The United States of Complexity
Roger James, a Partner with law firm Taylor Vinters, offers guidance on employment issues to local companies that are planning to establish US operations.
The American employment law landscape differs in many respects from European rules and regulations in this field. Laws also vary from state to state and sometimes even from city to city – plus they change regularly. Companies who plan to employ staff across the Pond should consider expert guidance at an early stage.
I’ve heard that employees are more self-reliant in the US and less dependent on their employer, or the state, for benefits – is that right?In the US, benefits such as medical insurance and pensions are provided almost entirely through private means. The typical arrangement is an employer-sponsored plan, with all or part of the cost of certain benefits, such as medical and retirement, paid for by employees.
There will be changes to this system soon due to President Obama’s widely-publicised efforts to reform the US health care system. Employers will be obliged to take on more responsibility for employees’ health benefits, but the details are yet to be agreed on.Are there regulations on the payment of overtime?Employees who work more than a certain number of hours in a day or a week must be paid overtime for the extra hours, unless they are “exempt employees.” Exempt employees include management, administrative and some other categories.
The exemptions are, however, defined with reference to specific criteria so it is not enough for an employer and employee to simply agree that the employee will work for a stated amount per week, or month. The law may still require the payment of overtime, with significant penalties for failure to comply.
Many states also have laws that regulate how often employees need to be paid. If an employee decides to leave, an employer may be required to pay what is owed (including holiday pay) within a stated period, or face penalties.
In a number of states, these laws also prohibit an employer from reducing an employee’s pay by any amounts the employee owes to the employer without specific employee consent.I know it can be complicated to dismiss an employee in the UK – is that true in the US?
In the US, the issue is simpler as the general rule is that employees are hired on an “at will” basis. This means that the employee can leave employment, or be asked to leave, for any reason - or no reason - at any time. There is generally no required advance notice. There are exceptions to this rule where there has been a written agreement to the contrary, or where an employee handbook creates an exception to this rule.
Most states recognise “public policy” exceptions to the “at will” rule. Among other things, termination for a prohibited discriminatory reason can create liability. In practice, many employers do provide notice of termination, sometimes with severance payments in exchange for a release of all potential claims.So what discrimination laws are in force in the US?The US has a number of laws prohibiting discrimination in employment and this is one of several areas where there are federal and state laws, and, in some cases, local laws in particular cities.
There is a wide variety of “protected” classes, including race, national origin, gender, sexual preference, age and disability. These laws apply to hiring and firing decisions as well as to promotions, discipline and other matters.So would it be simpler not to employ people, but to take them on as contractors?You can agree to establish an independent contractor relationship, so that the individual works as a self-employed consultant, rather than becoming an employee. Be wary when agreeing this, however, as such an agreement is not binding on third parties, including the Internal Revenue Service (IRS). The IRS can re-characterize a relationship, with significant tax consequences, particularly to the employer. There can also be other consequences as an individual may be eligible for the company’s benefit plans on a retroactive basis.Do I have intellectual property rights in my employees’ work?
Under US law, an employer is entitled to certain rights in employee inventions developed on the job. It is, however, recommended that you require employees and contractors to sign invention assignment agreements when beginning employment.
And can I use restrictive covenants in employment contracts for senior employees?It is possible to draw up an agreement containing clauses on non-competition and non-solicitation of customers. However, these agreements are subject to strict requirements that vary from state to state. Generally, they must protect an employer's confidential information, trade secrets or goodwill and be reasonable in scope and in the time length of the restriction. Even then, however, there may be risks that the restrictions will not be enforced. In some states, non-competition agreements are simply void.