The Law of Corporations and Other Business Organizations

Chapter 34 OUTLINE

Employment, Immigration, and Labor Law

INTRODUCTION
Every business student should have a basic familiarity with general laws in the area of
employment. This chapter looks at some of the significant laws that regulate employment and the
workplace. Unions and collective bargaining, the employment-at-will doctrine, employees’ privacy rights,
workers’ compensation, workplace safety, whistleblowing, and retirement and security income are among
the topics discussed.

Employment relationships have traditionally been governed by the common law doctrine of
employment at will. Under this doctrine, either party may terminate the employment relationship at any
time and for any reason, unless doing so violates an employee’s statutory or contractual rights. Today,
most U.S. workers continue to have the legal status of “employees at will.” Only one state (Montana) does
not apply it.

CHAPTER OUTLINE
I. Employment at Will
Under the at-will employment doctrine, employers can fire workers for good, bad, or no reasons.

A. COMMON LAW EXCEPTIONS TO THE EMPLOYMENT-AT-WILL DOCTRINE

1. Exceptions Based on Contract Theory

Some courts have held, based on employees’ reasonable expectations, that an implied
contract exists between employer and employee under an employer’s handbook,
personnel bulletin, or the like that workers will be dismissed only for good cause.

2. Exceptions Based on Tort Theory

In a few cases, discharge may give rise to a tort cause of action (an abusive discharge
may result in intentional infliction of emotional distress or defamation, for example).

3. Exceptions Based on Public Policy

• Under the most widespread common law exception to the at-will doctrine, an
employer may not fire a worker in violation of a fundamental public policy. The
policy must be clearly expressed in statutory law. Firing workers who refuse to
perform illegal acts violates public policy.
• Whistleblowers may be protected for public policy reasons. Federal and state
statutes may also offer protection.

B. WRONGFUL DISCHARGE
Federal statutes and state court rulings provide exceptions to the at-will doctrine in actions
based on a wrongful-discharge theory. Punitive damages have been awarded against
employers.

II. Wages, Hours, and Layoffs

• The Davis-Bacon Act requires federal contractors to pay “prevailing wages” to their
employees.
 • The Walsh-Healey Act requires manufacturers and suppliers to federal agencies to pay a
minimum wage, as well as overtime at 1.5 times regular pay, to their employees.
• The Fair Labor Standards Act (FLSA) of 1938 covers employers engaged in interstate
commerce and regulates child labor, maximum hours, and minimum wages.

A. CHILD LABOR
Children under fourteen can work in only limited occupations, children under sixteen cannot
work full-time except for a parent under certain circumstances, and children under eighteen
cannot work in hazardous jobs or in jobs detrimental to their health and wellbeing.

B. MINIMUM WAGES
Under the FLSA, a minimum wage must be paid to all covered employees. Most states also
require a minimum wage, some higher than the federal amount.

C. TIPPED WORKERS
Tips received by employees can reduce the direct wages that an employer pays, or the
employer can pay the minimum wage and distribute the tips in other ways.

D. OVERTIME PROVISIONS AND EXEMPTIONS

Employees who agree to work more than forty hours per week must be paid no less than
one and a half times their regular pay for all hours over forty. Excepted from federal overtime
regulations are employees who earn more than a specified amount per week and devote
their efforts to certain duties.
• To qualify for this exemption, an employee’s primary duty must be management.
• To qualify for this exemption, an employee must be paid a salary, perform managerial
or general business functions, and use discretion and independent judgment on
matters of significance.

E. INTERACTION OF STATE AND FEDERAL OVERTIME LAWS

State laws that regulate job time and pay may impact federal wage and overtime provisions.

F. LAYOFFS
Restructuring an operation or downsizing a workforce means a layoff. Under the Worker
Adjustment and Retraining Notification (WARN) Act of 1988—
• Employers with at least one hundred full-time workers must provide sixty-days’ notice
before implementing a mass layoff or closing a plant that employs more than fifty full-
time workers.
• Notice must be sent to workers and their union representatives, state and local
government agencies, part-time and seasonal workers.
• Remedies for violations include fines of up to $500 per day. Employees can recover up
to sixty-days’ back pay and job benefits, plus attorneys’ fees.

III. Family and Medical Leave

The Family and Medical Leave Act (FMLA) of 1993 protects employees who need time off work
for family or medical reasons. Most states have similar laws.

A. COVERAGE AND APPLICABILITY

The FMLA covers employers (public and private) with fifty or more employees who have
worked for their employers for at least a year. An eligible employee may take up to twelve
weeks of leave within a twelve-month period—
• To care for new children.
 • To care for an adopted or foster child within one year of the child’s placement.
• To care for a seriously ill spouse, child, or parent.
• To care for themselves if a serious health condition prevents performing essential job
functions.
• To deal with any nonmedical emergency arising out of the fact that the employee’s
spouse, son, daughter, or parent is a covered military member on active duty.
An eligible employee may take up to twenty-six weeks of leave within a twelve-month period
to care for a family member with a serious injury or illness incurred as a result of military
duty.

B. BENEFITS AND PROTECTIONS

During the leave, an employer must continue the absent employee’s health-care coverage
as if the employee were working. After the leave, the employee must be restored to his or
her original, or a comparable, position. Key employees—those whose pay falls within the top
10 percent of the workforce—are excepted.

C. VIOLATIONS
Remedies for violations include damages, job reinstatement, promotion, costs, and fees.

IV. Health, Safety, and Income Security

A. THE OCCUPATIONAL SAFETY AND HEALTH ACT
The Occupational Safety and Health Act of 1970 provides for workplace safety standards
with oversight by the Occupational Safety and Health Administration (OSHA). Employers
have a general duty to keep the workplace safe. OSHA establishes specific safety
standards.

1. Notice, Records, and Reports

Employers must comply with notice, recordkeeping, and reporting requirements.
• Employers with eleven or more employees must keep occupational injury and
illness records for each employee and make them available to OSHA compliance
officers.
• Work-related injuries or diseases must be reported to OSHA.
• If an employee dies or five or more employees are hospitalized, the U.S.
Department of Labor must be notified within eight hours. A complete inspection of
the premises is mandatory.

2. Inspections
Generally, an employer cannot discharge an employee who files a complaint with
OSHA or who, in good faith, refuses to work in a high-risk area.

B. STATE WORKERS’ COMPENSATION LAWS

These laws establish state procedures for compensating most workers, including minors,
injured on the job. A state agency or board administers workers’ compensation claims.

1. Requirements for Receiving Workers’ Compensation

Recovery is predicated on an injury being accidental (not intentional) and occurring on
the job or in the course of employment.

2. Workers’ Compensation versus Litigation

In return, workers cannot sue for the injuries, even if caused by an employer’s
negligence (and employers cannot argue standard negligence defenses).
C. INCOME SECURITY
Government programs are designed to protect employees and their families by covering the
financial impact of retirement, disability, death, hospitalization, and unemployment.

1. Social Security
The Social Security Act of 1935 provides for old-age retirement, survivors, disability,
and hospital insurance (OASDI). Employers and employees contribute under the
Federal Insurance Contributions Act (FICA).

2. Medicare
• Medicare is administered by the Social Security Administration for people sixty-
five years of age and older and for some under sixty-five who are disabled.
• Medicare offers additional coverage options and a prescription-drug plan. People
with Medicare hospital insurance can obtain additional federal medical insurance.

3. Tax Contributions
• Employers and employees contribute to Social Security under the Federal
Insurance Contributions Act (FICA).
• Both the employer and the employee “contribute” to Medicare, with no cap on the
amount of wages subject to the Medicare tax.

4. Private Retirement Plans

• The Employee Retirement Income Security Act (ERISA) of 1974 regulates private
pension funds. The Pension Benefit Guaranty Corporation provides timely,
uninterrupted payments of voluntary, private-plan benefits through an employer
insurance program.
• Employee contributions to private plans vest immediately, and employee rights to
employer contributions vest after five years of employment.
• Under ERISA, pension managers must invest pension funds cautiously.

5. Unemployment Insurance
Under the Federal Unemployment Tax Act of 1939, employers pay into a fund that pays
proceeds to unemployed individuals subject to certain requirements and limits.

6. COBRA
• The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 prohibits
the elimination of a worker’s medical, optical, or dental insurance coverage on the
employee’s termination or reduction in hours of the worker’s employment.
• Except for those fired for gross misconduct, workers can decide whether to
continue coverage. Coverage must be continued for up to eighteen months
(twenty-nine if the worker is disabled). A worker who opts to continue coverage
must pay a premium plus an administrative fee.
• Penalties for violations include up to 10 percent of the annual cost of the group
plan or $500,000, whichever is less.

7. Employer-Sponsored Group Health Plans

Under the Health Insurance Portability and Accountability Act (HIPAA), the collection,
use, and disclosure of health information is regulated, and violations of these provisions
are subject to civil and criminal penalties.
 8. Affordable Care Act
Under the Affordable Care Act (ACA), most employers with fifty or more full-time
employees are required to offer health-insurance benefits and may receive tax credits
to offset the cost. The cost to an employee must not exceed 9.5 percent of their
income. Violations of these provisions are subject to fines and penalties.

V. Employee Privacy Rights

A. ELECTRONIC MONITORING
This includes employers’ review of employees’ e-mail, blogs, instant messages, tweets,
social media, smartphone, and Internet use. Employers may also video employees at work,
record and listen to their telephone conversations and voice mail and read their text
messages and social media posts.

1. Employee Privacy Protection

• Privacy rights are protected at common law (invasion of privacy) and under the
U.S. Constitution (First, Third, Fourth, Fifth, and Ninth Amendments) and state
constitutions.
• Electronic monitoring may violate the Electronic Communications Privacy Act
(ECPA) of 1986, which prohibits employers from intercepting electronic
communications that are personal when made on devices and systems not
furnished by the employer.
• Private employers can use filtering software to block their employees’ access to
certain Web sites—the First Amendment’s protection of free speech prevents only
government employers from restraining speech by blocking Web sites.

2. Reasonable Expectation of Privacy

Generally, an employer’s interests are weighed against employees’ reasonable
expectations of privacy (if employees are informed of monitoring, they cannot
reasonably expect privacy).

B. OTHER TYPES OF MONITORING

1. Lie-Detector Tests
The Employee Polygraph Protection Act (1988) prohibits the use of lie detectors by
most employers (not including the government, certain security service firms, and
companies making and distributing controlled substances) except when investigating
losses attributable to theft.

2. Drug Testing

a. Public Employers
Drug tests have been held constitutional when there was a reasonable basis for
suspecting a government employee’s use of drugs or when drug use in a
government job could threaten public safety.

b. Private Employers
Some state constitutions or statutes may inhibit private employers’ testing. A
collective bargaining agreement may provide protection against testing. Random
drug tests and “zero-tolerance” policies have been upheld, however.

VI. Immigration Law

The two most important employment-related immigration laws are the Immigration Act of 1990
and the Immigration Reform and Control Act (IRCA) of 1986. The IRCA provided amnesty to
some illegal immigrants and sanctioned employers who hired immigrants without work
authorization.
A. THE IMMIGRATION REFORM AND CONTROL ACT
• The IRCA provided amnesty to some illegal immigrants and sanctioned employers who
hired immigrants without work authorization.
• The IRCA makes it illegal to hire, recruit, or refer for a fee for work in the United States
a person who is not authorized to work here. The employment of noncitizens—legal or
illegal—is controversial.

1. I-9 Employment Verification

The U.S. Citizenship and Immigration Services (CIS)—part of the U.S. Department of
Homeland Security—supplies Form I-9, Employment Eligibility Verification, which an
employer must complete within three days of each employee’s hiring.

2. Documentation Requirements
• The employer must declare, under penalty of perjury, that an employee produced
documents establishing his or her identity and legal employability.
• Most legal actions are against employees who claim falsely to be eligible to work
or provide false documentation. The IRCA prohibits employers’ “knowing” and
“should have known” violations.

3. Enforcement
U.S. Immigration and Customs Enforcement (ICE) officers conduct random audits and
act on written complaints that allege an employer’s violation. A subpoena or warrant is
not required. A determination of a violation is subject to administrative review at an
employer’s request. Defenses include good faith and substantial compliance with
documentation requirements.

4. Penalties
These include civil fines of up to $11,000 for each unauthorized employee and criminal
penalties of increased fines and imprisonment. An employer may be barred from future
government contracts. The penalties are affected by the size of an employer’s
business, his or her cooperation with authorities, the seriousness of the violations, and
previous transgressions.

B. THE IMMIGRATION ACT

Persons who immigrate to the United States to work include those with special skills, or
“extraordinary ability.” To hire such individuals, an employer must petition the CIS. An
immigrant employee’s ability to stay in the United States and to switch jobs here is limited.

1. Permanent Resident Card

An employer may hire a “self-authorized” noncitizen who (a) is a lawful permanent
resident (as proved by an I-551 Alien Registration Receipt, or “green card”) or (b) has a
temporary Employment Authorization Document. To obtain a “green card” for an
immigrant, an employer must show that no U.S. worker is qualified, willing, and able to
take the job (which must be permanent and full-time).

2. The H-1B Visa Program

A sponsoring employer may obtain a visa for a person to work in the United States for
three to six years in a “specialty occupation” that requires highly specialized knowledge
and a college degree. The annual quota for this program is filled quickly each year.

3. Labor Certification
 Before submitting an H-1B application, an employer must obtain a Labor Certification
form from the U.S. Department of Labor. To obtain the form, the employer must agree
to pay a competitive wage and attest that the hiring will not adversely affect other
similarly employed workers. The form must be posted. An application may be rejected
for omissions or inaccuracy.

4. H-2, O, L, and E Visas

Temporary nonimmigrant visas are also available for agricultural seasonal workers, a
company’s managers and executives, certain investors and entrepreneurs, and
performers, athletes, and other “acclaimed” individuals.

C. STATE IMMIGRATION LEGISLATION

• Immigration is generally a federal matter, and the states cannot impose regulations that
conflict with federal law.
• In Arizona, police officers who stop or detain an individual and reasonably suspect that
the person is an alien must determine his or her immigration status. Immigrants are
required to carry appropriate documents.

VII. Labor Unions

A. FEDERAL LABOR LAWS
Labor legislation outlined briefly in the text includes—

1. Norris-LaGuardia Act
The Norris-LaGuardia Act of 1932, which protects peaceful strikes, picketing, and
boycotts.

2. National Labor Relations Act

The National Labor Relations Act (NLRA) of 1935, which established employees’ rights
to organize, to engage in collective bargaining, and to strike.

a. Unfair Labor Practices

The NLRA prohibits employers from engaging in specific unfair labor practices,
including—
• Interference with employees’ efforts to form, join, or assist labor
organizations or to engage in concerted activities for their mutual aid or
protection.
• Domination of a labor organization or contribution of financial or other
support.
• Discrimination in hiring or awarding of tenure to employees based on union
affiliation.
• Discrimination against employees for filing charges or giving testimony under
the NLRA.
• Refusal to bargain collectively with employees’ designated representative.

b. The National Labor Relations Board

The National Labor Relations Board (NLRB) oversees union elections and
prevents employers from engaging in unfair and illegal union activities and unfair
labor practices. The NLRB also investigates employees’ charges of employers’
unfair labor practices and can file a complaint against an employer or issue a
cease-and-desist order.

c. Good Faith Bargaining

 A party’s refusal to bargain in good faith over a mandatory subject can be an
unfair labor practice that may be reported to the NLRB.

d. Workers Protected by the NLRA

An individual must be an employee or a job applicant (or a union organizer).

3. Labor-Management Relations Act

The Labor-Management Relations Act (Taft-Hartley Act) of 1947 allows state right-to-
work laws, which makes it illegal to required union membership for continued
employment. The act proscribes certain union practices, including—
• A closed shop (which requires union membership as a condition of employment).
• A union’s refusal to bargain with an employer.
• Certain types of picketing.
• Featherbedding (hiring more employees than necessary).

4. Labor-Management Reporting and Disclosure Act

The Labor-Management Reporting and Disclosure Act (Landrum-Griffin Act) of 1959—
• Established an employee bill of rights and reporting requirements for union
activities.
• Regulated internal union business procedures.
• Outlawed all secondary boycotts (including hot-cargo agreements, in which
employers agree with unions not to handle, use, or deal in non-union-produced
goods).

B. UNION ORGANIZATION
The first step in union organizing is to have the workers sign authorization cards.

1. Union Elections
a. Appropriate Bargaining Unit
The proposed union must represent an appropriate bargaining unit (employees
whose skills, duties, and pay are similar).
b. NLRB Rules Expedite Elections
An employer must hold a pre-election hearing within eight days after receiving a
petition for an organizing election. Before the hearing, the employer must file a
“statement of position” setting out its anti-union arguments.
c. Voting
The NLRB supervises the election to ensure voter eligibility and voting secrecy. If,
in the election, the union receives majority support, the NLRB certifies the union
as the employees’ bargaining representative.

2. Union Election Campaigns

• During an election campaign, the employer can limit campaign activities on
company property during working hours, for a legitimate business reason, and can
campaign against the union.
• If the employer issued threats or engaged in other unfair labor practices, the
NLRB may certify the union even if it loses the election.

C. COLLECTIVE BARGAINING
The central legal right of a union is to engage in collective bargaining on members’ behalf.
Wages, hours of work, and other conditions of employment may be discussed during
collective bargaining sessions. Subjects for negotiation include—
 • Workplace safety.
• Employee discounts.
• Health care plans.
• Pension funds.
• Apprentice and scholarship programs.

D. STRIKES
When collective bargaining results in an impasse, a union may call a strike.

1. The Right to Strike

The right to strike is guaranteed by the NLRA, within limits, and strike activities are
protected by the free speech guarantee of the First Amendment. Non-workers have a
right to picket. Workers have the right to refuse to cross a picket line. Employers have
a right to hire replacement workers.

2. Illegal Strikes
These include—

• Violent or threatened-violence strikes.

• Massed picketing or strikers barring nonunion workers access to a work site.
• Sit-down strikes.
• Strikes in violation of a no-strike clause.
• Secondary boycotts—Picketing of suppliers or customers, for example—are
illegal.
• Wildcat strikes—Strikes that are unauthorized by the certified union are unlawful.

3. After a Strike Ends

In an economic strike, strikers have no right, however, to return to their jobs (although
employers must give former strikers preferential rights to any new vacancies and also
retain their seniority rights). After an unfair labor practice strike, an employer must give
the strikers back their jobs.

4. Lockouts
An employer may not use a lockout as a tool to break the union and pressure
employees to vote in favor of decertification. There must be some economic
justification for a lockout.