This webinar examines a few key employment law concepts to help you understand their legal basis and nuances, such as the at-will employment relationship and what constitutes workplace harassment.
Co-sponsored with our HR Partner, Mineral, we also focus on the importance of Section 7 of the National Labor Relations Act and discuss how seemingly minor payroll oversights can turn into massive wage and hour claims.
This session was recorded on July 20 2023
Kara Govro: Hi everybody. Welcome. Glad to have you here today. We’re going to wait 30 seconds, maybe a minute for more people to roll in before we get started. So just hang with us, and we’ll be started soon here.
[00:00:30] All right, welcome to today’s webinar, Employment Law 101 for Non-Lawyers. My name is Kara Govro. I’m the principal legal analyst here at Mineral. My day-to-day job involves looking at [00:01:00] the laws in all 50 states and DC, as well as federal employment laws, to see what employers need to know, what’s changed, and what actions they should be taking. That’s sort of my day to day. Giving webinars is one of my favorite things to do and this is one of my very favorite webinars. So I’m genuinely happy to be here with all of you today. And with that said, we’ll just go ahead and get started.
So a small bit of housekeeping here. We are recording [00:01:30] this, and we’ll send you a copy of the recording as well as the slides within about 24 hours. So no need to take notes, or screenshots, or anything. We will hook you up with that.
We’ve got just a couple polls we’d love for you to participate. And then finally, if you are trying to pose a question to me, put it in the Q&A. You should see a Q&A and possibly a chat. Definitely use the Q&A. That’s the one that I will be watching.
So today’s topics are [00:02:00] at-will employment, unlawful harassment, Section 7 of the National Labor Relations Act, and wage and hour. Obviously, these are four very large topics. Well, at-will’s not a very large topic, but the other three are pretty large topics. So we’re going to just going to hit them real quick. We’re going to give you sort of the highlights, but dig in on maybe some things that you didn’t know before.
So with that in mind, [00:02:30] we’ve got at-will, unlawful harassment, and Section 7, and wage and hour. I would like to start with a poll. Which of today’s topics do you feel least comfortable with? So of those four, I think we’ll have a poll popping up on your screen any minute now. Which do you feel the least comfortable with? And we [00:03:00] will take just a few more seconds here to get your answers.
All right, it looks like Section 7 of the NLRA is the big winner for least comfortable, which is not surprising at all. A lot of employers don’t even realize that Section 7 applies to them, so perfectly [00:03:30] reasonable to see that result. Unlawful harassment would have been my guess next at, 25% of you’re least comfortable with that. And that’s actually maybe my favorite thing to talk about in this webinar, because I think it’s so misunderstood. So hopefully, you’ll all come away with a better understanding of the topics you’re less comfortable with.
All right, so we’ll move right on now to at-will employment. What the heck is at-will employment? [00:04:00] Three of our topics today are heavily anchored by federal law, but at-will employment, interestingly, is sort of defined by an absence of law.
It means we don’t have a contract between the employer and the employee. And here in the United States, we’re not bound by state or federal law to maintain employment in that relationship for any longer than either party wants to.
[00:04:30] Montana does have sort of an interesting caveat to at-will. They require that you do have somewhat of a reason to terminate someone. But as long as your reason is business related in Montana, you’re still good to go. It doesn’t have to be a super excellent reason.
So what does this mean for us? We don’t have employment contracts in most cases. Instead, we have at-will [00:05:00] employment. Well, that means that employment is open-ended, so the employee can leave whenever they want, and the employer can terminate whenever they want. Nothing that happens in the employment relationship is going to earn an employee tenure or guaranteed employment.
Again, you can get around this by having an employment contract, but that’s not what most employers want. Most employers want that at-will relationship. And honestly, it’s probably what most employees want [00:05:30] as well.
So the employee is making no promise to stay for a certain amount of time. And you may hear about probationary periods, or you may have even used that language at some point. Probationary periods are used often in union environments, and they actually do sort of remove the at at-will relationship.
So what you’ll see in a union environment is, [00:06:00] maybe it’s like seven strikes and you’re out. You have to go through a very certain process to be terminated, but that kicks in after you’re through that probationary period at the start of employment. So maybe it’s a 90-day probationary period, and then at-will no longer exists in a union environment or in an environment with an agreement like that.
Some employers accidentally use the term probationary period, when what they [00:06:30] really mean is introductory period. So if you’re using probationary period but you want at-will, you want to be able to terminate at-will, I would stop using that language, because at least a couple of courts have said that using probationary period for no other reason than because it’s confusing could harm the at-will relationship. So switch that over to introductory period if you’re using it.
That said, I will point out the introductory periods [00:07:00] are legally meaningless. They don’t really do anything. Employers like to use them because they feel better that within that first 90 days, the person is just… Maybe we say it’s not a fit and we let you go.
But that doesn’t actually change anything. It’s still illegal to fire someone for illegal reasons, during their introductory period. They’re still entitled to unemployment insurance if you get rid of them [00:07:30] in their introductory period. It doesn’t really mean anything.
Maybe in your handbook and per your policies, it means there are more check-ins with managers, or either you’re not expecting them to be fully up to speed. Those are things where an introductory period might make sense. But legally, and in terms of benefits and rights, introductory periods don’t mean anything under the law.
So another thing with at-will [00:08:00] is that technically, you can’t require notice from employees, and you’re not required to give them notice either. So you can terminate at any time. They can quit at any time. Most employers of course, do request to notice, usually two weeks, maybe more from managers. And that’s fine.
But you wouldn’t want to actually require it, because that also has been found by a court or three, to create a contract that would obligate [00:08:30] you to give the same notice to the employee.
So you can request it very nicely. You can stomp up and down and request it, but you can’t technically require it, which makes sense. You can’t force an employee to come to work, if they don’t want to come to work.
If an employee gives you notice, let’s say two weeks, but you don’t want them to work through their notice period, you might want to consider paying them anyway, so the unemployment [00:09:00] insurance department in your state doesn’t see it as a termination. Often, they will. That will sort of convert a voluntary quit to an involuntary termination, and that person may be entitled to unemployment insurance, just because you told them, “No, I don’t want you here for those last two weeks.”
So that’s something you probably want to look into. I know a lot of employers do this, and it makes perfect sense. I just want [00:09:30] you to be aware that this could have impact on unemployment insurance situations.
Usually when an employee’s giving notice, it’s because they’re going somewhere else. So I don’t want to get you all worked up about this. It’s probably not something you need to worry about terribly often. Just something to be aware of.
So what a lot of employers really focus on with at-will, and for good reason, is that you don’t have to have a really [00:10:00] good cause, or any good cause, in order to terminate someone. Obviously, an employee doesn’t have to have a good reason to leave you, but you as the employer also don’t have to have a good reason to terminate someone. So as long as it’s not an illegal reason, you are free to terminate.
Illegal reasons are those based on an employee’s inclusion and a protected class, use of a protected right or a protected leave, [00:10:30] or for a reason contrary to public policy.
However, this aspect of at-will where you don’t have to have a good reason to terminate someone is really what gets employers in trouble. They start to think, “Okay, well if I just don’t like somebody’s attitude, I don’t like the way they looked at me, I don’t like that they dyed their hair a funny color, I can just let them go. And I also don’t have to tell them why I let them go.”
Well this is [00:11:00] technically true, but you want to be really careful here, because at-will is not a blank check to do whatever you want as an employer, without consequences. So weak reasoning and a lack of documentation before you terminate someone is going to make it a lot easier for that terminated employee to claim that you actually let them go for an illegal reason.
So [00:11:30] for instance, let’s just look at a couple of examples. We have a pregnant employee, someone calls us, they say, “I’ve got an employee, she’s pregnant. She’s going to go on leave in a month or so, but her work has really been poor lately, and we just want to let her go before her leave starts.” And we say, “All right, well have you been talking to her about her poor performance?” “Well, no.” “Do you have documentation of her poor performance?” “Well, [00:12:00] no.” “Okay, have those conversations. Make that documentation.” It’s possible that her performance has dropped significantly, even to the point where termination is warranted. But if you don’t have those conversations documented, and you don’t have any proof of that, it’s going to look an awful lot like you’ve terminated her because she was about to go out on leave. So those are the kinds of things we want to avoid.
[00:12:30] Similarly, maybe somebody comes in with their hair dyed a funny color, hot, hot pink, and they also have a bad attitude that day. If you fire them on the spot, that might work, but you don’t know that yesterday, they didn’t tell their manager that they suffer from social anxiety, or that they weren’t about to go on FMLA leave. So we want to be really careful [00:13:00] that we’re not getting carried away with at-will because it can come back to bite us for sure, and it does in many, many cases.
We also get employers asking us, “Can I just not tell an employee why I’m terminating them? I want to let them go, but I don’t want to tell them why, because it’s uncomfortable, because they have body odor, because they have a bad attitude that I find difficult to explain to them why their attitude is bad.”
[00:13:30] Again technically, you don’t have to tell them why you’re letting them go, but I think it is a very bad idea not to tell them why you’re letting them go, because they’re going to cook up their own reason, and it’s probably going to be an illegal reason. If you give them no explanation, but the truth is they have BO and a bad attitude, they might say, “I’m being fired because I’m a woman, or because I’m gay, or because I’m Muslim.” Insert any protected class.
And [00:14:00] to be clear, everyone is part of many protected classes. A white male Christian, that’s just three protected classes that he’s a part of. So anybody can make these claims. It doesn’t have to be a historically oppressed group in order for a discrimination claim to be made.
So make sure people know why they’re being terminated. And they should also see it coming, because it shouldn’t be a surprise. You should have [00:14:30] documentation, you should have had those conversations with them.
All right, let’s move on to unlawful harassment. Again, a reminder, if you have questions for me, please put them in the Q&A. I will take them as we go along or at the end. We will hopefully have time for questions at the end as well.
Okay, let’s talk unlawful harassment. As I mentioned at the start, I think this is one of the most [00:15:00] misunderstood legal concepts out there, and it’s because the term hostile work environment gets thrown around a lot. And because hostile work environment doesn’t have a very good explanation built into the phrase itself, employers sort of panic. I mean anything can be hostile, right? That’s not untrue. However, [00:15:30] not everything is harassment, and my next slide is going to tell you that not all harassment is even unlawful. So let’s start here.
What is harassment in the first place? Well, it’s unwelcome conduct based on a protected class. So if somebody is just razzing somebody else, let’s say for what school they went to, or for what neighborhood they live in, or for their ridiculous fashion sense, [00:16:00] that is not going to be the kind of harassment that we need to worry about in the employment law context, because it’s not based on a protected class. It’s not about a protected class or related to a protected class. So your employee who’s being teased for his bad fashion sense might come to you and say, “This is a hostile work environment,” but it’s not, because it’s not based on a protected class. [00:16:30] And a hostile work environment is a very specific thing that we’re working up to here.
So anytime you get a claim of harassment, somebody coming and saying, “I’m being harassed,” you definitely need to take it seriously. But, not all of those issues are going to rise to the level of being illegal. So that’s the good news.
Federally protected classes are race, color, religion, national origin, sex, sexual [00:17:00] orientation, gender identity, pregnancy, age, disability, genetic information, military or veteran status, citizenship or immigration status. There are also additional protected classes in a lot of states. Pretty much actually almost every state has added at least one thing to that list. And we are talking about federal harassment in this webinar, but I would still think pretty hard about those other [00:17:30] protected classes in your state if you get a complaint that someone’s being harassed based on one of those.
So if it’s a protected class, and you get a claim of harassment, I would definitely get into it, try to stop it, and try to prevent it in the future. Even if it technically doesn’t fall under one of these federally protected classes.
So we have to have unwelcome conduct, and it has to be based on a protected class. Then it [00:18:00] becomes harassment. But, not all harassment is actually unlawful. Some minimal amounts of harassment are not unlawful, and won’t result in you losing a lawsuit at the end of the day. However, the difference between harassment that’s not unlawful and harassment that is unlawful is often going to be decided by a judge or a jury.
So [00:18:30] while it is something to think about, and I really want you to understand the standard so you can either act quickly when you need to or not panic when you don’t need to panic. I do want you to understand this. But at the end of the day, if you’re not sure, you’re like, “Maybe it’s unlawful, maybe it’s not,” I would go ahead and assume it’s unlawful and take strong action against it, because you’re not the ultimate [00:19:00] decider of that question. The ultimate decider of that question is going to be a judge or jury.
So harassment’s unlawful when either enduring the offensive conduct becomes a condition of continued employment, or when the conduct is severe, or pervasive. Not and pervasive, severe or pervasive. Enough to create a work environment that a reasonable person would consider intimidating, hostile, [00:19:30] or abusive. So sorry to read from the slide, but there’s a very specific definition. I want to make sure you get it.
So those are the standards, and we generally see hostile workplace claims falling into number two there. It’s not necessarily a condition of continued employment. At least it hasn’t been stated that way yet, but it’s conduct that is usually pervasive, like teasing, maybe based on religion. If there’s [00:20:00] enough of that happening, that could definitely be unlawful harassment in that it is pervasive and it’s creating a work environment that’s intimidating or hostile to the person who’s experiencing that harassment.
It is worth noting that a few states do have lower thresholds. They’ve taken away severe or pervasive and made it a lower standard. So it would be easier to prove harassment in certain states or prove [00:20:30] that harassment is unlawful in certain states. So it’s always worth having a look at your state law just to make sure you are, or are not, in one of those places.
The Equal Employment Opportunity Commission who enforces Title VII, which is where this comes from, has told us that petty slights, annoyances, isolated incidents, unless they’re extremely serious, don’t rise to the level of [00:21:00] unlawful harassment.
So that’s good news. However, again, you want to make sure that you’re not judging what’s a petty slight or annoyance with too much leniency, right? Because if you decide not to address something because you’re like, “That’s a petty slight,” again, you’re not the ultimate decider around that. So in most cases, you do want to want get into this.
[00:21:30] So the hostile workplace, we’ve been talking about it already, is just a type of harassment. So again, still needs to be related to a protected class or characteristic.
It doesn’t have to be aimed at a person of a certain protected class, however. So let’s say you’ve got some people making jokes about [00:22:00] Muslims in the lunchroom. Someone who is Christian could report that and say, “I’m offended,” and that would still be something you need to get into. That could still be a hostile workplace. So the harassment doesn’t have to be felt by a person who’s part of the protected class that is being talked about, [00:22:30] or joked about, or whatever the situation may be.
Hostile workplaces are not created by crabby bosses who are crabby to everyone. They’re not created by personality differences, where you’re offended that your boss is always being really short with you, because you prefer a lot of communication and good mornings, and thank yous, and you want your criticism sandwich [00:23:00] where they say something nice, then they give you the criticism, then they say something else nice. The fact that they don’t do that or that they don’t say good morning, that does not create a hostile workplace.
It’s also not usually created by supervisors playing favorites. Granted, you do need to watch out for internalized bias, unconscious bias. If you’ve got a supervisor who’s just being generally mean to the women in their department, [00:23:30] that’s something you probably need to be looking into. However, if a particular supervisor clearly just has one supervisor’s pet, that doesn’t create a hostile workplace. I’m going to go ahead and say in most cases, I’ll throw my little lawyer caveat on there. But in general, playing favorites, personality differences, mean bosses, these are not creating hostile workplaces. We got to go back to that whole unwelcome conduct based on a protected class.
[00:24:00] So, employers are usually liable for harassment. If there’s a tangible employment action, like someone’s demoted, the employer’s always going to be liable. If there’s no tangible action, usually then we’re looking at a hostile workplace claim. Let’s say there’s lots of teasing. Then, employers have a defense if they’ve done the following.
So they’ve exercised [00:24:30] reasonable care to prevent and promptly correct any harassing behavior. And, the employee unreasonably failed to take advantage of any preventative or corrective opportunities provided by the employer.
So basically, if you knew about it, you failed to do anything about it, and the employee failed to use your complaint procedure, or to tell HR, even though you had [00:25:00] a very nice policy explaining to them that they should use the complaint procedure or tell HR if they were experiencing harassment.
So you really need to be advertising that complaint procedure, advertising your harassment prevention policy. And then when you get complaints, you need to be dealing with them promptly and seriously, and then taking steps to make sure they don’t happen again [00:25:30] in the future.
This is why we recommend all employers have some kind of harassment prevention training. Because if you do end up in litigation, that training is going to be a really key aspect of your defense against a claim of harassment. So really good for you in court if you have done that and if you’ve got the good policies. Really bad for you in court if you don’t have at least policies that are clear and describe how to report harassment.
[00:26:00] Someone said, “What’s my recommendation on how to document when you exercise reasonable care and prevent incorrect harassing behavior?” There’s no magic to documentation. You’re just going to write down what you’ve done. Reasonable care means whatever you did, hopefully it was reasonable, and hopefully you cared. So if you are training employees every year, [00:26:30] I’d probably get some kind of documentation around that. Get them to sign off that they attended the training. That would be one bit of documentation that you took reasonable care.
If someone complains to HR and HR says, “Okay, we’re going to launch an investigation.” Somebody should be taking notes on this. In a Word document, in the HRIS file. Somewhere, somebody should be taking notes. “Received complaint on July 20th, [00:27:00] took immediate action to schedule interviews with the named witnesses.”
Then you talk to the witnesses. You take notes on what the witnesses tell you. You keep this all on a file. You talk to the person who’s been accused. You make some decisions about what to do. You document what those decisions are going to be. You have the accused sign off on whatever discipline they’ve received, if you decide that they do need discipline, etc. There’s nothing super special about it. Just track your steps, and [00:27:30] make sure you’re tracking them in writing.
All right, let’s move on to Section 7 of the National Labor Relations Act. So like I said early on, a lot of employers without unions don’t realize that Section 7 applies to them, but it sure does. So it’s worth understanding the key bits here.
So as far as I can [00:28:00] tell, Section 7 is the oldest federal employment law regulating non-unionized work. It’s from 1935, so it’s coming up on 100 years now. It’s been around for quite some time.
The key element that I think most employers need to know but don’t know is that Section 7 grants all employees the right to organize and engage in concerted activity for their own mutual aid or protection. What the heck does that mean?
It means that if employees [00:28:30] want to talk about wages, benefits, managers, facilities, safety issues, just about anything that two or more employees might have a stake in, then that conversation and that organizing is protected.
This includes employees talking about their wages. Last bullet there. This is the biggest error I think non-union employers make is they try to prohibit salary discussions. And the National [00:29:00] Labor Relations Board, which hears the cases related to National Labor Relations Act violations, has been saying loud and clear since the early ’80s, the discussion of wages is an absolutely protected right. Employers still don’t know it. It blows my mind, but it’s been true for a very long time now.
So distributing or enforcing a policy [00:29:30] that says employees can’t talk about their wages is sort of like having a policy in your handbook that says, “We don’t pay minimum wage or overtime.” So if you’ve got that policy, get rid of it today. Today is the day. It’s been illegal the entire time you’ve had it, and it’s still illegal now. You can’t stop employees from talking about their wages.
To be clear, employees according to Section 7 means non- [00:30:00] supervisory employees. Supervisors are not protected by Section 7. So if you’ve got true supervisors and managers, you can tell them not to talk about their wages.
However, big, big, however with state law. A lot of state laws now allow everybody to talk about their wages. So if you’re thinking about telling managers they can’t talk about their wages, do check state law first. But Section 7 definitely applies [00:30:30] to all non-supervisory employees, so they are welcome to talk about their wages.
So what are some examples of protected concerted activity? Employees discussing their wages in any setting, employees complaining about safety concerns, they used to say, such as Covid-19. Finally got to take that part out. However, still true. If your employees still want to talk about Covid [00:31:00] in the workplace and their safety concerns around it, that’s allowed.
Employees organizing an opposition to a vaccine mandate, operational changes, pay cuts. Individual employees complaining about wages or employment conditions, if they’re telling you about general workforce discontent.
So concerted activity generally means two or more employees are involved. However, if this one person goes to their manager [00:31:30] and says, “Here are issues. I’m really mad about it,” you wouldn’t want to fire that person. Well, first of all, I wouldn’t fire that person period for expressing that sentiment, but you certainly wouldn’t want to fire them if they were telling you the general feelings of the workforce, and they were the person nominated to share that information.
Someone asked, “Do employees have a right to organize and engage [00:32:00] in concerted activity while on the clock?” Sort of, sort of not. Generally, you can prevent that while they are actually working, working, but you can’t probably prevent that during breaks, or lunchtime, or other times. Let’s say they’re on call, stuff like that.
So if you’re looking to squelch organizing, definitely talk to [00:32:30] a lawyer, because it’s really easy to run afoul of these laws. So if you do have unionizing happening in your environment or any kind of organizing and you’re contemplating how to put a stop to it, it’s definitely attorney time in my opinion. Because you don’t want to be on the receiving end of one of these in NLRA suits.
[00:33:00] Social media, this still surprises some employers, is often protected by Section 7 as well. So if an employee could say something in the workplace and it would be protected, like they want to talk about their wages, it’s also going to be protected when they put it on their Facebook page or their Twitter, almost certainly.
Technically, it does still need to be concerted, meaning two or more employees are somehow involved. So we’ve seen some cases where somebody posted [00:33:30] something on Facebook like, “My manager’s such a jerk, they don’t pay us well enough,” yada, yada. Some other employee or multiple other employees comes in and they like the post, that becomes concerted activity.
So you need to be really careful about not trying to limit what employees can do on social media. The fact of the matter is they’re pretty darn free to say what they want there, and you can’t just fire them for mouthing off on Facebook about you, so long as it’s something that’s protected [00:34:00] by Section 7, which is a lot of things, including mean managers. So be careful there.
We do have a social media policy that you can use, that has been carefully crafted to go to the edge of limiting what employees can say online. But if you’ve had a really restrictive policy and you go read ours, you’re not going to love it, because I think you’ll be surprised by what needs to be allowed. [00:34:30] All right, final thought here on Section 7. That went pretty fast.
You can’t have policies or agreements that get rid of someone’s Section 7 rights. So often employers think, “As long as they put something in writing and the employee agrees to it, then we’re good to go.” That is not the case.
eo [00:35:00] policies are like a constant point of contention with Section 7 and the National Labor Relations Act. They have a lot of rulings on handbook policies basically, and whether handbook policies have been written overly broad in such a way that it prevents employees getting together to talk about improving their working conditions. Doesn’t even have to be unionizing. It could just be organizing.
So you need to look carefully [00:35:30] at your policies. I mean, you’d be surprised what some of these cases look like. It’s an employer who has prevented recording, audio recordings in the workplace. And who knows why they did it? But the National Labor Relations Board said you can’t do that, because employees might want to record their activities to unionize, and then share it with other employees who couldn’t be there.
[00:36:00] So you need to look carefully at your policies and make sure that they’re not having an impact on employees’ NLRA rights, and balance that also against your legitimate justifications for that rule. So you might just need to be more specific, or you might need to make a carve out within certain policies, if you wanted to say no audio recordings, unless protected by Section [00:36:30] 7, that might be one way to approach that.
But basically, anytime you’re writing restrictive workplace policies that are not just in the standard handbook, you want to be contemplating whether it affects the NLRA or not, or is affected by the NLRA, and whether you might be violating it.
Another thing we got from the board recently just in May of this year actually, was that confidentiality, and non-disclosure clauses, [00:37:00] and severance agreements are actually widely unlawful, unless they’re narrowly tailored to proprietary information, trade secrets, or specific to actual defamation, like where the employee is saying untrue things about their employer.
So this is really an interesting take on this, and this is pretty surprising, because a non-disclosure agreement or a non-disclosure clause and a severance agreement is pretty [00:37:30] common. “Okay. We’re not going to talk about the company at all, or your experience at the company, or why you were laid off.” And all of that could potentially now be a violation of the NLRA, according to the current board’s interpretation, because you’re squelching Section 7 rights.
It’s a little strange, right? Because that person’s not an employee anymore. But they could potentially be trying to help [00:38:00] current employees improve their conditions by talking about their experience when they did work at that company.
So if you’ve got a non-disclosure clause in your current severance agreements, I would have that looked at by an attorney for sure. If you’re not comfortable just taking it out entirely, then I would make sure that that’s really narrowly tailored, and I would run it by an attorney to make sure you’re not violating the NLRA, which is not a good thing.
All [00:38:30] right, thus concludes Section 7. I know that was really quick. We could talk about any of these topics for hours, but we’re trying to hit some highlights in one hour and leave time for questions. So we will move on now to wage and hour.
And we’re going to look at the Fair Labor Standards Act. So this was passed in 1938. Also a very old law. It regulates minimum wage, overtime, record keeping, and child labor. [00:39:00] You are no doubt familiar with much of the Fair Labor Standards Act. It’s actually not very long printed out. I think it’s about 55 pages, which is really, really short for a federal law.
What you might want to know is that many states have basically duplicated the Fair Labor Standards Act and put it in their own statutes. And that is redundant and seems kind of pointless. However, [00:39:30] it generally creates the ability for an employee who has been wronged to sue you under both state and federal law, and they could collect damages under both state and federal law in many cases. Maybe not every state would allow that, but I think most do. So if your state has duplicated the Fair Labor Standards Act, just realize that your liability for wage and hour claims is basically doubled.
[00:40:00] Okay, so we’re going to talk about minimum wage and overtime specifically, since we don’t have a lot of time. And I want to hone in on two questions. Can I make a worker an independent contractor instead of an employee? Because that would be one way to not have to follow FLSA minimum wage and overtime. Or can the employee be exempt, which would also get us out of FLSA, minimum wage, and overtime.
So first up, do [00:40:30] I have an employee? You probably do. Honestly, most workers are employees. You could have an independent contractor, you could have an unpaid intern, or you could have a volunteer. You shouldn’t have volunteers unless you’re a nonprofit. Let’s get that really clear. If you’re a for-profit organization, you should not have volunteers period.
To qualify for an unpaid internship and that [00:41:00] status, the person doing work for you needs to basically be in school, and you need to be affiliated with their school. It’s a pretty strict test. I’m not even going to talk about it today, because again, it’s a pretty strict test. Most people you’d call an intern, they’re just employees. They might be summer employees, they might be young employees, but they’re just employees. You can call them an intern all day long, but you have to treat them the same as a regular employee, including paying them minimum wage and overtime.
[00:41:30] So that’s all I’m going to say about those two. But, let’s dig in a little bit on the IRS independent contractor test, which is the test I would suggest using right now for independent contractors.
You might be in a state with a stricter test, such as California or Massachusetts. California uses something called the ABC test. It is going to make a lot more people employees as opposed [00:42:00] to the IRS independent contractor test. However, if you’re not in California, there’s a decent chance the test you need to apply is the IRS independent contractor test.
The DOL, the Department of Labor also has their own test in operation right now, and it is a little less stringent than the IRS test. However, two things. First of all, the DOL has said they’re going to release a new rule soon.
That [00:42:30] will probably take us back to a test that looks more like the IRS Independent contractor test. They used to match. Something weird happened. There’s a new test for the DOL right now. We think they’re going to go back to the old test again, which will look like the independent contractor test on the screen.
The other thing about that though is even right now, if you pass the DOL test, but not the IRS test, you might not be in trouble with the DOL, but you’d still be in trouble with the IRS. [00:43:00] And they’re looking for you to pay payroll taxes and all sorts of other taxes related to having an employee. So we don’t want to offend the IRS either, so I would recommend just using their test for now.
So it looks at three areas. Behavioral control, financial control, and the type of relationship between the employer and the worker. And I have laid out the basic categories [00:43:30] under each.
So for behavioral control, are you directing how they do the work? Are you telling them where to do it, when to do it, what kind of software to use, what days of the week you want things turned in, or if you want to see them in the office? What kind of instructions are you giving them? How much instruction are you giving them? Are you evaluating their performance, and did you need to [00:44:00] provide training for them to be able to do what you need them to do? All of those indicate that this person is an employee, not an independent contractor.
We also look at financial control. So who has the right to control the financial aspects of the worker’s job? Who’s making the investments? Has the worker spent a lot of money to get where they are? They’ve got their own laptop, they’ve got their own fancy design [00:44:30] software, they’ve got their own transportation, they’ve got their own setup in their home. They don’t need to come into your office to do the work. We’ll also look at unreimbursed expenses.
If you’re reimbursing expenses for someone, it’s more likely they’re an employee. An independent contractor will generally be paying their own expenses to run the business.
We’re also looking at opportunity for profit or loss, whether they’re open for hire to the market. Can they be hired by other people or can they only work for [00:45:00] you right now? If they can’t be hired by other people, they’re probably an employee.
And we’ll also look at the type of relationship. So how do the two parties perceive that they are related to one another? If the worker thinks they’re an employee and feels like an employee, that might be relevant. So we want to look at our written contracts. We want to look at whether you’re offering them any perks like you would normally offer your regular employees.
And then also, [00:45:30] and this one’s really important, last thing on the screen. Are their services a key activity of your business? So example here, let’s say we’ve got a restaurant. Your head chef, their services are absolutely key to your business. That head chef should not be an independent contractor. Your host and hostess, your bartender, those people should not be independent contractors. Their services are a key activity of your business. That’s what you [00:46:00] do. You make and serve food.
On the other hand, let’s say you had someone redesign your menu, a nice graphic designer. That person being an independent contractor makes perfect sense. Granted, we’d still want to check it against all these other aspects, but they’re not providing a service that’s a key activity of your business. So much more likely and reasonable that that person is going to be treated as an independent contractor.
[00:46:30] Someone says, “Can independent contractors be issued company hardware or software?” Yeah. So this is a balancing test. We’re going to look at all these things. We’ve got one, two, three, four, five, six, seven, eight, nine, 10, 11. I don’t know, we’ve got 15 bullets here or more. So it’s a balancing test. We’re going to look at lots of things.
For the most part when we look at these things, we’re like, “Yep, yep, yep. Independent contractor, independent contractor, independent contractor.” However, you issued them a laptop with some particular software, [00:47:00] that’s not necessarily going to turn the tables. This isn’t like you have to check every box or no boxes. It’s a factors test.
So you could issue company hardware or software to them. However, that would be one check on the employee side, right? Because that’s something they’re not providing themselves. And if you want them to use particular hardware and software, that shows behavioral control as well as some financial control [00:47:30] based on investment. So doesn’t necessarily tip the scales, but you’d have to look at everything else that’s going on there.
Okay, now let’s talk about… Let’s say we’ve run our IRS test, and we’ve decided we have an employee. So now let’s talk about whether our employee can be classified as exempt from the Fair Labor Standards Act. So yes, they could potentially be exempt from minimum wage and/or overtime, [00:48:00] if one of the exemptions listed right in the Fair Labor Standards Act applies to them. So for instance, commission sales employees. They need to meet certain requirements, but they could be exempt from overtime.
There are also a long list of really interesting jobs like worker on an American Sea vessel, and a home wreath maker, and a couple others. A couple others, a couple dozen others [00:48:30] in the FLSA that are automatically exempt.
The ones we deal with most often when clients call us, and that are the most confusing I think, is for white collar employees. So that’s executive, administrative, professional, computer, outside sales, or “highly compensated employees.” And in order for someone to be exempt as a white collar employee, they generally need to perform specific duties, they need to earn a minimum [00:49:00] salary, and they need to be paid on a salary basis.
So any of this is new information. We’ve got the deets on the platform. We can tell you and teach you more about this, but I did want to go ahead and get into just three of the white collar duties tests, because I think that’s where employers fail.
They generally know that they need to pay a certain amount, [00:49:30] and they generally know that they have to pay on a salary basis. But a lot of employers think that if they just put executive, administrative, or professional in the title, that they can then make an employee exempt, and that is definitely not true. We need to be passing the duties tests for each of these types of jobs.
All six that I listed do have duties tests, but I wanted to pull out the three most common, and probably the three most commonly [00:50:00] screwed up. And I know this is a lot of words on the page, but I wanted you guys to have this as a reference later.
So for instance, an executive employee. Usually used for managers. When can you make someone exempt as a manager or as an executive? Well, their primary duty has to be the management of an enterprise or a recognized department or subdivision. Also, this is the one that gets a lot of employers. They have to customarily [00:50:30] and regularly direct the work of two or more full-time employees.
So if someone is just a manager of their department, but they’re the only person there, because it’s like they’re the manager of a big project, or a concept, you can’t make them an executive that way if they don’t manage two or more full-time employees. No way around that one. You can potentially make them exempt in one of the other categories or types of jobs, [00:51:00] but not as an executive if they don’t manage two or more full-time employees. They also need to have the authority to hire, fire, or promote, or effectively recommend those actions.
So example I always use here is let’s say we’ve got a night shift supervisor at a sandwich shop. The kid’s 19 years old. Or maybe they’re the assistant night manager, and you’re thinking, “I can make them exempt because they have manager [00:51:30] in their title.” Nope, nope, nope, sure wouldn’t. Because it’s highly unlikely that they have the ability to hire, fire, or promote anyone, or to really effectively recommend hiring, firing, or promoting.
I mean, yes, you might be saying, “How did everyone do last night?” And getting a report from them. But if they tell you, “You should fire this person,” it’s unlikely that the 19-year-old assistant night manager at the sub shop really has the kind of authority that we’re talking about here with the executive [00:52:00] employee exemption. So there’s that one.
Administrative employee. This gets used a lot too, where like, “They do something administrative, therefore, we can make them exempt.” Well, their primary duty needs to be office or non-manual work directly related to the management of general business operations. Okay, that’s not too hard. Or the employer or employer’s customers.
But here’s the catch. The primary duty needs to include exercise of discretion [00:52:30] and independent judgment with respect to matters of significance. So maybe you are the office admin, and you get to decide between using FedEx, USPS, or UPS. On a daily basis, that is your choice between those three, and you are using your independent judgment. I don’t think that rises to being a matter of significance. I’ve had that job by the way.
So [00:53:00] yes, it’s important. Yes, they’re doing something administrative. But we do not want to slap this exempt label on everybody doing administrative work, or we’re going to find ourselves in quite a bit of hot water down the road.
Finally, let’s talk learned professional duties test. So this person does work requiring advanced knowledge, predominantly intellectual, requiring consistent exercise of discretion and judgment. The advanced knowledge needs to be in a field of science or [00:53:30] learning, and it needs to be customarily acquired by a prolonged course of specialized intellectual instruction. I get asked every time I give this, “What about CAD operators?” No, CAD operators don’t count. That’s not what this is talking about. It’s a prolonged course of specialized instruction, usually many years, like perhaps a four-year degree in biology and then you go work in a lab. Could make you a learned professional in [00:54:00] that way. Certainly if you have a master’s degree in biology, then yes. But doing a six to 18 month program for something that didn’t require a bachelor’s degree to start with is almost certainly not going to get you into the learned professional category.
In fact, paralegals for the most part are not learned professionals, which makes a lot of them very mad I think. And a lot of lawyers want to argue with us about that, but we’ve certainly seen [00:54:30] court cases where they’ve been ruled not learned professionals.
Same with nursing. Not all nurses are learned professionals. Really depends probably on the course of study and what they’re doing on a day-to-day basis. So that category can be a bit surprising as well.
So if you have people in any of these three categories and any of this is giving you pause, I would strongly recommend learning a bit more. There are more words available [00:55:00] out there to further explain these tests and these duties.
And when in doubt, err on the side of keeping someone as non-exempt and paying them minimum wage and overtime. Because if you get it wrong, you could be owing back wages for years, potentially for many employees, as well as penalties on top of that. And like I mentioned earlier, possibly under both state and federal law. So that’s no fun. [00:55:30] Check out these duties tests if there’s something you’re not familiar with.
Now finally, we will get to non-exempt employees. So we’ve talked about independent contractors, we’ve talked a bit about exempt employees. Just a few thoughts on non-exempt employees, best practices, traps, danger zones.
Make sure you’re tracking time very carefully, including state mandated breaks. So that can get employers in a lot of [00:56:00] trouble down the road. Somebody leaves, they believe that they never really got their breaks or all their breaks were cut short. They go to the state labor department. And if the employer can’t prove that those breaks were taken and that those breaks were long enough, that could be a real problem.
It’s ultimately the employer’s responsibility to track employee time. I know that’s kind of crazy, because how could you possibly do that when you’ve got dozens, or hundreds, or thousands of employees? You obviously need their help [00:56:30] to track their time. But at the end of the day, it’s going to be your responsibility in court. So make sure you have that information.
The Fair Labor Standards Act also requires that we don’t deduct for breaks under 20 minutes. There is an exception if you offer shorter paid breaks, as probably required by state law in many cases, like a lot of states require a 10 minute paid break every four hours. So if you offer that 10 minute paid break and you have a clear policy that [00:57:00] says taking extra break time will subject an employee to discipline, then you could take deductions for the time between the 10 minutes and the 20 minutes. And it’s a little hard to wrap your head around, but that’s the rule federally.
We want to make sure we’re paying for all time work, including unauthorized time and time worked off the clock. One of you asked earlier, “Is there a [00:57:30] way to word in our handbook that there is no overtime?” No.
What you can say is that employees are not allowed to do more hours than they are assigned, including hours that would take them into overtime. Basically, you have a policy that says no unauthorized work. But you absolutely can’t not pay the overtime. If they did the work, you have [00:58:00] to pay it.
You can discipline them, basically write them up for having worked time in violation of your policy, unauthorized time, or overtime, or whatever. You can get them in trouble for it, but you have to pay them for it. So if your handbook policy says, “We do not pay overtime, so don’t work it,” that’s not good. We don’t want to say that. You can certainly say don’t work unauthorized time or unauthorized overtime, but you will have to pay [00:58:30] it if the employee does the work.
And we want to make sure that overtime’s paid at one and a half times their regular rate of pay. If that’s not ringing any bells for you, you can learn more about it on the platform.
And then finally, be wary of payroll deductions that are ultimately for your benefit. They may or may not be allowed by state law, or federal law for that matter, but states have definitely gotten in the game on deductions. So I would always recommend checking state law to make sure your payroll deductions [00:59:00] are acceptable.
All right, we’re going to run. I know we’re at time. We’re going to run one last poll really quick, and then I’m going to come back to Q&A. If you need to go, I understand, but I will try to grab more of your questions here in just a moment.
So of the topics we covered today, I know they were all very quick. Where did you get a bit of new or helpful insight, or the most new or helpful insight? And I’ll be curious to see if this [00:59:30] lines up with what you were the least comfortable with, hopefully. But I won’t hold my breath. All right, we’ll go ahead and close that poll down, because I know we’re at time.
Yay. All right, Section 7, unlawful harassment. Section 7 wins. Great, because that was the thing most people were most uncomfortable with, so fantastic. Thank you so much for that. All right, let’s take a look at our Q&A.
” [01:00:00] Can employees be contractors for a brief period of time prior to hire?” Technically, yes, but you’d want to make sure they could pass that test. So if your thought is, “I need an employee to do this work, but I want to test them out a little bit first, and not bother putting them on payroll or doing all the complicated employee stuff.” No, making them an independent contractor ahead of time is almost certainly [01:00:30] not going to be a good and legal idea.
However, if they really are doing independent contractor work for you, let’s say they’re designing your new menu, and then you want to hire them on to redesign your whole restaurant, and that’s more like employee work. Then theoretically, those two things could both happen. But don’t make someone an independent contractor just to try them out. We actually get asked that question a lot like, “Somebody worked for one day. Can we [01:01:00] just make them an independent contractor?” And unfortunately not.
Someone asked, “Is weekly flex hours considered the same as being exempt?” No, definitely not. You can have flex hours or flexibility without being exempt. That’s not a criteria of being exempt. It’s not proof of being exempt. So if you’re treating someone like they’re exempt just because you let them have a flexible schedule, you should definitely [01:01:30] reconsider that, because that’s not really part of the equation at all.
“We have employees that work outside the office. How can we prove they’re taking breaks?” That’s a great question. And it’s tough. The answer is really annoying, which is to have them log their breaks in your timekeeping system precisely. And not just check a box. It’s like, “I took the break,” but actually log the break. I mean, that is the safest way to [01:02:00] do it. And then you’ve got a record of it.
Next safest, have them check a box that says, “I took my break today. I took my morning break, I took my afternoon break.” But get a recording of it somehow. And the best way is to have a very precise recording. But if you can gauge your own level of risk tolerance on that one, because I know it can be a real pain, including for the employee to have to log every single break down to the minute. All right, let me see if I can find one more question [01:02:30] in here. All right, hold on. I got one more here.
“Can you outsource administrative duties overseas?” Sort of a broad question not really covered here, but yeah. Yeah, that’s certainly legal. We see a lot of people doing that now. All right, I’ll take one more.
” [01:03:00] What if an employee chooses to work through their breaks and not take them so they can leave early, like working nine to five with no breaks?” If you’re in a state that doesn’t require breaks, that’s fine. If you are in a state that requires breaks, that becomes very sketchy. And you’ll want to look at state law, because some states are very intense, I’ll say California, about when employees take their breaks. And it’s basically unacceptable to let them just skip the breaks or theoretically [01:03:30] tack them onto, “The first 20 minutes of my day is a break in the last 20 minutes of my day is my break.” That’s stuff is not going to work for a lot of states, so you’ll want to check with stay law on that one.
All right, thanks everybody for attending today. I appreciate you hanging in there for the Q&A. We will hopefully see you at a future webinar. And just a reminder, we will send you a PDF of the slides as well as a recording of the webinar, within about a day. Have a great rest of the week.