At-Will Employment and Exceptions

The default service relationship in the USA is that of employer and employee. Most states, including Indiana, are “at will” employment jurisdictions – meaning either party (the employer or the employee) can terminate the relationship at any time and without having to provide a reason, provided the termination decision is not otherwise prohibited by law (ie, due to discrimination or retaliation).

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 or stating (including verbally) that employment will only be terminated under certain circumstances, such as for “good cause or reason”. Such contracts are not required in Indiana, but may be used depending on the types of employees in question.

Barring a formal written contract, terms defining the employment relationship are typically relegated to documents such as offer letters, job descriptions, employment policies, or employment handbooks. To avoid any unintended obligation to employment for a specific term or for termination only under certain circumstances (eg, “good cause”), employers should incorporate a carefully crafted disclaimer throughout employment documents.

Joint Employment

Joint employment occurs when more than one entity is a worker’s employer. Joint employers are individually and equally responsible for compliance with labour, employment and certain other laws.

For a third party to be a joint employer with another employer, the third party must have exerted significant control over the employee. Factors to consider in determining joint-employer status are:

• supervision of the employee’s day-to-day activities;
• authority to hire or fire the employee;
• promulgation of work rules and conditions of employment;
• issuance of work assignments; and
• issuance of operating instructions.

Under the National Labor Relations Act (NLRA), the National Labor Relations Board (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 co-determine matters governing the essential terms and conditions of employment.

Independent Contractor Status

The importance of control in a relationship extends to the determination of whether a worker is an independent contractor versus an employee. Simply describing a worker as an “independent contractor” is not sufficient. The law in this area is rapidly evolving (with recent updates) and there are no rigid rules for determining whether a person is an independent contractor.

Most enforcement activity is at the federal level. The US government will seek unpaid income taxes, unemployment taxes, and overtime, as examples. Misclassified independent contractors can also seek benefits (health insurance and retirement) under the federal Employee Retirement Income Security Act (ERISA).

On 10 January 2024, the US Department of Labor (DOL) published a final rule (effective 11 March 2024) revising the DOL’s guidance on how to determine who is an employee or independent contractor under the Fair Labor Standards Act (FLSA). Per the rule, the worker is not an independent contractor if they are – as matter of economic reality – economically dependent on an employer for work. The rule applies the following six factors to analyse employee or independent contractor status under the FLSA:

• opportunity for profit or loss depending on managerial skill;
• investments by the worker and the potential employer;
• degree of permanence of the work relationship;
• nature and degree of control;
• extent to which the work performed is an integral part of the potential employer’s business; and
• skill and initiative.

The final rule provides detailed guidance regarding the application of each of these six factors. No factor or set of factors among this list of six has a predetermined weight, and additional factors may be relevant if such factors in some way indicate whether the worker is an independent contractor, as opposed to being economically dependent on the employer for work (ie, an employee under the FLSA).

At the state level, potential misclassification liabilities include income tax, unemployment benefits and workers’ compensation. In Indiana, an “economic reality test” has traditionally been applied to determine if an employer/employee or an independent contractor relationship exists. That test focuses primarily on whether the work performed is an integral part of the employer’s business and if the compensation from the employer is the primary income source.

Unpaid Internships

Unpaid internships have been the subject of scrutiny in the past few years – notably, from the standpoint of whether private businesses can rely on unpaid interns. The DOL’s Wage and Hour Division has developed a test for evaluating whether an individual constitutes a “trainee” (intern) for the purposes of the FLSA and does not require to be paid (see “Fact Sheet #71: Internship Programs Under The Fair Labor Standards Act”, which can be found on the DOL’s website). Indiana does not have different enforcement guidance.

Employees may have contracts specifying the terms and conditions of their employment. Such contracts are not required in the USA, but may be warranted depending on the type of employee in question (eg, an executive).

As mentioned in 1.1 Employee Status, barring a formal written contract, terms defining the relationship are typically relegated to documents such as offer letters, job descriptions, employment policies, or employment handbooks. In fact, these terms can even go so far as to reserve the sole authority to determine whether just cause for terminating employment exists. However, even if an employer defaults to the presumptive at-will employment status, individual employment agreements often address confidentiality and IP, plus non-compete and non-solicitation covenants that are enforceable if reasonable in scope and duration.

No federal or Indiana law sets any maximum working hours (either daily or weekly) for adult employees. However, under the federal FLSA, almost all employees – unless specifically exempted – must receive overtime pay for hours actually worked in excess of 40 in a working week at a rate not less than “time and a half” (ie, one-and-a-half times) their regular rate of pay. The exemptions under the FLSA are fact-intensive and employers should work with legal counsel to determine the applicability of such exemptions.

Indiana minimum wage is lower than federal minimum wage, so federal minimum wage usually controls. In Indiana, bonuses and wage enhancements are at the discretion of the employee, but a promise of them could be enforceable under contract law. The FLSA does not require overtime pay for work on Saturdays, Sundays, holidays, or regular days of rest, as such.

Under federal and Indiana law, the proper classification of employees as FLSA exempt (salaried) or FLSA non-exempt (hourly) is important, along with payment for all hours worked and applicable overtime. Potential federal wage and hour-related claims include:

• misclassification of a worker as an independent contractor or consultant (rather than as an employee);
• misclassification as exempt from overtime pay;
• payroll-docking policies and practices;
• “off-the-clock” unpaid work hours;
• meal periods free of work;
• overtime;
• record-keeping;
• deductions from pay; and
• time-clock rounding.

Seemingly minor errors in the payment of wages, which by themselves would not cause concerns about litigation by an individual plaintiff, can mutate into high-stakes litigation when large numbers of employees and former employees combine and become eligible for unpaid wages, liquidated damages and penalties, and attorney fees and costs – particularly when the potential minor errors span a number of years.

Indiana-Specific Pay-Related Laws

Indiana law addresses various aspects of employee compensation, including minimum wage, overtime, tipped employees, underpayment and non-payment of wages, deductions, payroll practices, and other pay-related matters.

Indiana law addresses when and how an employer can deduct money from an employee’s paycheque and the necessary timing of paycheques. An employer may not fine an employee or take any fine out of any employee’s paycheque.

An Indiana employer must pay its employees a semi-monthly (or, if requested, bi-weekly) payment for all earned wages due for services rendered to the employer. Payment must be made for all wages earned to a date not more than ten business days prior to the date of payment.

Subject to certain requirements, an Indiana employer may deduct the amount of over-payments from paycheques. Otherwise, deductions from paycheques must be pursuant to an agreement specified by law for a purpose listed by statute.

Indiana law addresses the payment of accrued vacation pay. An Indiana employee may be entitled to a pro rata share of accrued vacation at the time of termination. However, if there is a company policy or employment contract stipulating that certain conditions must be met before accrued vacation pay will be paid, these conditions must be met in order to receive accrued vacation pay. Vacation policies are generally left to the discretion of the employer.

An Indiana employer may require an electronic direct deposit and may provide pay statements to employees electronically.

An Indiana employer who fails to pay wages when due may be subject to statutory penalties, including reasonable attorney’s fees incurred by the employee to collect unpaid wages. In addition, if the court finds that a failure to pay was due to the employer’s bad faith, the employer may be subject to pay an amount equal to two times the amount of wages due the employee.

Types of Leave

There are no laws in Indiana regarding bereavement, maternity, disability or childcare leave.

Vacation

In Indiana, employers are not required to provide employees with vacation benefits and other forms of paid time off. However, such benefits are important for employee recruitment and retention.

If an employer chooses to provide vacation benefits, the employer must comply with the terms of its established policy or employment contract. Indiana law allows an employer to have and enforce a policy under which employees forfeit accrued but unused vacation upon separation of employment, so long as the policy is clear (and communicated to employees).

Sick leave

In Indiana, employers need not provide sick leave, either paid or unpaid. If an employer chooses to provide sick leave benefits, it must comply with the terms of its established policy or employment contract.  However, under federal law, the employer may be required to provide unpaid time off under the Family and Medical Leave Act (FMLA).

Jury duty

Indiana law makes it illegal for an employer to discharge, discipline or otherwise penalise an employee for taking leave for the purposes of attending a judicial proceeding in response to a subpoena, summons for jury duty, or other court order.

Confidentiality Provisions

With or without a written agreement, Indiana employers may take advantage of the protections of the Indiana Trade Secret Act. Bolstering the protections of the statute, Indiana confidentiality agreements should be supported by legitimate business interests, such as the need to protect trade secrets, proprietary information or other confidential information.

To the extent a confidentiality requirement is imposed on non-supervisory personnel, employers must be mindful not to draft the provisions so broadly that they might apply to conduct protected under the NLRA, such as protected discussions related to wages, benefits or other terms and conditions of employment. Doing so could be an unfair labour practice and invalidate the underlying agreement

Non-disparagement Requirements

Indiana does not have a law specifically addressing non-disparagement requirements. However, private sector employers must be mindful of NLRB precedent, which can make broadly worded non-disparagement requirements unlawful to the extent they might interfere with activity protected by the NLRA (eg, discussions related to the terms of their employment). As such, non-disparagement provisions should be generally limited to statements about the employer that are defamatory and maliciously untrue, such that they are made with knowledge of the falsity or with reckless disregard for the truth or falsity of the statement.

Conditions for Enforcement of Restrictive Covenants

Indiana will enforce restrictive covenants only 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.

Generally, Indiana law supports enforcement of covenants not to compete when the employee had access to confidential information or trade secrets or has obtained some business advantage as a result of close contact and exclusive dealings with customers. An employer’s promise of continued employment and payment of wages is sufficient consideration to support an employee’s covenant not to compete.

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 must demonstrate that the former employee has gained a unique competitive advantage or ability to harm the employer before it can seek the protection of a covenant. In other words, not all employees in a company would be subject to a valid restrictive covenant. Post-employment restrictions on workers who have no knowledge that could harm the employer – for example, labourers such as cashiers or janitors – would likely be disregarded as unreasonably over-broad. On the other hand, if an employee has unique knowledge of a company’s trade secrets or proprietary business practices and methods that could be used for a competitor, an Indiana court may enforce the restrictions – provided that they also are reasonable in terms of time, geography, and the activities that are limited.

There is no definitive test for what is reasonable in terms of time; this depends on the facts of each particular situation. With regard to geography, the reasonableness of an agreement’s geographic scope depends on the interest of the employer that the restriction serves. Correspondingly, blanket clauses that prohibit an employee from calling on all customers of a company – including those that pre-date the employee’s employment or that the employee never serviced – are also considered over-broad and unenforceable. For the same reasons, prohibiting an employee from working for a competitor in any capacity would likewise be regarded as over-broad.

Another area in which states can vary wildly on this subject concerns what happens if a part of the covenant is determined to be unenforceable. Some states will throw out the entire covenant and refuse to enforce it, whereas others will permit the court to modify the terms to make it enforceable. Indiana adopts a middle-ground position; it will only strike out terms that are unenforceable and will not alter or modify the text to make it enforceable. 

Indiana Trends in Enforcement of Covenants

Indiana has tightened its enforcement of restrictive covenants. In 2020, the state enacted legislation adding restrictions to covenants involving physicians. Then, as of 1 July 2023, Indiana law prohibits employers and “primary care physicians” (which includes physicians practising family medicine, general paediatric medicine, and internal medicine) from entering into non-compete agreements. Additionally, in 2019, the Indiana Supreme Court struck down a covenant that prohibited an employee from recruiting “any individual” employed by their former employer to work for a competitor (see 2.2 Non-solicits for further details).

Consequently, employers that intend to impose enforceable restrictive covenants on employees in Indiana must pay close attention to changes in the law and carefully draft the provisions to comport with those changes so that they will not be perceived to be unreasonable. The enforceability of restrictive covenants traditionally is heavily dependent upon state law, which can vary dramatically on this subject. The trend in state law is that restrictive covenants are increasingly more difficult to enforce and some states do not allow them. Indiana, however, will enforce restrictive covenants if reasonable in scope and where the covenants do not unnecessarily interfere with a person’s livelihood.

Regardless of Indiana’s stance on non-competition clauses, employers must be mindful of activity on this topic at the federal level. The Federal Trade Commission (FTC) issued a new rule essentially banning non-compete clauses.

The rule is framed to apply to any contract functioning as a de facto non-compete, such as a non-disclosure agreement, which effectively precludes a worker from accepting employment or operating a business after the conclusion of the worker’s employment with the employer. There is only one narrow exception in the rule applying to non-compete clauses entered into by a person who is a substantial owner, member or partner in the business entity at the time the person enters into the non-compete clause.

The rule would prevent employers from entering into non-compete clauses with workers and would require employers to rescind existing non-compete clauses. However, shortly before the rule went into effect on 4 September 2024, it was ruled unenforceable by the US District Court for the Northern District of Texas. The decision was extended nationwide and the non-compete ban is presently unenforceable across the country. Further litigation on the rule is expected, with restoration of the rule as a possibility.

NLRB Adopts Similar Position

On 30 May 2023, the NLRB’s general counsel Jennifer Abruzzo issued a memorandum setting forth her belief that non-compete provisions contained within employment contracts (including severance agreements) are generally unlawful under the NLRA. The memo requires that all cases involving non-compete provisions must be submitted to the Division of Advice, meaning the general counsel is seeking to identify proper cases through which to litigate the issue in order to create binding precedent.

According to Abruzzo’s memorandum, non-compete provisions are unlawful because they reasonably tend to “chill” employees in the exercise of Section VII rights to engage in concerted activity under the NLRA:

• by undermining their bargaining power during work stoppages;
• by undermining their ability to threaten resignation; and
• by undermining their ability to solicit former co-workers to join a competitor in efforts to organise or “salt” the workplace.

The memorandum acknowledges narrow circumstances where non-competes are not prohibited, including:

• where the contract concerns an individual’s ownership interest in a competitor;
• true independent contractor relationships; or
• when “justified by special circumstances”.

These protections extend to all private-sector non-supervisory employees covered by the NLRA, regardless of whether the employer’s workforce is presently unionised.

As mentioned in 2.1 Non-competes, in 2019, the Indiana Supreme Court struck down a covenant prohibiting an employee from recruiting “any individual” employed by their former employer to work for a competitor. The court concluded that the ban on recruiting “any individual” did not serve a legitimate protectable interest of the former employer, was too broad, and also could not be repaired by striking out terms. As such, it was unenforceable.

The NLRB has recently taken the position that any restraints that interfere or prohibit an employee’s ability to engage in rights protected under Section 7 of the Act are presumptively unlawful, in the absence of a compelling business interest. Agreements or policies that limit an employee’s ability to use information concerning fellow employees or to attempt to solicit them to leave their current employment have been routinely challenged by the NLRB as restraints that prevent employees from using what the NLRB has deemed an employee’s most important tool of leverage against their employer – their labour. Employers in Indiana and across the country should be mindful of the NLRB’s position on such restraints, to the extent an employee is covered by the NLRA.

Employers that provide electronic equipment for employees to use in connection with their job duties (eg, laptops and internet access) are generally 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 use the equipment.

For the most part, these policies have been upheld on the ground 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, 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. In short, aside from issues relating to the terms and conditions of employment (ie, wage/hours) on non-working time, employers have had a fairly wide berth in terms of regulating access and content in relation to the electronic devices and networks they make available for employees.

Surveillance Programmes

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. Employees typically have no reasonable expectation of privacy on a factory floor. However, the same is not true for a bathroom or 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).

Employers are continuing to encounter difficulties sponsoring foreign nationals for employment in the USA. Despite new and higher filing fees, US Citizenship and Immigration Services (USCIS) continues to experience lengthy delays in the adjudication process. Many local USCIS field offices have lengthy processing times due to staffing issues and a backlog. While the processing of immigration benefits by USCIS has improved in the past year, lengthy delays are still common. In addition, many US embassies and consulates continue to have significant backlogs for appointments to seek visas for entry into the USA.

Employers often consider the H-1B and L visas when sponsoring foreign nationals for employment in the USA. However, owing to increased scrutiny and changes in the immigration processes for the above-mentioned visa classifications, employers may also wish to consider the H-1B1, E, and TN visas in addition to the H-1B and L.

H-1B Visa

The H-1B visa is generally reserved for specialty occupations – positions requiring the theoretical and practical application of a body of highly specialised knowledge and which require the attainment of a bachelor’s degree or higher in a specific specialty or its equivalent, as a minimum for entry into the USA. New H-1B petitions are sometimes subject to an annual lottery due to high demand and USCIS has conducted a lottery in recent years. In 2020, the lottery underwent a significant processing change that resulted in the implementation of an additional fee for employers. This classification has experienced increased scrutiny in recent years, resulting in lengthy processing delays and increased rates of denial.

L Visa

The L visa is generally reserved for international companies seeking to transfer executives, managers or specialised workers to the USA. Like the H-1B visa, the L visa has experienced heightened scrutiny, resulting in lengthy processing delays and increased rates of denial. In addition, a change in the immigration process for renewals has added to the length of time required for a renewal and increased costs. Owing to the challenges of securing visa sponsorship for foreign national employees through H-1B or L visa classifications, employers are exploring alternatives to include the H-1B1, E and TN visa classifications.

H-1B1 Visa

The H-1B1 visa is reserved for citizens of Chile and Singapore. Like the H-1B visa, the H-1B1 is generally restricted to specialty occupations. Similar in many respects to the H-1B visa, the H-1B1 is attractive to many employers owing to the relative ease and reliability of the H-1B1 sponsorship process. This visa classification is generally a more reliable and faster option than the H-1B visa.

E Visa

Another option for sponsorship of foreign national employees is the E visa. The E visa category includes treaty traders (E-1), treaty investors (E-2) and Australian specialty occupation workers (E-3). To qualify as an employee of a treaty trader or treaty investor, the employee must share the same nationality as the employer, and the employee must be engaged in the duties of an executive, manager or specialised worker. The E-3 visa applies to Australian nationals performing services in a specialty occupation similar to the H-1B visa category but more easily attainable. As with the H-1B visa, employers have generally found the E visa to be reliable, fast and cost-effective – although there is concern about timing due to the lack of visa appointments at numerous US embassies and consulates.

TN Visa

The TN (NAFTA) visa allows employers to sponsor citizens of Canada and Mexico for employment in the USA in a professional capacity. While the North American Free Trade Agreement (NAFTA) has been replaced by the United States–Mexico–Canada Agreement (USMCA), the USMCA retains the TN visa classification. To be eligible for the TN classification, the profession must be noted on the treaty (list) and the foreign national employee must satisfy the qualifications for eligibility for employment in that profession. Employers have generally found this visa classification to be reliable, fast and cost-effective. Of note, an employer seeking to sponsor a Canadian citizen for employment under this visa classification may simply need to have the sponsored employee present an application package directly to a US Customs and Border Protection agent. Unfortunately, Mexican citizens requiring a visa are generally required to attend an appointment at a US embassy or consulate.

Indiana does not have specific regulations concerning mobile or remote work. Nonetheless, employers should be particularly vigilant regarding data privacy and the protection of employer trade secrets and proprietary information in in the mobile work or remote work setting.

Indiana law does not have any requirements related to sabbatical leave, which is at the option of employers, or pursuant to contract or university tenure policies.

Today there is an increasing focus on digitalisation and collaboration in the workplace. The movement has become known as “new work”. “New work” looks different for every employer and incorporates innovative concepts such as desk sharing, hybrid work, and the use of AI.

Employers who are embracing “new work” have prioritised workplace flexibility and automation. The infrastructures that have been put in place to promote workplace flexibility have resulted in many accommodation requests under the Pregnant Workers Fairness Act and the Americans with Disabilities Act (ADA) being reasonable requests that do not cause the employer undue hardship.

AI in the workplace is essentially in its early stages and will likely only become more prevalent. Although AI is sometimes viewed as a preferred vehicle for eliminating potential bias, such as during job interviews, the reality is that AI has its own set of potential legal pitfalls. Firstly, because AI is programmed by humans, the AI code developed may have the programmer’s bias (conscious or unconscious) built into it – given that the programmer determines what data or parameters will be used. Courts have allowed claims to proceed under federal employment laws based on unconscious bias if the bias can be proven to have resulted in intentional discrimination against a protected class. Similarly, Title VII of the Civil Rights Act of 1964 recognises a legal claim for disparate impact when a selection criterion adversely impacts a protected class.

The NLRA protects the rights of employees to form, join and support a union or to refrain from doing so. Employees who want a union to be their collective bargaining representative can authorise the union to bargain with their employer over employee wages, hours and working conditions. At the end of 2023, union membership in Indiana amounted to 8% of all employees – an increase from 7.4% in 2022. Nevertheless, union numbers in Indiana remain significantly down relative to several decades ago when unions accounted for more than twice that percentage of Indiana workers. There has been a rise on union petitions with the NLRB in Indiana in the past few years, though, so union numbers may be on the rise. Time will tell.

Prior to 23 August 2023, unions were selected to be employees’ collective bargaining representative in one of the following three ways.

• First, if a union was able to establish that at least 30% of the employees in an appropriate proposed bargaining unit had signified either by signing union authorisation or petitions that they wanted the union to be their collective bargaining representative, the union could file a representation petition with the NLRB asking the agency to conduct a secret ballot election for employees to vote whether or not they wanted the union to be their collective bargaining representative. Once the union was able to make this initial showing of interest (ie, evidence of support of at least 30% of the employees in the proposed bargaining unit), the NLRB would process this petition and schedule the representation election. If the union received a majority of the votes in that election, the NLRB certified the union as the representative of those employees in the proposed bargaining unit.
• Second, if a union was able to obtain the support of a majority of employees in the proposed bargaining unit, the union could make a formal demand from recognition of the union by the employer. The employer, in return, had the right to voluntarily recognise the union as the employees’ collective bargaining representative or it could ignore that demand – instead forcing the union to file its petition for a representation election.
• Third, and in only the most extreme of cases, where an employer has committed hallmark violations of the NLRA in interfering with employees’ rights to a free or fair election, the union could use its demonstrated majority support to seek the imposition of a bargaining order to require the employer to recognise the union as the employees’ collective bargaining representative and bargain with the union despite the fact that the employer had received a favourable outcome in the representation election.

This process changed with the NLRB’s decision in Cemex Construction Materials Pacific, LLC issued on 23 August 2023. As a result of the Cemex decision, employers now act at their peril if they simply ignore the union’s demand for recognition. Rather, under the NLRB’s new framework established by this decision, if a union now makes a demand for recognition that is supported by a majority of employees in the proposed unit, an employer must either recognise and bargain with the union or promptly file its own petition for a representation election within 14 days of the demand for recognition. If the employer does nothing, it faces a bargaining order. Moreover, if an employer who seeks an election commits any unfair labour practice between the time of the demand for recognition and the election that would require setting aside the election, the petition will be dismissed and – rather than re-running the election – the NLRB will order the employer to recognise and bargain with the union, despite the employer’s favourable election result.

As a result of the Cemex case, and employers being forced to file petitions for representation elections when faced with union demands for recognition, the NLRB has seen a 3% rise in representation petitions being filed this year (a much smaller increase from the 53% increase in the number of filed petitions in 2023 but still an additional increase). Consistent with these national statistics, Indiana also has seen a significant uptick in union elections in the past few years.

Nationwide, unions won average first-year wage increases of 6.6% in collective bargaining agreements reached in 2023 – the highest wage increases employees have received since 1988. When one factors in signing bonuses and lump sum payments, the average increase was 7.3%, which is also a record high. Indiana has generally tracked these trends. However, it appears wage gains are slowing on a percentage basis in 2024, so it is possible these percentages will revert to historical averages (2.5–4%) in the years to come.

Terminating an employee relationship is one of the most difficult decisions facing employers. As with all employment decisions, best practices dictate that there be clear and explanatory documentation of the termination decision, including the date termination was first considered, the reasons the decision was made, and when it was communicated to the employee.

At-Will Terminations

If the employment relationship is “at will”, it means that an employee has no contractual right to continued employment. That said, employers should always explain the basis for any employment termination. In the context of a lawsuit claiming that the termination decision was unlawfully discriminatory or retaliatory, many statutes permit an employer to avoid liability where they are able to articulate a legitimate, non-discriminatory (and/or non-retaliatory) basis for making their decision.

Termination of Employment by Operation of Contract

Where the employer and employee have entered into an employment agreement, that agreement will often address how and under what circumstances the employment relationship will terminate. Close attention should be paid to the language of the employment agreement, especially where there are defined terms addressing termination for “cause”, “change of control”, and other provisions. Employees are not entitled to severance pay as a result of termination unless the employer agrees to provide it according to the terms of an agreement or policy or makes a discretionary decision to offer it. Many employers offer severance pay upon termination. Best practices dictate that severance or separation agreements include a release and waiver of all claims against the employer (unless release and waiver is precluded by explicit operation of law).

Indiana law generally does not dictate any specific requirements concerning the termination of the employment relationship unless an employment contract, collective bargaining agreement, or employer policy dictates to the contrary. By way of example, an employer may agree to require a period of notice pursuant to an employment contract or other conditions – or causes – before severing employment with an employee. Otherwise, an employee or employer may choose to terminate employment at any time.

Likewise, upon termination of employment, severance pay is not required under the law, but may be offered pursuant to a pre-existing agreement with the employee per the terms of their employment agreement or as part of a severance package negotiated between the employer and employer.

Severance packages are often offered in exchange for:

• a release of claims;
• restrictive employment covenants, such as a non-compete or a requirement of confidentiality to protect confidential and trade secret information; or
• other offered consideration.

No specific requirements concerning the form of the agreement are required, but it should be prepared such that the employee can make a knowing and voluntary decision concerning the terms of the agreement. In certain situations, federal law requirements under the Older Workers Benefits Protection Act may warrant the inclusion of statutory review and revocation periods before the agreement may be executed and otherwise enforceable.

WARN Act Obligations

Certain mass lay-off events may trigger requisite notice to be given to employees that may be affected by the lay-off.

The Worker Adjustment Retraining and Notification Act of 1988 (the “WARN Act”) applies to any business that employs 100 or more employees (excluding part-time employees) and terminates employees under circumstances that qualify as a “plant closing” or “mass lay-off”. In those instances, the employer must provide affected employees and certain government officials at least 60 days’ advance notice of the job-loss event. Employers that fail to do so may be required to pay the affected employees back pay for each day of the violation, reimburse them for any loss of benefits and medical expenses incurred, and pay civil penalties.

Indiana is an employment-at-will state, which means that – unless a contractual term provides otherwise – either the employer or the employee may terminate the employment relationship for whatever reason, as long as the reason is not contrary to law (eg, discriminatory, retaliatory, or against public policy). “Good cause” or “good reason” could be incorporated into the terms of a contract governing the terms of the relationship.

In Indiana, certain offences contrary to employer policy (eg, theft) may disqualify a terminated employee from receiving unemployment compensation benefits.

Waivers by employees age 40 or over are subject to special procedures to obtain a release of claims under the federal Age Discrimination in Employment Act (ADEA). In order for a waiver of claims to be valid under the ADEA, the release and waiver provisions must:

• be written in plain language understandable by the average individual eligible for the severance;
• specifically refer to ADEA claims and rights;
• not cover prospective or future rights or claims;
• be in exchange for valuable consideration in addition to any benefits or pay to which the employee was already entitled;
• advise the employee, in writing, to consult with an attorney before signing;
• provide the employee 21 days to consider the agreement; and
• permit the employee to revoke the agreement within seven days after it is executed by the employee.

In the case of a group termination – ie, involving termination of two or more employees from the same decision-making process – employees have 45 days (not 21 days) to consider the agreement (again, with a seven-day revocation provision). They also receive a disclosure identifying:

• the class of employees eligible to receive the severance package, their ages, and the ages of all employees within the same job classification, division or organisation who are not eligible or selected for participation in the termination programme; and
• the selection criteria.

Various federal laws prohibit discrimination, harassment or retaliation based on legally protected characteristics or legally protected activity. Legally protected characteristics include age, sex, sexual orientation, gender identity, pregnancy, race, colour, 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 that expand the coverage of legally protected characteristics.

Indiana civil rights laws generally follow their federal counterparts. Moreover, certain municipalities in Indiana have adopted ordinances covering protected characteristics such as gender identity, marital status, and sexual orientation.

An Indiana employer who employs six or more employees may not discriminate based on a person’s status as a veteran of the US armed services, a member of the Indiana National Guard, or a member of the reserves. Likewise, federal law prohibits discrimination against active military personnel and veterans by all employers under the Uniformed Services Employment and Reemployment Rights Act (USERRA) and the Service Members Civil Relief Act.

Given the default “at will” nature of employment in Indiana, a claim of wrongful dismissal must be based on some violation of law (such as termination due to discrimination or retaliation for a protected activity) or a contractual right conferred upon the employee by agreement between the employer and employee (a contract for employment or a collective bargaining agreement).

Consequences for a wrongful dismissal are dependent on the remedy authorised by the particular statute or theory under which the aggrieved employee has raised the issue. By way of example, remedies for a discrimination claim may include monetary damages for lost wages and benefits, back pay, front pay, reinstatement, injunctive relief, compensatory damages, attorney’s fees, and other costs associated with bringing the claim.

Where the wrongful dismissal claim stems from the breach of a contract, similar “make whole” remedies may be available if the dismissal was in retaliation for engaging in a right by protected by law (such as the NLRA) or resulted in a breach of a collective bargaining agreement, whereby an arbitration award may follow to “make whole” the employee and award lost wages and potential reinstatement. Wrongful dismissal that results in a breach of an employment contract may result in contractual damages stemming from the terms of the agreement.

An aggrieved employee may bring a claim for discrimination under either federal or state civil rights laws. A multi-element burden-shifting framework is employed in the analysis of these claims. In short, an employee must first establish a prima facie case of discrimination in that they were a member of a protected class, suffered an adverse employment action, and were treated differently to another employee who is outside their protected class. From there, an employer may challenge this showing by rebutting it with a legitimate, non-discriminatory reason for its action against the employee. Finally, the employee may then challenge this reason by establishing that any such reason was actually pretext and this reason was otherwise an attempt to cover up the employer’s true discriminatory motive.

Actual damages available vary by statute but, generally, an employee may seek monetary damages for lost wages and benefits, back pay, front pay, reinstatement, injunctive relief, compensatory damages, attorney’s fees, and other costs associated with bringing the claim.

Employment Discrimination Under Federal and Indiana Law

Various federal laws and state laws (including those of Indiana) prohibit discrimination, harassment or retaliation based on legally protected characteristics or legally protected activity. Legally protected characteristics include age, sex, sexual orientation, gender identity, pregnancy, race, colour, 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 that expand the coverage of legally protected characteristics.

The Indiana Civil Rights Law bars discrimination in employment based on race, religion, colour, sex, disability, national origin, or ancestry. The prohibition against discrimination based on race, ancestry, colour, gender, religion, and national origin under the Indiana Civil Rights Law applies to employers with six or more employees, labour unions, and employment agencies. The prohibition against discrimination based on age applies to employers with more than one employee. The prohibition against disability discrimination applies to employers with 15 or more employees.

The Indiana Civil Rights Commission has the authority to “restore complainant’s losses incurred as a result of discriminatory treatment”. However, orders shall include only wages, salary, or commissions (and not legal fees).

Remote and virtual proceedings have become commonplace across the country, including in Indiana – although options are subject to the preference of the judge or officer conducting the proceeding.

Federal courts, Indiana state courts, and administrative agencies use remote methods – such as telephone conferencing and video platforms – to conduct fact-finding and routine aspects of case management and even to hold hearings on routine motions. For more substantive proceedings, such as hearings on dispositive motions and trials, courts and administrative agencies typically default to in-person proceedings. This is still, however, subject to the preference of the judge or officer conducting the proceeding.

Beyond the requirements of the forum, the use of such technologies has also become a tool of convenience among the parties to an employment dispute. Parties will often agree to the use of remote conferencing tools to engage in discovery – for example, through the taking of virtual depositions – and to facilitate alternative methods of dispute resolution, such as mediation.

The proper forum for an employment-related dispute varies on the nature of the claim an aggrieved employee may assert against their current of former employee.

Claims for discrimination arising under federal law (eg, Title VII, the ADA) must first be administratively exhausted with an administrative agency before such claims may be brought as part of a lawsuit in court.

Other types of claims, including contract and wage claims, may be litigated in the state or federal courts depending on the facts of the specific case and whether the courts may exercise jurisdiction over the parties and the claims.

Administrative agencies address claims regarding workers’ compensation and unemployment insurance benefits.

Claims regarding workplace safety follow similar administrative procedures. Generally, such claims flow from complaints or violations identified by the Occupational Safety and Health Administration (OSHA) that result in the issuance of a citation by OSHA or, in the case of Indiana – given that it is a “state plan” state (ie, one that has adopted its own state-level enforcement agency of occupational safety and health laws – before the Indiana Occupational Safety and Health Administration, administered by the Indiana Department of Labor.

Finally, claims related to activity protected by the NLRA or for conduct otherwise covered by a collective bargaining agreement are subject to the requirements of the NLRA. An employee claiming to have been subject to an unfair labour practice must file a charge with the NLRB, which will be adjudicated under its administrative processes. Employees covered by a collective bargaining agreement who raise claims related to their employment must, however, grieve such claims with their union. Such claims will be resolved pursuant to the terms of the collective bargaining agreement, which may result in binding arbitration of the dispute.

The law in the USA generally favours the private adjudication of disputes. If the employer and employee have entered into an enforceable agreement to arbitrate a dispute, and the disputed matter is the type of claim that the parties agreed to arbitrate, the courts will typically order the parties to proceed to arbitration. Arbitration can cover the full range of employment-related disputes.

Whether a prevailing employee or employer may be awarded attorney’s fees or other costs depends on the specific legal claims and the circumstances of the case.

By way of example, in employment disputes involving federal claims such as those under Title VII of the Civil Rights Act, the ADA or the FLSA, prevailing employees may be entitled to attorney’s fees and costs. These statutes typically include fee-shifting provisions, meaning that if the employee wins the case, the court can order the employer to pay reasonable attorney’s fees and court costs.

With state law claims, each party typically bears its own legal fees.