EMPLOYMENT LAW

CLASS ONE

THE EMPLOYMENT RELATIONSHIP

Overview

• Traditionally, the West digests have classified employment law under the term “master and servant.”

• The modern sources classify the subject under “employer and employee.”

• Under the “employment at will” concept, an employee can resign at any time or be discharged at any time.

• However, there are many exceptions-e.g., express contracts,

collective bargaining agreements, and civil rights laws.

General Concepts of Agency

1) An agent is a person who has legal authority to act on behalf of the principal and to bind the principal to third persons by contract

2) An agent may act on the basis of express or implied authority

3) Page 3-Kerley text- “Agency by estoppel” is known as “apparent authority- it exists where the principal leads third parties to believe that the agent has authority

4) Where an agent was not authorized to enter into a contract, but the principal accepts the benefits of the deal, the principal is said to have ratified the contract.

COMMON LAW DUTIES OF EMPLOYEE

• Fiduciary – to act with honesty and loyalty• Contractual• Duty of good conduct• Duty to exercise reasonable care in performing duties• Duty to act as authorized• Loyalty• Keep and render accounts • Duty not to compete with employer• Duty not to utilize confidential information

Employees and Independent Contractors- Slide 1

Distinguishing Employees From Independent Contractors 1. The distinction can be critical: examples: a. employment discrimination laws; b. worker’s compensation coverage; c. union membership; d. tax withholding and Social Security; e. health coverage and pensions. 2. A company that designates people as independents when

they are really employees is taking substantial financial risks.

Employees and Independent Contractors-Slide 2

• Right to Control Test- Generally, an independent contractor is hired to achieve a particular result, and chooses the means for achieving the result. With an employment relationship, the employer generally dictates the means as well as the result.

• An independent contractor generally sets his or her own hours, while in an employment relationship, the hours are set by the employer.

• Where a person is paid by the job, rather than by the hour, that supports the claim that there is an independent contractor.

The Employment Relationship

• The more highly skilled the occupation, the greater the likelihood that an independent contractor relationship exists. However, many physicians and lawyers, for example, are employees.

• Employers generally supply all the equipment used on the job. Independent contractors, however, generally provide their own equipment.

• Where a person advertises his services in the community and performs work for more than one company, he is most likely an independent contractor.

Employees and Independent Contractors-Slide 3

Factors used by the Internal Revenue Service in determining employment vs. independent contractor relationship:

1. Employees are given a W-2 form at the end of the year, and taxes and Social Security are withheld. Independent contractors pay their own taxes and Social Security, and are given 1099 statements each year.

2. However, people who receive 1099s could still be deemed to be de facto employees- see the 20-part test, page 9-10.

Employees and Independent Contractors-Slide 4

• Advantages to hiring independent contractors• 1. Company does not have to kick in 7.65% Social Security.• 2. Company does not have to pay for workers’ compensation

or unemployment insurance, and does not have to provide independent contractors with the fringe benefits (health coverage, pensions, vacations, etc.) which are normally provided to employees.

• 3. Employers often can avoid liability for accidents caused by independent contractors (note-there are exceptions, such as certain laws governing safety).

Employees and Independent Contractors-Slide 5

• Risks of designating a person as an independent contractor:• 1. If taxes are not withheld, and IRS later finds that the person

was an employee, there could a heavy fine. • 2. If a person working on the job gets injured, and the

company failed to provide workers’ compensation coverage, the person can sue the company in tort.

• 3. If the negligence of the “independent contractor” causes personal injury, a court might find that the wrongdoer was an employee, and hold the company responsible on the theory of “respondeat superior.”

Employees and Independent Contractors-Slide 6

• In one case, a major insurance company decided to set up an agency in a foreign country, in order to sell policies to American service personnel stationed there. Foreign tax laws called for much lower taxes if the agency operated through independent contractors rather than employees. Accordingly, the company made the agency head an independent contractor rather than an employee. Guess what happened? When the company sought to “fire” the agency head, he claimed that the agency legally belonged to him, and the company was forced to make a substantial settlement.

Employees and Independent Contractors-Slide 7

• Intellectual property issues• 1. When a company retains an independent contractor to

create a work of authorship, copyright ownership is an issue. Unless the work falls into certain categories, or there is an express agreement making the project a “work for hire,” the company will not own the copyright.

• 2. Where an employee is hired to do research and development, the employer will most likely be held to own any patents resulting from any discovery. However, non-R & D employees who use their own time and equipment generally own the resulting patents.

Temporary and Leased Employees

Some companies, instead of hiring workers directly, retain agencies that supply temporary or leased employees.

Temporary employees are usually assigned to short-term projects at the client of the agency.

Leased employees are generally assigned to projects of longer duration, requiring technical expertise.

The agency acts as the employer, and handles all payroll issues, relieving the client of that responsibility.

Numerous paralegals are employed by agencies, even though the physical work location is at a law firm or corporate law department.

Exceptions to Employment at Will-Slide 1

Exceptions to employment at will: 1. Express written contracts. 2. Oral employment contracts up to one year in length-an

alleged oral contract for a longer period is unenforceable under the Statute of Frauds.

3. Implied contracts based on employee handbooks or manuals. In some cases, courts have held that provisions relating, for example, to progressive discipline prevent an employee from being summarily terminated.

4. Some government workers are protected under civil service laws, and teachers have tenure.

Exceptions to Employment At Will-Slide 2

Other exceptions to employment at will:1. Union collective bargaining agreement. Union workers whose

employment is terminated frequently invoke grievance procedures, and in some cases get legal representation by union attorneys.

2. Federal, state and local anti-discrimination laws protect employees from discharges based on such factors as race, sex or religion.

3. A minority of states (approximately 13) hold employers to a duty of good faith and fair dealing.