordered. Plaintiffs in most employment actions typically seek to recover the actual damages they have suffered as a result of the defendant’s conduct – referred to as back pay. Prospective damages, or front pay, may also be claimed in order to compensate for damages going forward in time that an employee expects to experience. Damages for emotional distress, punitive or exemplary damages to punish the defendant for extreme or outrageous conduct, and attorney’s fees are also typically sought. The available damages vary based on the law under which the claim is brought, and some of those referred to above may not be available in all instances.
In addition to wage and hour claims, certain forms of discrimination claims are often brought in a class action under Federal Rule of Civil Procedure 23. A class action allows a large number of employees citing similar alleged discriminatory practices to join together against an employer to make claims for monetary and equitable relief.
Potential damages vary depending on the statute under which the claim is brought, but may include such items as back pay, front pay, punitive or liquidated damages, and attorney's fees. The court can also order the employer to reinstate/rehire employees found to have been improperly discharged.
Overseas assignments and hiring U.S. citizens abroad may trigger the potential application of U.S. law. U.S. employment statutes do not usually apply over its border. In fact, there is a presumption against applying any U.S. law on an extraterritorial basis. For example, the overtime provisions of the FLSA and the provisions of the Family and Medical Leave Act do not apply to employees who are employed outside of the United States or covered U.S. territories.
Other employment statutes, including Title VII of the Civil Rights Act of 1964 (precluding discrimination on the basis of race, gender or certain other protected characteristics), the ADA and the ADEA, explicitly provide for certain extraterritorial applications. These statutes cover employees working outside the United States if the employee is a U.S. citizen working for a U.S. employer, or a foreign employer controlled by a U.S. entity.
The wording of an assignment, employment or other contract may be important in the analysis. Further, employers need to take care not to inadvertently incorporate language of a jurisdiction (e.g., the United States), if that is not to their advantage.
Finally, certain state laws may apply if the alleged wrongful activity took place in the state and/or the employee is a resident of that state even if the employee works in another state.