Employment and employee benefits in United States: overview
A Q&A guide to employment and employee benefits law in the United States.
The Q&A gives a high level overview of the key practical issues including: employment status; background checks; permissions to work; contractual and implied terms of employment; minimum wages; restrictions on working time; illness and injury; rights of parents and carers; data protection; discrimination and harassment; dismissals; redundancies; taxation; employer and parent company liability; employee representation and consultation; consequence of business transfers; intellectual property; restraint of trade agreements and proposals for reform.
To compare answers across multiple jurisdictions, visit the Employment and Employee Benefits: Country Q&A tool.
The Q&A is part of the global guide to employment and employee benefits law. For a full list of jurisdictional Q&As visit www.practicallaw.com/employment-guide.
Scope of employment regulation
Foreign nationals working in your jurisdiction?
Nationals of your jurisdiction working abroad?
Laws applicable to foreign nationals
All the main US employment laws apply to foreign employers doing business in the US, including:
Title VII of the Civil Rights Act 1964 (Title VII) (see Question 17).
Americans with Disabilities Act 1990 (ADA) (see Question 17).
Equal Pay Act 1963 (EPA) (see Question 17).
Genetic Information Non-discrimination Act 2008 (GINA) (see Question 17).
National Labor Relations Act (NLRA), as amended by the Labor Management Relations Act 1947 (see Question 7).
Occupational Safety and Health Act 1970 (OSHA) (see Question 27).
Sarbanes-Oxley Act 2002 (SOX) (see Question 18).
Worker Adjustment and Retraining Notification Act 1988 (WARN) (see Question 21).
Older Workers Benefit Protection Act 1990 (OWBPA).
Civil Rights Act 1866.
Immigration and Nationality Act 1952.
Immigration Reform and Control Act 1986.
Laws applicable to nationals working abroad
Certain federal employment discrimination statutes (including Title VII, the ADA and the ADEA) allow employees to sue extraterritorially for employment discrimination of US citizens employed abroad by US or US-controlled entities. In addition, certain other federal laws, such as the Foreign Corrupt Practices Act, can be the source of exposure and liability for US companies based on actions of employees that occur abroad.
In some circumstances a US employer can claim a "foreign laws defence", which may prohibit the application of the US statutes where conduct violating these provisions is mandated by the law of the foreign jurisdiction in which the US employer operates.
Other US employment laws normally do not apply to US nationals working abroad (for example, the Fair Labor Standards Act (FSLA)).
Categories of worker
"Employees" are entitled to the protections of all employment law statutes, including those relating to union representation, health and safety standards governing employer operations, minimum wage and overtime requirements, and protections against unlawful discrimination. "Independent contractors", if properly classified as such, typically are excluded from all of these statutory protections at the federal and state levels. "Misclassification cases", in which government agencies or workers (individually, or collectively) challenge classification of workers as something other than "employees" of the recipient of services, are increasingly common, under both employment and tax statutes, and those issues are a matter of increasing scrutiny. In fact, in the summer of 2015, the US Department of Labor issued guidance suggesting that most workers are employees as opposed to independent contractors under the FLSA. Employers increasingly rely on workers provided by staffing agencies of various types, which often operate as the "employers" of assigned workers. Depending on the structure of arrangements, this can be a viable option. However, those services are increasingly the subject of state regulation, and the implementation of these arrangements may bring challenges of "joint employer" status, as to recipients, where there are shared elements of "control".
Entitlement to statutory employment rights
Since employment laws and regulations generally are limited in scope to those judged to be employees under applicable tests and standards, they are the only workers entitled to such protections. For example, those correctly classified as independent contractors may not sue their employer under employment discrimination laws, alleging that they have been the subject of unlawful workplace bias or harassment.
While isolated provisions point to periods, such as one year, as being determinative of employee versus contractor status for very limited purposes, in reality, the distinctions between the two categories are not linked to time, but are more dependent on a range of issues, including:
The control exerted by the company over the manner in which work is to be performed.
The alleged employee's opportunity for profit or loss, depending on his or her business skills.
The putative employee's investment in equipment or materials.
Whether the service requires a special skill.
The extent to which the service rendered is an integral part of the employer's business.
Grants or incentives
There are generally no grants or incentives available for employing people. However, federal, state, or local laws can contain measures to respond to specific community needs, for example, programmes, incentives and training for employers that hire and employ people with disabilities.
Federal law requires employers to make various filings for employees, including:
EIN number. Before hiring employees, employers must request an employment identification number (EIN) from the US Internal Revenue Service. The EIN is often referred to as an Employer Tax ID or as Form SS-4. The EIN is necessary for reporting taxes and other documents to the IRS.
Form W-4. Every employee must provide an employer with a signed withholding exemption certificate (Form W-4) on or before the date of employment. The employer must then submit Form W-4 to the IRS.
Form W-2. On an annual basis, employers must report to the federal government wages paid and taxes withheld for each employee. This report is filed using Form W-2 Wage and Tax Statement. Employers must complete a W-2 Form for each employee to whom they pay a salary, wage or other compensation.
Form I-9. All US employers must complete and retain a Form I-9 for each individual they hire for employment in the US. This includes citizens and non-citizens. On the form, the employer must examine the employment eligibility and identity document(s) an employee presents to determine whether the document(s) reasonably appear to be genuine and relate to the individual, and record the document information on the Form I-9. Employers must verify the new employee's identity and authorisation to be employed in the US within three days of employment. Employers have the option to maintain copies of the verification documents. Employers do not file the I-9; it must be retained for three years after the date of hire or one year after the date of the employee's employment termination, whichever is later. The US Immigration and Customs Enforcement (ICE) agency conducts routine workplace audits to ensure that employers are properly completing and retaining I-9 forms, and that employee information on I-9 forms matches government records.
Form 941. Employers who pay wages subject to income tax withholding, Social Security and Medicare taxes must file IRS Form 941, Employer's Quarterly Federal Tax Return. Small businesses with an annual income tax liability of US$1,000 or less can file IRS Form 944, Employer's Annual Federal Tax Return, instead of Form 941.
Form 940. Employers must file an IRS Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, if:
the employer pays wages of US$1,500 or more in any calendar quarter; or
the employer had one or more employees in any 20 or more different weeks of the year.
EEO-1 Report. All private employers who are subject to Title VII of the Civil Rights Act of 1964 with 100 or more employees, and certain federal contractors, must file annual EEO-1 Standard Form 100 Reports containing information regarding the gender, ethnic and racial composition of the employer's workforce. The following are excluded from this requirement:
state and local governments;
primary and secondary school systems;
institutions of higher education;
Indian tribes; and
tax-exempt private membership clubs other than labour organisations.
Most states have additional filing requirements, including for workers' compensation insurance and unemployment insurance.
Criminal records checks, credit checks and even screening through the use of social media accounts have all been the subject of growing regulation at the federal and/or state levels. In fact, states and municipalities increasingly are passing legislation to limit the inquiries employers can make into employees' criminal histories. At the federal level, the Fair Credit Reporting Act has long imposed a mechanism and procedure employers must use when relying on third-parties to conduct background checks, as is done by many employers. Recently, the US Equal Employment Opportunity Commission (EEOC) has placed an emphasis on the discriminatory role that may be played by employer reliance on stale and unrelated criminal conviction records, and the potential discriminatory adverse impact of reliance on arrest records (in circumstances without convictions) have long been part of agency policy, and embraced by a number of courts.
Permission to work
All foreign nationals (except Canadian citizens (see below)) require a visa to work in the US. US immigration law distinguishes between permanent residence (immigrant) visas (also known as a Green Card) and temporary (non-immigrant) visas. Non-immigrant visas are the most commonly applied for visa.
Each visa category has different eligibility requirements and benefits.
Canadian citizens are visa-exempt for most, but not all, non-immigrant visa categories and, therefore, can present themselves at the border with appropriate documentation to request admission under the various temporary visa categories, without first obtaining a visa at a US embassy or consulate.
Procedure for obtaining approval: non-immigrant visas. There are different types of non-immigrant visa available, depending on the requirements of the person seeking the visa.
B-1 (Business Visitor) Visa. This visa does not authorise employment by a US employer but is commonly used by foreign employers to send employees to the US to perform brief assignments (for example, travelling sales people or business meeting attendees).
This visa can also be used for a temporary assignment to a related US entity (for example, for training or business meetings), if it is clear that the assignment is intended to benefit the employee's foreign employer and will not directly benefit a US entity. The employee cannot receive remuneration from a US employer for services provided during a B-1 visit.
E-1 (Treaty Trader) and E-2 (Treaty Investor) Visas. This visa is useful for business owners, managers and employees who must remain in the US for extended periods to oversee or work in an enterprise engaged in trade between the US and a foreign state or that has made a major investment in the US. This visa is only available if a treaty of friendship, commerce and navigation or a bilateral investment treaty providing for non-immigrant entries exists between the US and the foreign state (except with Sweden and Australia, which are covered without a treaty).
A foreign company only qualifies for this visa if a majority of the company is owned by nationals of the treaty jurisdiction. Each employee or principal of the company who seeks E status under the treaty must be a citizen of the treaty jurisdiction.
Spouses of E-1/E-2 foreign nationals are permitted to seek employment authorisation.
H-1B (Specialty Worker) Visas. This visa allows employers to sponsor a foreign national for employment in a specialty or "professional" position. The position must require at least a baccalaureate degree in a specific, relevant field as a minimum requirement to perform the job duties. Jobs requiring only a college degree or degree in business administration and not a specific business specialty generally do not qualify for H-1B status. There is a numerical limitation of 65,000 a year for this visa category (with an additional 20,000 available for those graduating from a Master's degree from a US institution).
Obtaining this visa involves three major steps:
The appropriate prevailing wage must be determined and the foreign national must be paid at least the prevailing wage for the occupation in the area of intended employment.
A Labor Condition Application (LCA) must be filed with the US Department of Labor's Regional Certifying Officer. Under this the employer agrees (and provides supporting documentation to prove) that:
the foreign national will be paid the prevailing or actual wage, whichever is higher;
the foreign national will be granted prevailing terms and conditions of employment so that US employees are not adversely affected by the foreign national's employment;
there is no strike or lock-out affecting the position in question at the time the LCA is filed;
the appropriate union (if any) or those in similar employment have been notified of the employer's intent to fill the position with an H-1B foreign national.
The H-1B petition must be filed with the regional US Citizenship and Immigration Services (USCIS) service centre that has jurisdiction over the employment site. It often takes many months to process a petition so it is expedient to request the premium processing service.
The H-1B visa initially authorises up to three years' stay but can be renewed for up to a maximum of six consecutive years of authorised H-1B employment. This limit is cumulative for all H-1B employers, therefore foreign nationals who work for each of three employers for two years in H-1B status cannot undertake any further H-1B employment until they have left the US for a cumulative period of 365 days. Time spent in L-1 status also counts towards a foreign national's H-1B stay limits.
It is sometimes possible to obtain H-1 status extensions in one- or three-year increments beyond the six-year limit if the foreign national is the beneficiary of a labour certification application or immigrant visa petition, where 365 days or more have passed since the filing of that application (one-year extension) or petition or the immigrant visa petition is approved ((three-year extension).
E-3 visa (Specialty Worker for Australians) Visa. Passed by Congress on 10 May 2005 as part of REAL ID Act, 10,500 allotted per year. No USCIS petition is required; may apply for the visa directly with the Consulate. Requirements are substantially the same as those for the H-1B as the position must require at least a baccalaureate degree in a specific, relevant field as a minimum requirement to perform the job duties. A certified LCA is required to process the application.
H-2B (Temporary Worker) Visas. These permit employment of foreign nationals in temporary or seasonal jobs. The employer must:
Demonstrate that the job itself is temporary in nature.
Undertake an extensive documentation process to obtain certification from the US Department of Labor (DOL) that there are no qualified US employees available to fill the employer's temporary need. This is similar to the labour certification process which applies to most employment-based permanent residence cases.
H-3 (Trainee) Visa. This allows foreign nationals coming to the US to receive training unavailable in their native jurisdiction. The employer providing the training must document the formal training programme, which can include some on-the-job training. The foreign national cannot displace a US employee and the employer must provide assurance that it intends to employ the foreign national at a related facility abroad (existing or prospective) once the training is completed.
L-1 (Intra-company Transferee) Visas. This is one of the most useful options available to multinational companies intending to bring foreign employees to the US. L-1A status is available for managers and executives and L-1B status permits the transfer of foreign employees with specialised knowledge of aspects of the company that is not readily available in the US workforce. L-1A managers and executives are usually eligible for a streamlined permanent residence process. Spouses of L-1 foreign nationals are permitted to apply for employment authorisation.
The foreign national must both:
Have been employed by the foreign entity as a manager, executive or specialised knowledge employee for at least one continuous year during the three years immediately preceding the transfer.
Be coming to fill a managerial, executive or specialised knowledge (though not necessarily the same) position with the related US employer.
This visa authorises up to seven years of employment for executives and managers, and up to five years for specialised knowledge personnel. L-1 status is initially granted for three years but can be extended in two-year increments. If the foreign national is coming to the US to open a new branch or office, L-1 status is only granted for one year but can be extended with proof that the new office or branch is successful.
Treaty NAFTA Visas. The North American Free Trade Agreement (NAFTA) incorporated the immigration provisions of the US-Canada Free Trade Act 1988 and extended some of those immigration benefits to Mexican citizens. There are two principal immigration benefits that resulted from NAFTA's adoption by the US, Canada, and Mexico:
Canadian citizens seeking L-1 status can apply directly at the US border by presenting a completed L-1 petition with supporting documentation. The US employer need not file a petition in advance with the USCIS.
Mexican and Canadian citizens may qualify for a temporary Treaty NAFTA (TN) visa status if they are employed in certain defined occupations (set out in an Annex to NAFTA). Usually at least a baccalaureate degree in the relevant profession is required. For Canadian citizens, TN status can be obtained directly at the US-Canada border, but Mexican citizens seeking TN status must apply for a visa at a consulate and then apply for admission at the US border or seeking a change of status with USCIS if already in the US.
TN visa status may be granted in three-year increments. Extensions are possible through filing a petition with USCIS or by re-applying at the US border.
Cost. The government fees vary depending on the category of the visa. For example, fees are US$325 for the H-1B petition, US$500 for Fraud Prevention and Detection, and a training fee of US$1,500 for petitioners with 25 or more full-time employees or US$750 for employers with fewer than 25 full-time employees (Visa Reform Act 2004). In general, fees for a visa range (depending on the visa) from US$2,500 to US$15,000, including legal and USCIS filing fees.
Time frame. The length of the process varies, depending on the category of the visa, from one to six months, or longer if additional information/documentation is required by the government after initial review. The process can be expedited for some visa categories with an additional filing fee of US$1,225.
Procedure for obtaining approval: immigrant visas. Foreign nationals who intend to reside in the US indefinitely must obtain permanent residence. Foreign nationals can apply for permanent residence on the basis of either:
A family relationship to a US citizen or permanent resident.
Current or prospective employment.
Other foreign nationals may qualify by grant of asylum or admission as a refugee. To promote cultural diversity, the law occasionally allows random lotteries which can result in permanent residence status.
Unlike most non-immigrant visas, which generally have no quotas limiting visa availability, immigrant visas are subject to two kinds of quota systems:
Categorical quota created by the annual allocation of visas to different permanent residence categories.
Per-jurisdiction quota system designed to ensure that foreign nationals from no single jurisdiction consume too many of any category's visas.
Combined, the two quotas make it difficult to immigrate in some categories and foreign nationals can face a delay of years before visas are available in certain categories.
Since permanent residency can take some time, most employers seek temporary status for foreign nationals.
Once the foreign national is in the US working under the non-immigrant visa status, the employer then sponsors the foreign national for permanent residence.
Several categories of employment-based permanent residence require certification by the DOL that no qualified US employees are available to fill the position. Since this process requires positive recruitment efforts (monitored by state and federal agencies) it can be a costly and lengthy procedure. If a qualified US employee surfaces during the recruitment campaign, the employer may have to wait six months, and then re-file the certification application.
The most common employment-based permanent residence categories are:
Priority workers. This category has approximately 40,000 visas annually. Labour certification is not required. There are three groups of foreign nationals who can qualify:
foreign persons of extraordinary ability in arts, sciences, education, business or athletics. This group is generally reserved for Nobel laureates or recipients of internationally recognised prizes and awards. Foreign nationals meeting this high standard need not have a firm offer of employment in the US, but can qualify solely on the basis of their promise to seek employment commensurate with their standing in the profession or field;
outstanding professors and researchers. This allows academic and research institutions to hire the best qualified people regardless of citizenship status. The foreign national must have at least three years' experience in teaching or research and must be able to demonstrate an outstanding reputation in the field. The employer must demonstrate that the position requires the services of an outstanding teacher or researcher and that the foreign national will be filling a tenure or tenure-track position (or an indefinite position in a non-academic research centre);
intra-company transferee managers and executives. This recognises that multinational companies with US operations may need to transfer key executives and managers from foreign entities to related US companies for an indefinite period of time. Therefore, the standard for this category is the same as for the L-1A temporary visa (that is, the foreign national must have been a manager or executive for the foreign employer for at least one year during the three years before admission to the US, and must be filling a managerial or executive position with the related US entity).
Professionals with advanced degrees and foreign nationals of "exceptional ability" in the arts, sciences or business. This category has approximately 40,000 visas annually. Foreign nationals must have a post-baccalaureate degree or exceptional ability in a field relevant to the proposed employment, and possess skills or knowledge necessary to the US employer or that will substantially benefit the US prospectively. Labour certification and a job offer are required but can be waived if the employment of the foreign national serves important "national interests" (which requires considerable evidence). Therefore, this visa is difficult to obtain.
Other professionals and skilled or unskilled employees. This is a catch-all category for other foreign employees seeking permanent residence. No more than 10,000 of the 40,000 visas allocated annually to this category can be taken by unskilled employees. Labour certification and an offer of employment are always required in this category.
Labour certification. This process confirms that although the job offer is fairly offered, no US employees are available and qualified to fill the position for which the foreign national is being sponsored. This process requires a recruitment campaign to test the labour market for the availability of US employees. An exception from labour certification is granted for certain positions, for example, physical therapists and registered nurses, or individuals who have exceptional ability whose employment in the US would greatly benefit the US, because there is either a chronic shortage of US employees or the position itself is not the type for which recruitment would be meaningful.
In March 2005, DOL implemented a new labour certification process, using an electronic filing system called PERM (Program Electronic Review Management) which requires extensive recruitment efforts before filing an electronic application. If no US employee surfaces during these recruitment efforts, the employer files the labour certification application electronically. Applications are reviewed and certified within six to 12 months. The review includes a determination that the minimum requirements are normal for the job and industry in question. Excessive requirements must be justified by business necessity. The application must also include a prevailing wage determination obtained from the US Department of Labor's iCert portal.
Once the application is certified, the employer can file the immigrant visa petition with the USCIS regional service centre. When the petition is approved, the foreign national may apply for adjustment of status or initiate consular visa processing, if there is a visa available for that category based on the preference category and country of birth of the foreign national.
Cost. The costs for a Green Card vary and range from US$6,000 to US$15,000, including legal and USCIS filing fees. The following charges apply to the H-1B Visa:
Form I-129 fee: US$325.
Fraud fee: US$500.
American Competitiveness and Workforce Improvement Act 1998 (ACWIA) fee: US$750 if fewer than 25 employees or US$1,500 if more than 25 employees.
Premium processing fee (if required): US$1,225.
The following fees apply to the L Visa:
Form I-129 fee: US$325.
Fraud fee: US$500.
Premium processing (if required): US$1,225.
The O Visa has a form I-129 fee of US$325, and the fees vary for the E Visa, depending on the consulates used.
Time frame. The process to obtain a Green Card can take from one to many years.
Sanctions. Normally, civil liability can result in prohibition from participation in visa and residence applications. In limited circumstances criminal liability can be imposed.
No permits are required.
Restrictions on managers and directors
The Age Discrimination in Employment Act 1967 (ADEA) prohibits discrimination on the basis of age against employees aged 40 years or older. The Act applies to employers employing 20 or more employees, and to labour organisations, employment agencies, apprenticeship programmes and training programmes. As an exception, highly paid executives may have to retire at 65 if they receive at least US$44,000 in annual retirement income and they either:
Were a bona fide executive.
Held high policy-making positions.
Some state governments have adopted restrictions on age discrimination that are even broader (for example, in New York, employees aged over 18 years are protected from age discrimination).
Title VII of the Civil Rights Act 1964 strictly prohibits nationality restrictions on managers or directors.
Regulation of the employment relationship
Written employment contract
Employers do not have to enter into employment contracts with their employees. In most states, the employment relationship is presumed to be at-will and can be terminated for any reason (other than an unlawful reason), with or without cause or notice, at any time by the employee or the employer (see Question 19). In some states, employees can rebut this presumption if they can demonstrate there is an express or implied contract to the contrary. Therefore, many employers require their employees to acknowledge, in writing, the at-will nature of the employment relationship. Many executives working at US companies have written employment agreements with their employers, which can alter their status from the typical at-will employment relationship.
Employers can create rights for employees in contracts and through their conduct, for example, that employment is for a fixed term or requires good cause for dismissal. Employers must avoid creating these terms if that is not their intention.
There are no works council requirements in the US. Collective agreements are only reached with labour unions representing a majority of a specific bargaining unit. Currently, approximately 7% of the private sector workforce in the US is represented by a labour union. Collective bargaining agreements (CBAs) are frequently used in:
Construction and maintenance.
Transportation and distribution.
The National Labor Relations Act (NLRA) guarantees employees the right to organise unions and bargain collectively, and empowers an administrative agency (the National Labor Relations Board (NLRB)) to conduct union certification elections and to investigate and prosecute violations of employee rights.
The NLRA requires both employers and unions to bargain in good faith over certain terms and conditions of employment, but does not provide substantive terms for these contracts.
In the private sector, employees not covered by an individual contract or a collective bargaining agreement are considered to be covered by the doctrine of "at-will employment". Related principles in most US jurisdictions bar the successful assertion that the relationship is governed by an "implied contract" containing certain terms and conditions of employment. Many US companies specify in their employee handbooks and workplace policy statements (facts often acknowledged in writing by employees) that they reserve the right to unilaterally alter terms and conditions of employment at any time, with or without prior notice. In those settings, unilateral actions typically are sustained, although in very extreme circumstances modifications may give rise to a "constructive discharge".
Where an employee has an individual contract of employment (relatively rare in the US) that specifies promised terms and conditions of employment, those terms typically cannot be unilaterally altered by the employer without triggering potential liabilities. For employees covered by a collective bargaining agreement, an employer faces more constraints. While restrictions can vary depending on the language of contract provisions, unilateral changes in negotiated terms and conditions of employment may violate the National Labor Relations Act (NLRA), which governs private sector labour relations. These potential modifications can be the subject of negotiations with the union at the time of contract renewal, or during the term of the agreement if the union consents. In other cases, however, unilateral changes can give rise to legal claims and entanglements from a union-represented workforce.
Restrictions on working time
There are no federal restrictions on employees' working hours. However, the Fair Labor Standards Act 1938 (FLSA) generally requires employers to pay non-exempt employees an additional 1.5 times their regular rate for all hours worked that exceed 40 hours a workweek. An employer can contract to pay overtime after fewer hours of work. Neither employees nor employees' union representatives can waive overtime pay due under the FLSA. Many states have additional requirements, for example, that non-exempt employees take meal and rest periods.
Rest breaks are not mandated by US federal law. However, a number of states have promulgated rest break requirements that are linked to the length of the work shift. Some states, such as California, also mandate specific meal break periods.
There are no specific regulations applying to shift workers that are mandated by federal law.
Minimum holiday entitlement
Private companies are not required to grant employees any paid holidays or vacation time. The typical amount of vacation, sick leave, or paid time off (PTO) varies from ten to 20 days per year.
In some states, PTO becomes vested as it accrues. If PTO vests and an employee is terminated, employers must pay employees for any PTO they have not taken. In other states, employment policies including forfeiture provisions relating to holiday entitlements are allowed.
In addition to other PTO, many private employers provide PTO for the 11 federal holidays. Many states have their own additional public holidays that private sector employers may recognise.
Illness and injury of employees
Entitlement to time off
Employees have the right to time away from work in the case of work-related injuries or illnesses, under the workers' compensation system. Workers' compensation laws generally provide for indemnity payments for missed compensation, medical treatment for the covered condition and, in some states, certain job protections. However, these laws and protections vary by state, and the scope of protection differs from one jurisdiction to another.
Apart from work-related injuries and illnesses, employees also may be eligible for 12 weeks of unpaid leave during a 12-month period under the Family and Medical Leave Act of 1993 (FMLA) (and comparable state laws) if they cannot work due to a serious health condition, which is defined by the Act. To qualify for unpaid FMLA leave, the employee must have worked:
For the employer for at least 12 months, including non-consecutive months completed within the last seven years (updated section 825.110(b)).
At least 1,250 hours in the 12 months before the first day of leave.
In addition, the employer must be either:
A private sector business that employs 50 or more employees within a 75-mile radius of the worksite.
A public agency, regardless of the number of employees employed.
The National Defense Authorization Act 2008 (NDAA), signed on 28 January 2008, amended the FMLA, by creating two new qualifying events eligible for unpaid leave, which were expanded by the National Defense Authorization Act 2010, signed on 28 October 2009:
Leave during family member's active duty. Employees who have a spouse, parent or child who is on, or has been called to, active duty in the armed forces can take up to 12 weeks of FMLA leave yearly when they experience a "qualifying exigency".
Injured service member family leave. Employees who are the spouse, parent, child or next of kin of a service member or veteran who incurred or aggravated a serious injury or illness on active duty in the armed forces can take up to 26 weeks of leave to care for the injured service member in a 12-month period (combined with regular FMLA leave).
If eligible employees take FMLA leave, the employer must maintain coverage under any group health plan for the duration of the leave, at the level and under the conditions that would have been provided had leave not been taken.
Employers are generally not required to pay employees if they take time off for illness or injury. However, eligible employees can elect, or an employer may require them, to substitute any accrued paid vacation leave, personal leave or family leave for any part of the 12 work-week period of leave due to the birth or placement of a child, or to care for employees' children, spouses or parents with a serious health condition. Employers can also require employees to comply with all of their normal paid time-off policies and procedures applicable to the type of paid leave being used in conjunction with FMLA leave.
Entitlement to paid time off
There is no mandated quantity of paid sick leave under the FMLA or other federal laws. Increasingly states and municipalities independently impose these requirements.
In addition, Executive Order 13706 requires that certain federal contractors provide employees with up to seven days of paid sick leave per year. This executive order applies to contracts entered into after 1 January 2017 that are:
Procurement contracts for services or construction.
Contracts for services covered by the Service Contract Act.
Contracts for concessions, including any concessions contracts excluded by Department of Labor regulations at 29 CFR 4.133(b).
Contracts in connection with federal property or lands and related to offering services for federal employees, their dependents, or the general public.
As noted above, under state workers' compensation laws, employees may be entitled to compensation during periods in which they are unable to work as a result of a work-related injury or illness. Employers are generally required by law to have workers' compensation insurance, even if they only have one employee.
Recovery of sick pay from the state
A small number of states (for example, New York and New Jersey) have state-administered insurance programmes that provide compensation in the event of serious disability. The federal Social Security Administration has a disability benefits programme that applies nationally. However, standards for qualification are demanding, and there is no protection for illnesses that do not constitute a serious disability.
Statutory rights of parents and carers
Parents (including maternity, paternity, surrogacy, adoption and parental rights, where applicable)?
Carers (including those of disabled children and adult dependants)?
The Family and Medical Leave Act (FMLA) is the principal federal statute that provides job-protected leave for new parents, and for those providing care to specified categories of relatives with "serious health conditions" and certain circumstances related to protected military service. Many states have similar statutes that extend protection to small workforces or cover other circumstances.
The FMLA grants up to 12 weeks of unpaid leave to employees who give birth to, adopt or foster a child (see also Question 12). Employees who are temporarily and medically disabled by pregnancy, childbirth or related medical conditions must be treated the same as those temporarily and medically disabled by other non-work-related conditions or injuries (Pregnancy Discrimination Act of 1978, amending Title VII) (PDA). Some states have enacted statutes protecting pregnant women more than employees with other temporary medical disabilities. Employees on FMLA leave are protected against termination or discharge and can return to the same position or job they had before taking leave.
Fathers are entitled to FMLA leave to care for a newborn child, a newly adopted or fostered child (see above, Maternity rights). Fathers and mothers are entitled to the same period of protected leave (12 weeks) unless both parents work for the same employer, in which case this childcare related leave must be split between the two employees.
Employees who give birth are entitled to leave and employment protection if they meet the eligibility requirements of the FMLA. This is likely to be the case even where the employee is acting as a surrogate for others. However, the parental leave provided by that statute may not be available if the child does not remain with the birth mother. The protections provided by the FMLA are fully available to parents of natural born children, and those who adopt a child, and would probably extend to both parents who have their new child through a surrogate arrangement.
The FMLA grants entitlement to leave to care for a child placed with the employee through adoption (section 102, FMLA).
Employees can take FMLA leave to care for their child (or indeed spouse or parent) with a serious health condition (see Question 12).
Eligible employees are entitled to FMLA leave if close family members are suffering from serious health conditions. Statutes prohibiting discrimination may cover caregivers. In 2007, the Equal Employment Opportunity Commission (EEOC) published guidance on the treatment of employees with care-giving responsibilities, including those caring for children, the elderly and the disabled.
Continuous periods of employment
Statutory rights created
Other than wages and salaries, employers attract and retain qualified personnel using employee benefits. Most employers voluntarily provide a variety of benefit packages that often include medical and/or dental insurance.
The Employee Retirement Income Security Act of 1974 (ERISA) regulates employee benefit plans and the employers and unions involved in establishing and maintaining these plans. The term employee benefit plan includes both welfare and pension plans established or maintained by an employer, a labour organisation representing employees, or by both.
Consequences of a transfer of employee
Generally, employees who begin working for another employer have no seniority rights and do not retain any period of continuous employment.
While the effects of a corporate merger or acquisition, and an asset transaction, have the same result (a transfer of ownership) and generally affect the employees in the same way, they can present different employment law issues in certain situations.
Collective bargaining agreements (CBAs) generally include requirements and conditions relating to the sale of the business and the transfer of the employees to a new employer. Generally, if an employer takes on employees with such an agreement, it does not have to abide by their previous agreement, but can negotiate a new one with the employees' union. Employers should be aware of some special concerns that exist in the unionised environment.
Some local laws, but not federal law, require a new employer in a limited number of industries to retain some or all of the employees being transferred.
Fixed term, part-time and agency workers
Both the Employee Retirement Income Security Act 1974 (ERISA) and the Internal Revenue Code (IRC) permit employers to exclude independent contractors, temporary employees, and part-time employees from participation in employee benefit plans. Employers need not provide any particular benefits and can provide benefits for some employees but not others. However, a plan subject to ERISA's minimum participation standards (that is, a pension plan) cannot impose distinctions on age or length of service that are more restrictive than the minimum age and service provisions of section 202 of ERISA. The plan must explicitly state if an employer intends to benefit some employees and not others. If an employer "misclassifies" workers who qualify as their "employees" under different tax or employment laws, recipient entities may face liabilities relating to their work.
With few exceptions created by local laws, there are few regulations of the terms and conditions of agency-supplied workers, or which link their pay, benefits or job rights to the recipient organisation or its employees. The initial question will be whether the agency workers are employees or independent contractors, which will depend on a number of factors.
Agency-supplied workers are typically viewed as employees of the supplying organisation (which bears regular employer responsibilities and exposures), unless a recipient entity exercises sufficient control to qualify as a "joint employer". Where workers are employees of the supplying agency, contractual arrangements will typically permit their services to be supplied to another entity within a recipient corporate organisation. The National Labor Relations Board (NLRB) recently issued a decision that dramatically changed the legal definition of "joint employer". The NLRB now considers "indirect control" to be the main factor in determining whether a joint employer relationship existed under the National Labor Relations Act (NLRA).
Part-time workers are subject to requirements relating to minimum wage and overtime requirements. If their tenure or hours are limited, they may fall outside the protection of certain statutes, such as the Family and Medical Leave Act (FMLA).
Part-time workers employed by one entity within a single corporation or by a corporate affiliate can generally be seconded or assigned to a sister entity. These arrangements may undercut arguments that the entities constitute together a single employer, and that they should both be responsible for compliance with employment law obligations.
Employees' data protection rights
Employees may have a claim for tortious invasion of privacy. Employers are often able to defeat electronic privacy claims if they adopt and effectively communicate policies that minimise or eliminate expectations of privacy.
Employers' data protection obligations
The Electronic Communications Privacy Act of 1986 (ECPA) amended the Federal Wiretap Act (originally enacted in 1968) to extend its protections to electronic communications. The ECPA comprises:
The Federal Wiretap Act which addresses communications in transit.
The Stored Communications Act of 1986 which prohibits employers from intentional and unauthorised access to stored communications.
Discrimination and harassment
Protection from discrimination
Employers must treat employees fairly and equally at all stages of their employment. The main federal laws on discrimination are:
Title VII of the Civil Rights Act 1964 (Title VII) (as amended). This applies to private and public employers with 15 or more employees, and discrimination against an individual on the basis of race, colour, sex, national origin, religion or pregnancy.
The Americans with Disabilities Act 1990 (ADA) (as amended). This prohibits public and private employers from discriminating against persons with physical or mental disabilities, which can include intellectual impairments.
The Age Discrimination in Employment Act 1967 (ADEA). This prohibits discrimination on the basis of age against employees aged 40 or older.
The Equal Pay Act 1963 (EPA). This is part of the Fair Labor and Standards Act 1938 (FLSA) and provides for equal pay for equal work performed by both sexes working in the same establishment.
The Genetic Information Non-discrimination Act 2008 (GINA). This prohibits employers from discriminating against employees on the basis of genetic information.
To demonstrate discrimination, an individual must establish a connection between the adverse employment action and a protected category, such as race, age, or sex. A connection can be established by identifying:
Disparate treatment. An employee is treated differently because of an illegal criterion.
Adverse or disparate impact. An employment practice that appears neutral is discriminatory in operation.
Retaliation. The ADA, the ADEA, GINA and Title VII prohibit employers from retaliating against employees for filing employment discrimination charges or assisting others in filing them, and for opposing unlawful employment practices.
Protection from harassment
All of the anti-discrimination statutes also prohibit harassment of individuals on the basis of their protected status (see above, Protection from discrimination).
There are two types of harassment claims:
Economic harassment. This normally involves some type of tangible employment action resulting in a monetary loss for an employee, or significant changes in workload or work assignment. It requires the threat of job detriment or promise of job benefit that results in an undesired employment action. Employers are strictly liable for conduct by managers that constitute economic harassment.
Environmental harassment. This can be based on gender, race, colour, religion, national origin, age, disability or any other characteristic protected by law. Environmental harassment occurs where the conduct is:
related to a protected category;
offensive both to the recipient and to a reasonable person; and
severe or pervasive.
An employer is not liable for environmental harassment by managers if the employer can show both that:
It used reasonable care to prevent and correct harassment.
The employee failed to make a complaint or otherwise avoid harm.
All employees are protected against discrimination and harassment regardless of their length of service.
Most states have whistleblower statutes prohibiting employers from retaliating against employees who report to public bodies on matters of public concern.
Under federal law, a large number of statutes regulating many areas of commercial operations contain whistleblower protections enforced by the Department of Labor. Additionally, the Sarbanes-Oxley Act 2002 (SOX) created a new federal cause of action, protecting employees of publicly traded companies who provide information about actions that they reasonably believe to be a violation of:
Federal securities law.
Rules of the Securities and Exchange Commission (SEC).
Any provision of federal law relating to fraud against shareholders.
The American Recovery and Reinvestment Act 2009 (ARRA) contains new protection for public and private employees who report on:
Gross mismanagement or waste of covered funds.
Public health or safety risks.
Violations of laws or regulations relating to the grant of the funds.
The Dodd-Frank Wall Street Reform and Consumer Protection Act 2010 extends the SOX whistleblower protection provisions to employees of subsidiaries and affiliates of publicly traded companies. This Act also contains whistleblower protections for employees that perform work related to offering a consumer financial product or service.
The statute of limitations for violations of the SOX whistleblower provisions runs 180 days from after the date of the violation or after the employee became aware of the violation.
Under Dodd-Frank, complainants can file their actions within six years from the violation, or within three years after facts material to the right of action are known, or should have been know, by the employee (but in no cases more than ten years after the date of the violation).
Under SOX, employees may be awarded all or some of the following:
Reinstatement with seniority.
Backpay with interest.
Attorneys’ fees and costs.
Dodd-Frank allows for the same award, but provides for the potential award of two-times backpay plus interest. Dodd-Frank also created a whistleblower "bounty" programme, under which whistleblowers may receive, in appropriate circumstances, cash awards of 10% to 30% of sanctions paid by the SEC.
Termination of employment
The employment relationship is generally at-will and employers can lawfully dismiss employees at any time provided it is not for an unlawful reason. Any employment agreements can specify a notice period.
Employers do not have to offer severance payments to employees. However, employers may provide severance payments through an employment contract. Employers are recommended to offer severance payment in exchange for employees' release and waiver of claims.
Procedural requirements for dismissal
There are no procedural requirements to dismiss an employee outside of those set out in the employer's policies or any procedure included in an employment contract or collective agreement. If the employer seeks to obtain a release of potential claims, as a general matter, that agreement must be entered into knowingly and voluntarily by the employees, and for age discrimination claims must satisfy specific rules about the form and process governing these waivers.
Numerous states have laws that require payment of final wages within a certain period of time, for example, on the day of termination.
Protection against dismissal
Some states provide additional protection against dismissal based on a violation of public policy. A small number of states also enforce "implied contracts" including provisions requiring good cause or reason for dismissal.
The laws against discrimination and retaliation provide significant protection to employees who are dismissed in violation of these laws (see Question 17, Protection from discrimination).
Definition of redundancy/layoff
An employer can reorganise its employees if it does not violate anti-discrimination statutes or act in bad faith. Most employers with 100 employees or more must give 60 days' written notice of a plant closure or mass layoff, or if 50 or more employees' contracts are being terminated (Workers' Adjustment and Retraining Notification Act of 1988 (WARN Act)) (see below, Collective redundancies).
In unionised workplaces, an employer can be obliged under the National Labor Relations Act (NLRA) to negotiate with the labour union on the decision to close or relocate operations, the effects of that action, or both.
Only the statutory requirements (under the WARN Act and state or local counterparts) require anything approaching mandatory severance pay, and that is only in the case of deficiencies in providing advance notice. The unemployment compensation system typically provides some levels of compensation for stated periods in the event of layoff or redundancy. However, additional severance payments result from policies voluntarily adopted by employers, or negotiated into individual or collective employment agreements.
Advance notice is required where a termination qualifies under federal law as a plant closure or a mass layoff. Under the WARN Act, employers with 100 or more employees must give 60 days' written advance notice where termination qualifies as either a:
Plant closure that involves the termination of 50 or more employees at a single site or an operating unit of a single site.
Mass layoff at a facility that remains open. A mass layoff is defined as either:
500 terminations at a single site of employment; or
if fewer, 50 or more terminations representing 33% of those working at a single employment site.
The employer must also provide advance notice to:
Unions, if applicable.
Local governmental authorities.
Failure to give advance notice can subject a company to substantial penalties.
Additionally, many states have enacted their own "mini-WARN" laws, which contain separate and distinct requirements. Some states have enacted their own statutes that provide better protection for employees than the WARN Act (for example, New York and New Jersey). In addition, most states require employers that meet certain payroll standards to pay into an unemployment insurance fund. These employers must notify the local state department to enable the unemployment insurance division to determine the company's liability for state unemployment taxes.
Employee representation and consultation
Without a collective bargaining agreement (CBA) providing for management or board representation, employees are not entitled to representation.
Generally, employees are not entitled to consultation about issues that affect them. However, if there is a union in the workplace, the employees' representatives must be involved in any negotiations on issues that affect the employees' employment terms and conditions.
In most parts of the private sector, employees' consent, input and consultation are not required for any major transactions on the employer's part. Unions may have rights to bargain over the decision or effects of the action and a union contract may have specific provisions triggered by transactions.
The US Supreme Court has held that a successor (that is, a new employer that continues the predecessor’s business substantially unchanged and of which the majority of workforce consists of the predecessor’s former employees) inherits the predecessor’s duty to bargain with the union, but not necessarily the seller’s existing CBAs.
Other conditions to the existence of the duty to bargain are that:
The bargaining unit must remain appropriate.
The successor must not have a good faith doubt about the union’s continuing majority support.
The successor may be bound by a predecessor's CBA if either:
It expressly agrees to adopt the CBA.
Under the implied adoption theory, its board determines that it is bound where it has adopted certain substantive terms of the CBA.
A successor does not have to accept the predecessor's employment contracts but may unilaterally impose the initial terms and conditions of employment without discussion with the union (see also Question 24, Harmonisation of employment terms). However, the Supreme Court held that a new employer "must initially consult with the employees' bargaining representative before he fixes [the initial] terms" when "it is perfectly clear that the new employer plans to retain all of the employees in the unit".
There are no official remedies available to employees as they have no management or consultation rights. The only remedy is set out in a collective agreement (if any) and under the National Labor Relations Act (NLRA) if the employer fails to satisfy any applicable bargaining obligation.
Employees are not entitled to independent action such as obtaining an injunction or restraining order to prevent proposals from going ahead. However, employees can use various tactics to voice their concerns, for example, work stoppage and strike.
Consequences of a business transfer
Automatic transfer of employees
There is no federal statute regulating employee transfers. Generally, the at-will relationship means either the new or existing business owner can terminate employment without notice or cause.
Protection against dismissal
Under the at-will relationship, the buyer and seller of the business are generally not required to hire the target company's employees. If there is a collective bargaining agreement (CBA), and the sale affects employees covered by the agreement, the employer may have to bargain with the union in good faith over the effects of the sale on the employees.
Harmonisation of employment terms
In at-will employment relationships, employees do not generally have contractually protected wages and employment benefits. Therefore, a buyer does not generally have to offer the same terms and conditions as the purchased company, unless there is an alternative agreement (see also Question 22, Major transactions).
Before engaging in any corporate transaction, it is important for the buyer to conduct proper due diligence to determine whether affected employees have contractually protected wages or any other employment benefits.
Employer and parent company liability
An employer can be liable for the acts of its employees?
A parent company can be liable for the acts of a subsidiary company's employees?
Under the doctrine of respondeat superior, an employer can be held liable for employees' negligence while acting within the scope of their duties. An employer can also be held liable for employees' acts that are outside the scope of the employment under the causes of action referred to as negligent hiring, supervision, retention and training.
An employer is strictly liable for any sexual harassment by a supervisor that results in an employment action (Title VII of the Civil Rights Act 1964). Managers and supervisors who create hostile work environments or engage in sexual harassment can create liability for the employer.
In addition, supervisors can be held individually liable under several federal laws, for example, Title VII and the FLSA.
Parent company liability
A parent company can sometimes be liable for the acts of a subsidiary company's employees if it has sufficient control over the subsidiary company and their business operations are interrelated.
Employee rights on insolvency
The majority of businesses that file for bankruptcy do so under either Chapter 7 (total liquidation) or Chapter 11 (business reorganisation) of the Bankruptcy Code. In a Chapter 7 bankruptcy, the bankruptcy judge appoints a trustee to liquidate the debtor's assets and pay creditors their pro rata share. The business then ceases to exist. In a Chapter 11 bankruptcy, on the other hand, the business goes through a reorganisation process where the debtor's obligations are extended, reduced or modified so that it can emerge from the bankruptcy in a better position to meet its future obligations.
Depending on the type of bankruptcy filed, the rules regarding employment issues may be different. Furthermore, if the debtor has unionised units, the employer will have additional concerns in the bankruptcy proceeding. In certain instances, the Bankruptcy Code favours employees by placing some employee claims high on the priority list in relation to other creditors. In other ways, the Bankruptcy Code can mean the loss of security through cancellation of contracts and collective bargaining agreements. When an individual or entity files a petition for bankruptcy, the bankruptcy court imposes an automatic stay, halting all debt collection activities from the time of the bankruptcy filing and continuing for the duration of the bankruptcy. Under the Bankruptcy Code, a creditor includes any person who has a claim against the debtor that arose at the time of, or before, the debtor filed its bankruptcy petition. A claimant in a pending employment lawsuit is considered a creditor of the defendant employer and subject to the automatic stay. Once the stay is imposed, all litigation efforts by that claimant must cease, and the claimant will need to file a proof of claim with the bankruptcy court in order to maintain the claim against the employer. The Bankruptcy Code excepts from the automatic stay any action or proceeding by a governmental unit to enforce the government's police and regulatory powers, including the enforcement of a judgment other than a money judgment.
Because it is rarely possible for a debtor in bankruptcy to pay all creditors in full, Congress has prioritised distributions to creditors, including past and present employees. Employee wages and benefits are considered unsecured debt and paid according to the priority schedule set out in the US Code.
A frequent issue with bankrupt employers is whether employees have a right to 60 days' notice of a major layoff or plant closing required by the Worker Adjustment & Retraining Notification Act 1988 (WARN) or damages in lieu of notice resulting from a bankruptcy-related termination. Depending on the timing, WARN-related damages may or may not have administrative priority under the Bankruptcy Code's provisions related to backpay awards.
A company facing insolvency and contemplating bankruptcy restructuring may decide that the reduction of its labour costs is necessary to avoid liquidation. If that company's employees are unionised and have entered a collective bargaining agreement with the company establishing the terms and conditions of employment, the failing company finds itself at a precarious intersection of bankruptcy and labour law.
The Bankruptcy Code provides the sole method by which a debtor can terminate or modify its collective bargaining agreement. It requires a debtor to fulfil its obligations under a collective bargaining agreement unless and until it complies with the procedural and substantive requirements of that section, which sets out a mechanism for a unionised debtor to "reject" its collective bargaining agreements and implement bankruptcy court-approved modifications of those agreements.
State guarantee fund
When an employer declares bankruptcy, whether or not employees' pension benefits are affected is usually determined by whether the bankruptcy is a Chapter 7 liquidation or a Chapter 11 reorganisation. If the company files under Chapter 7, the company is liquidated (that is, assets are sold and the company ceases to exist), and the company's pension and health plans will ultimately be terminated. On the other hand, if the company files under Chapter 11, pension and health benefits will likely continue throughout the reorganisation process, unless the company proves to the bankruptcy court that it is in financial distress and cannot continue its business without terminating the plan. When an employer terminates plans, employee retirement benefits are, for the most part, protected under the Employment Retirement Income Security Act 1974 (ERISA). ERISA, which applies only to private employers, requires that promised pension benefits be adequately funded and that retirement plan assets, whether under a traditional defined-benefit (pension) or a defined-contribution (section 401(k)) plan, be held in trust apart from the employer's corporate assets, or invested in an insurance contract.
Additionally, traditional pension plans (those that pay a defined benefit on retirement) are insured by the Pension Benefit Guaranty Corporation (PBGC), a federal government corporation created under ERISA. If a pension plan is terminated and the debtor employer does not have enough money in the plan to pay the promised benefits, the PBGC steps in to assume the responsibility, up to a certain maximum amount. For 2015, the maximum guaranteed amount for workers retiring at age 65 was US$5,512.50 per month for a straight-life annuity. Although PBGC protects defined-benefit plans, it does not insure defined-contribution plans, such as profit-sharing or section 401(k) plans. These plans are still required under ERISA to be held in trust, away from creditor's claims. However, many of these plans are tied to company stock and subject to severe decline in value when the company encounters financial trouble.
There is no comparable government guarantee fund for wages and/or other benefits.
Health and safety obligations
Employers have a general duty to (Federal Occupational Safety and Health Act of 1970) (OSHA)):
Furnish a place of employment free from recognised hazards that cause, or are likely to cause, death or serious physical harm to employees.
Comply with the occupational safety and health standards under the Act.
Taxation of employment income
Foreign nationals working in your jurisdiction?
Nationals of your jurisdiction working abroad?
Taxation of foreign nationals depends largely on whether they are resident or non-resident. Resident foreign nationals are taxed in the same way as US citizens on their worldwide income, while non-resident foreign nationals are taxed only on their US-source income. When foreign nationals earn employment income from services performed in the US, that income is generally subject to US federal income taxes.
Certain income can be excluded under an income tax treaty between the US and the host jurisdiction.
There is a de minimis exemption if the amount of income earned is less than US$3,000 for work not exceeding 90 days in the US. Income tax treaties can significantly impact what income is subject to federal income tax. For example, many treaties exclude income earned for a period, often 183 days, for employees sent to the US by foreign employers. In addition, certain academics, for example professors, have special rules relating to taxation.
The US also has treaties addressing social security taxes (called "totalization agreements") that allow foreign nationals to continue to pay into their own jurisdictions' system and not the US system under certain conditions.
Nationals working abroad
US citizens working outside the US are generally subject to tax on their worldwide income, including employment income earned abroad. There are two primary exemptions:
Foreign earned income exclusion.
Foreign housing allowance exclusion.
Under the foreign earned income exclusion, US citizens working abroad may exempt up to US$1101,300 in income from their US federal income tax in 2016 (US$100,800 in 2015). The housing exclusion is generally limited to 30% of the foreign earned income exclusion. However, higher amounts may be excluded in certain high-cost locales as determined by the Treasury Department.
If employees have employment income earned abroad exceeding foreign earned income and housing exclusions, this is subject to US federal income taxes. A foreign tax credit can be used to offset US income taxes if foreign income taxes were paid. In certain cases an income tax treaty can impact the amount of income subject to US income tax.
Rate of taxation on employment income
Employees owe personal income taxes on all wages they earn. The federal government taxes employment income at progressive rates between 10% and 39.6% depending on, for example, the amount of income earned and employees' marital status.
Social security contributions
Social security taxes are levied at 6.2% on both employees and employers on the first US$118,500 paid in 2016 (unchanged from 2015). Medicare (a publicly-funded health insurance programme) taxes are levied at 1.45% on both employees and employers. Medicare taxes apply to all wages. With respect to Medicare, there is an additional 0.9% tax on wages over US$200,000 for a single person or US$250,000 for a married person.
Employers pay federal unemployment taxes on the first US$7,000. The tax rate varies from 0.8% to 6% depending on various factors. Every state also levies an unemployment tax that varies in both rate and the amount of the wage base limit.
Generally, there are no restrictions or guidelines on what bonuses employers can award, and the decision to grant them is at the employer's discretion. Some employers contractually agree to provide bonuses. Some states consider bonuses to form part of employees' wages and a failure to pay a bonus can, in these states, be a violation of the law. If a bonus is performance or formula based, rather than a discretionary bonus, then it most likely constitutes a protected wage. Equity awards may be subject to deferred compensation tax rules. Therefore, gain attributable to the award is included in income and subject to tax, even if the award recipient does not receive actual payment, unless certain specific deferral rules are followed (Internal Revenue Code).
Intellectual property (IP)
As a condition of employment, employers can require employees to sign an agreement assigning ownership of all intellectual property rights for anything they create or invent during the course of their employment.
Under the work-for-hire rule, employers typically retain ownership in IP that employees create as part of their work duties and within the scope of employment.
Restraint of trade
Restriction of activities
Employers can restrict employees' activities during employment by requiring employees to sign non-compete agreements, either as a condition of employment or as a condition of receiving bonuses or other forms of benefit.
Post-employment restrictive covenants
An employer's ability to restrict employees' activities post-employment varies from state to state. Most states view non-compete agreements unfavourably and construe them narrowly. Some states, such as California, do not enforce non-compete agreements. Where they are lawful, courts view them as enforceable only when they are narrowly tailored to temporal and geographic scope, and only prohibit activity necessary to protect a legitimate employer interest. Most courts attempt to balance the employer's interest in protecting confidential information and the employee's interest in earning a living.
Presently, no state law requires an employer to pay its former employees remuneration while they are subject to post-employment restrictive covenants. However, in California, where non-competes are generally unenforceable, if an employee is paid post-employment by their employer during a "consulting period", the employer can require non-compete obligations. In Oregon, where statutory amendments only allow non-competes for higher-level employees earning a threshold amount in wages, there is a savings clause allowing employers to enforce non-competes with employees outside the high-level group, if the employer pays at least 50% of the employee's annual gross base salary and commissions at the time of the termination of the employment relationship.
Proposals for reform
In recent years, three measures were enacted to expand discrimination law protections and remedies:
The Americans with Disabilities Act Amendments Act of 2008 reversed several decisions of the Supreme Court that narrowly interpreted the federal disability bias law.
The Genetic Information Non-discrimination Act of 2008, which bars employers from using genetic data regarding their employee for the purposes of making employment decisions.
The Lilly Ledbetter Fair Pay Act of 2009 reversed a Supreme Court decision on the timeliness of challenges to pay discrimination claims based on gender, but also expanded potential liability for discriminatory pay practices linked to other protected characteristics.
The Obama Administration and Democrats in Congress have embraced a broad agenda of further legislative reforms in the employment arena. Because Republicans hold majorities in Congress, legislative initiatives are highly unlikely.
Nonetheless, the Administration has aggressively used its executive power (through regulation, agency leadership, and executive order) to implement certain elements of its agenda. For example:
The National Labor Relations Board has accelerated the timing of union representation elections, which typically works in favour of those seeking organisation.
The US Department of Labor has proposed sweeping changes to the "white collar" exemptions from the minimum wage and overtime under the FLSA that would drastically increase the number of non-exempt employees.
Additionally, the US Department of Labor began in late 2014 a systematic enforcement initiative within the context of FMLA and FLSA violations.
The Occupational Safety and Health Administration is contemplating a number of far-reaching initiatives, including its first overall safety and health programme requirement for general industry.
The Equal Employment Opportunity Commission recently revised its regulations under the amended disabilities statute, and considers a new range of factors (such as arrest records and employment status) in its non-discrimination rules.
Congress and many state governments are debating a number of measures relating to illegal immigration and the eligibility of individuals to lawfully work in the US. Apart from the employment eligibility verification requirements under current law, some of the new measures would impose new obligations on employers (and expose them to additional potential penalties) when screening job applicants and new employees.
Social Security Administration
Description. Contains information regarding disability and Forms W-2 and W-4.
Internal Revenue Service
Description. Contains information regarding the IRC and EINs.
Equal Employment Opportunity Commission
Description. Contains information regarding Title VII of the Civil Rights Act 1964, the Age Discrimination in Employment Act 1967 (ADEA), the Americans with Disabilities Act (ADA) and EEO-1 Reports.
Department of Labor
Description. Contains information regarding the Family and Medical Leave Act 1993 (FMLA), the Fair Labor Standards Act 1938 (FLSA), the Workers' Adjustment and Retraining Notification Act (WARN Act) and the Employment Retirement Income Security Act 1974 (ERISA).
Immigration and Customs Enforcement
Description. Contains information regarding I-9s and immigration issues.
National Labor Relations Board
Description. Contains information regarding the National Labor Relations Act (NLRA) and collective bargaining obligations.
Occupational Health and Safety Administration
Description. Contains information regarding workplace health and safety requirements.
Peter A Susser
Littler Mendelson PC
Areas of practice. Employment and labour law.
- Working with global employers on human resources policies and a broad range of workplace issues.
- Handling the defence of discrimination and harassment claims, traditional labour law matters, a wide variety of occupational safety and health issues and protected leave issues.
- Counsel to several national trade associations on employment law and workplace safety and health matters, including legislative developments in the US Congress.
- Rule-making proceedings before Federal agencies, such as the US Department of Labor.
A Michael Weber
Littler Mendelson PC
Areas of practice. Employment and labour law; litigation.
- Representing and advising clients in various aspects of employment and labour law, including age, sex, race and disability discrimination, and sexual harassment litigation.
- Representing clients in cases involving wrongful termination, breach of contract, employee benefits, wage and hour violations, enforcement and defence of restrictive covenants, arbitrations, and in collective bargaining negotiations.
- Representing employers in court proceedings and before administrative agencies in all aspects of employment and labour law.
Steven J Friedman
Littler Mendelson PC
Areas of practice. Employment benefits and executive compensation.
- Representing clients in various aspects of employee benefits transactions, including consulting on retirement plan design and compliance with law.
- Representing major corporations in restructuring healthcare offerings in response to new Federal law.
- Advising employers on day-to-day employee benefits issues including tax and regulatory issues.