Employment Laws


         The employment of personnel in the United States is governed by a complex network of both Federal and State laws.  A brief overview of the labor laws is given below:

 Hiring and Firing

         Most states have "at will" employment of workers.  This means that an employee may be hired or discharged at will, without the employee having any vested right to continued employment.  In conjunction with this general law, most states in the United States also allow any employer to hire any person they wish and are not limited by any contract prohibiting such employment, which would be "in restraint of trade." It should be noted that the "at will" status of an employee can be altered easily by the employer creating policies and procedures regarding the hiring and firing of employees, or through any written document that can be interpreted to be an agreement to the contrary.

         However, an employer cannot refuse to hire or discharge an employee by reason of his race, color, religion, sex, or national origin.

         Further, there is specific legislation that makes it unlawful for an employer to refuse employment or to discharge a person because of his age.  A person seeking protection under this legislation must be at least 40 years-old. 


         There is legislation that prohibits an employer in discriminating in hiring, advancement, or discharge of an individual with a disability, by reason of such person’s disability.  As part of the employer’s obligations under this legislation, the employer is to make “reasonable accommodations” to the known physical or mental limitations of the individual unless the accommodation would impose undue hardship on the employer. 

         Employers are also prohibited from employing “oppressive child labor.”  Oppressive child labor constitutes employment of minors under the age of 16 in an occupation that is hazardous to children. 

         Finally, affirmative obligation is imposed upon employers to verify that their employees, who are aliens, are legally authorized to work in the United States.

         A broad overview of the laws impacting the hiring and termination of employees is summarized below:

a.  Compliance with Non-Discrimination Requirements:  The Company should have appropriate policies and procedures to ensure that it does not expose itself to charges of discriminatory hiring practices. A U.S. employer may not discriminate in hiring, pay, promotion or termination of employment on the basis of age, gender, race or ethnicity, sexual orientation, medical condition, marital status or religious background. Employment applications may not make inquiry into any of the prohibited subject areas and the employer may likewise not inquire into these areas during the pre-employment interview. Use of a carefully worded employment applications and compliance with appropriate procedures will prevent claims of discrimination in the hiring process. It is to be noted that discrimination is an area with high incidence of litigation and potential financial exposure by way of jury verdicts.

b.  Pre-employment Screening:  Employer should also exercise great care in conducting background checks and investigations. The Fair Credit Reporting Act applies to employment related decisions if the employer bases the employment decision on a consumer report  obtained from consumer reporting agency. The employer should be very careful if it chooses to avail itself of these types of services in making employment decisions. If a consumer report or consumer investigative report is to be used in the application process, the job applicant must be notified in writing and a waiver regarding the use of such a report should be obtained from the applicant. Pre-employment testing may be used where it relates to the personal suitability of the applicant for the specific job. For example, it is entirely appropriate to ask an applicant for a secretarial position to take a typing test. Pre-employment medical examinations may be given only when the position has been offered, and may only be given to all employees entering specific job classification. As a general rule, we recommend against the use of drug testing or psychological tests as a part of the screening process.   

         In this context, an important statue to take into account is the Americans with Disabilities Act of 1990 (ADA). This prohibits discrimination against any “qualified individual with a disability” in all aspects of his employment, including the hiring or discharging of such worker. This statute is applicable to any employer who employs 15 or more workers during 20 weeks of any calendar year. Under this statute, an employer cannot refuse a position to a “qualified worker” for a physical or mental disability, if the employer can “reasonably accommodate” the applicant’s disability. Such accommodation may include modifying facilities, restructuring work schedules, or transferring workers to vacant positions. However, an employer is not required to accommodate a disabled worker if doing so would impose “undue hardship” upon the employer. This area is seeing an increase in outburst of litigation and judicial interpretation of the scope of this legislation. As such, the employer is advised to exercise caution in the hiring or rejection of persons with disabilities.

c. Pre-employment Commitments: The company needs to be careful during the pre-employment process to ensure that it does not make representations or commitments to the applicant that would changes the nature of the "at will" employment relationship that exists for example, in California between an employee and his employer [1]. When hiring the company should not make statements such as "your job is guaranteed" or "there will always be a place for you." Likewise, we do not recommend the use of written employment offers unless legal counsel reviews such offers. A poorly worded employment offer may be construed as an agreement of employment, which would obligate the employer to hire the applicant and would limit the company's ability to terminate the employee. Once the employee can establish that a commitment was made to him, damages would flow from any termination of employment without proper cause.

d.  Termination of Employment:  Notwithstanding the general concept of employment “at will,” great care must be exercised when terminating employees. To the extent that the company has adopted policies and procedures for its employees to follow, it cannot terminate employees if such employees have followed the company’s policies and procedures. The key to being able to terminate an employee without fear of liability is careful written documentation of the employee’s performance. Employees that are performing poorly need to be told so and such employment actions should be documented in the employee’s personnel file. Generally, first time infractions can be dealt with an “oral” warning given to the employee, which may or may not be noted in the file depending on the nature and severity of the disciplinary problem. Subsequent violations should be memorialized in the form of a “written” warning, which is given to the employee, and he is asked to sign the written warning to acknowledge receipt of the written warning. An employee can be placed on “probation” which provides an employee a period of time (usually 60 to 90) days in which to improve his performance or face further disciplinary action. The termination itself should likewise be properly documented. In our personnel procedures, we provide for a 90-day probationary period at the beginning of employment with the company. During this probationary period the employee can be terminated for any cause. This allows the employer to have a “free look” to determine if the employee should be permanently retained.

Wages and Related Benefits

         Federal legislation mandates certain minimum wage for employees. State laws may impose a higher minimum wage limit, but cannot lower it below the Federal minimum wage. Further, Federal laws require that employees be paid equal wages for equal work in skill, regardless of the sex of the employee. Discrimination between employees, based upon their sex, is prohibited by the law.

         While having a retirement plan is voluntary, it is customary for businesses to offer these as part of their benefit packages, to compete with other employers for the best employees from the labor pool.

         Employers are placed under certain obligations to disclose a range of information to their employees, whether the employees have been provided with certain benefit plans, minimum standards for vesting and participation in such employee benefit plans.

           The laws governing the conditions of employment are stated below:

a.  Wage Hour Laws:  The company must comply with the federal and state wage hour laws.  The most widely applicable federal wage hour legislation is the Fair Labor Standards Act of 1938, as amended (FLSA), which requires payment of a minimum wage, payment of overtime pay, and restricts child labor. The FLSA also prohibits sex-based discrimination in employment. In California, the Industrial Welfare Commission (IWC) is responsible for determining wages, hours and working conditions in various occupations and industries, investigating comfort, health, safety, and welfare of employees and fixing minimum wages, maximum hours worked, and standards and conditions of labor. Under current Federal law, the minimum wage that the employer must pay is $7.25 per hour, while California has a minimum wage of $8.00 per hour an employee must be paid overtime at the rate of 1.5 times the hourly wage for hours worked in excess of 8 hours per day or 40 hours per week, as well as with respect to any time worked on and after the seventh day of continuous work. The FLSA exempts from the overtime rule any employee employed in a bona fide executive, administrative or professional capacity or as an outside consultant. This is known as the “white-collar” exemptions. Computer systems analysts, computer programmers, applications programmers and systems analysts, software engineers, software specialist and other similarly skilled workers in the computer software field are eligible for exemption as professionals.

         Under the FLSA and California law, employees must be given a paid 10 minute rest period for every four hours worked which is to be spaced as evenly as practical during each four hour period. Employees must also be given a reasonable meal period (typically not less than 30 minutes) which can be unpaid if the employees are relieved of their duties during the meal period.

b. Vacation and Sick Leave: The employer is not obligated to provide for paid vacation, but once it agrees to do so, it may not take away vacation pay that has been earned. Upon  termination of employment, all vested and unpaid vacation must be paid to the employee. Like vacation, sick leave is available only if provided by the employer, as the law does not mandate it. Sick leave that is available only when the employee is sick does not have to be paid upon termination of employment since it is contingent on the employee being sick. If sick leave is provided, the employer must allow employees to use a portion of their sick leave to attend to an ill child or stepchild.

c. Holidays: The federal and state legislatures have declared certain days as "holidays." Private employers are not required to give employees these holidays (with or without pay). However, most private employers observe some of the federal and state holidays.[2] Time worked during holidays does not have to be paid at the overtime rate, unless such action constitudes overtime pay for the employees.

d. Leaves of Absence:  The rules regarding leaves of absence for health reasons are highly complicated. Employers that hire five or more employees must provide each female employee an unpaid leave of absence of up to four months whenever she becomes disabled by pregnancy, childbirth or a related medical condition. Four months is the maximum leave required and a woman who is physically capable of returning to work before the expiration of the four months is not entitled to take the entire four months leave of absence. Since pregnancy is viewed as a disability, employers are required to provide the same benefits for pregnant workers as they provide for other workers who have a similar inability to work. Disability due to pregnancy will make the employee eligible for leave under the federal Family and Medical Leave Act (FMLA) so long as the disability qualifies as a "serious health condition" as defined in the FMLA. The FMLA requires employers to permit each eligible employee to take up 12 weeks of leave during a defined twelve-month period for certain specified purposes: (i) to care for the employee’s newborn child; (ii) to care for a child placed with the employee for adoption or foster care; (iii) to care for the employee’s spouse, child or parents who has a serious health condition; or (iv) if the employee’s own serious health condition makes the employee unable to perform the essential function of his position.

e. Sexual Harassment:  Both federal and state laws consider sexual harassment as a form of sex discrimination. Sexual harassment is defined as unwelcome advances or other verbal or physical contact of a sexual nature if  (i) submission is a condition of employment; of (ii) submission affects employment decisions; or (iii) the purpose or effect is to a interfere with the employee's work performance; or (iv) it creates an intimidating, hostile or offensive work environment. The U.S. Supreme Court has ruled that under Title VII, an employer is strictly liable for sexual harassment commited by supervisory personnel, even if the employer did not know or have reason to know at the time the harassment was occurring and was not negligent in preventing its occurrence. Under California law, an employer is liable for harassment perpetrated by an agent or supervisor. An employer’s failure to conduct proper investigation of a sexual harassment complaint can itself be the source of liability. We recommend that the employer adopt a policy prohibiting sexual harassment, which provides a mechanism for reporting sexual harassment, investigating complaints of sexual harassment and taking appropriate actions following such investigation. The nature of the action to be taken by the employer will depend on the severity of the sexual harassment and the findings of the employer’s investigation. The employer should not take disciplinary action against the person bringing the complaint, and should also not sanction the person who is alleged to have committed to harassment until the employer has conducted a proper investigation. As part of the investigation the employer should discuss the matter with the alleged perpetrator and ask him or her to cease taking any further action, which could be interpreted as sexual harassment. This is an important aspect of employment related laws where the employer is strongly advised to have a written policy and procedures in place.

e. Workers Compensation Insurance Coverage:  Most state laws mandate that an employer maintain appropriate workers compensation insurance coverage. Failure to do so exposes the employer to civil lawsuits from an injured worker, with a presumption of negligence of the employer for causing the injury, and also possible criminal prosecution.

f.  Posting of Notices:  California and Federal laws require that employers conspicuously post certain employment related notices at the workplace or some other place where the employees can readily see them. The notices include the notice specifying the schedule for paydays and the time in place of payment; Wage Orders promulgated by the Industrial Welfare Commission that pertain to the employer’s industry, the California minimum wage poster, the notice as to the company's workers compensation carrier, certain notices under the California Occupational Safety and Health Act, the notice approved by the United States Equal Employment Opportunity Commission setting forth information about bringing complaints for violations of the Civil Rights Act of 1994, Title VII, notices under the Age Discrimination Employment Act, the notices under the California Employment Housing and Fair Employment Act, the notice explaining the requirements of the FMLA and the CFR, and notices as to unemployment and disability insurance. Failure to post these notices can result in civil and/or criminal penalties being assessed against the employer. These notices can be obtained from Chambers of Commerce, workers compensation insurance companies or vendors that sell legal supplies, as well as from state agencies.

g.  Privacy Issues:  The California state constitution provides all persons the right to privacy. However, this right is not absolute and intrusions to privacy will be allowed if justified by competing interests. We recommend that the employer in the U.S. adopt a policy for dealing with privacy issues, particularly as regards employee information stored on company computers. This policy would advise employees that the Company retains the right to review information stored on company computers or in company property such as offices desks or lockers.

h.  Code of Conduct:  It is recommend that the company adopt a code of conduct for its employees, which will provide guidelines for employees to follow in adhering to company policies and legal requirements. The code of conduct will provide useful tool for disciplining employees that fail to follow company policies. For example serious violations of the code of conduct such as harassing a fellow employee can be grounds for termination of employment. The code of conduct would address such issues as preventing conflicts of interests, proper business practices, and policies on transparency of purchasing transactions, confidentiality of information and trade secrets and political contributions.

i.  Other Requirements.  Under California law, all employers are required to have the following additional items:

(1)    A written Injury and Illness Prevention Program.  Under this program, employers must adopt and post a written Code of Safe Practices.

(2)    An emergency action plan. The employer must train employees as to what to do in the event of an emergency, and it is recommended that the employer post at least a summary of the plan. The plan must be kept at the workplace and be available for review by employees.

(3)    A fire protection plan. The employer must train employees on how to prevent fires and what to do in the event of a fire. The posting of at least the location of exits and fire extinguishers is required. The plan must be kept in the workplace and be available for review by all employees.

(4)    California Labor Code section 6404.5 prohibits smoking in most enclosed workplaces.  Employers that post “No smoking” signs will not be in violation of the statute if the workplace is open to non-employees.

Health and Safety

         Though employers are not obliged to provide health insurance, it is an accepted practice for most businesses to do so.  Such health insurance is further supplemented by Federal legislation in a variety of ways: thus employees are provided with twelve work weeks of leave during a 12-month period for the following purposes: Birth or adoption of a child, care of a newborn, care of a spouse, child, or parent with a serious health problem, and for the employee’s own health in relationship to a serious health condition that makes him unable to perform the functions of his position.  This law applies to all employers with 50 or more employees. 

         Additionally, new employers will not be allowed to bar coverage for a new employee's medical condition if the employee was covered for that conditiion for more than 12 months at a prior employment, where such employee lost health insurance by reason of termination of employment.

         Further, employers with 20 or more employees are required to provide the employees the opportunity to continue coverage under the health insurance plan in the event the health insurance coverage is lost for certain specified reasons it is to be provided for at least 18 months after the initial termination of coverage. This may be extended under certain circumstances, for a period of 36 months.


         Federal and state laws provide for an extensive range of rules and regulations for “occupational safety and health.” These provide safety standards for working conditions, equipment and procedures in the work place.  Failure to follow these rules and regulations can subject the employer to fines and penalties.  Laws of all of the states of the United States also have extensive workers’ compensation laws which make it mandatory for the employer to carry workers compensation insurance coverage. The employer cannot avoid this requirement by entering into a contract to the contrary with the employee.  These provide for medical care and some amount of wage compensation during the period of disability of an employee, when an employee has sustained injury “arising out of employment and in the course of employment.”  Failure to have appropriate workers’ compensation insurance in some states can subject the employer to serious civil liability and some degree of criminal liability as well.  The employee is entitled to benefits under the workers’ compensation laws, regardless of any negligence on the part of the employer, in causation of the employee’s injuries.

Trade Unions

        Federal law gives employees the right to organize themselves into labor unions, and to bargain collectively for the purposes of negotiating the conditions of their employment.An employer may not interfere with these rights or discriminate in the hiring or discharge of employees based on membership in any labor organization.The organization of labor unions is enforced by the National Labor Relations Board (NLRB) which has the authority to investigate and hold hearings to prevent employers from engaging in unfair labor practices.


Generally, employment is presumed to be “at will.” Hence, the employee is free to leave his employment at any time, with or without notice, and the employer is likewise free to discharge the employee at any time, without cause, whether with or without notice. The at will relationship can be changed by express agreement of the parties such as an employment contract or indirectly by actions taken by the employer which suggest that the employer has committed to continue retaining the services of the employee. Once the employee is no longer an employee at will he can be discharged only for cause.

[2] Most employers provide paid time off for at least New Year’s Day, Independence Day (4th of July), Labor Day, Thanksgiving and Christmas.