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U.S. Employment Law for Foreign Companies

U.S. Employment

With a GDP of $20 trillion and a population of 325 million people, the United States is the world’s largest consumer market. Household spending is the highest in the world, accounting for more than a quarter of global household consumption, and free trade agreements with 20 countries provide enhanced access to hundreds of millions of additional consumers. In short, the United States is easily one of the best countries in the world in which to do business.

At the same time, the United States is a complex and highly regulated place. The U.S. Department of Labor (DOL) administers and enforces more than 175 employment-related federal laws in areas such as recruiting, hiring, background checks, compensation and benefits, workplace conduct and termination. Employers in the United States are also governed by an extensive set of state and local laws, which are often more favorable to employees than federal laws.

International business managers will understand that every country – and every jurisdiction – is different. It is also true that local employees are far more conversant with their rights than in previous eras (thanks, Google!), and in many cases far more willing to stand up for those rights. An additional consideration is that employees in the United States tend to be more litigious than their counterparts in most other countries, and courts (and especially juries) in the United States are known to award employees damages far exceeding those typical in most other jurisdictions.

It follows, therefore, that companies looking to establish operations in the United States need to abide by the laws and regulations governing employment, at the federal, state and local levels.

What follows is a brief overview of employment law considerations for foreign companies establishing U.S. operations. Of course we recommend retaining professional counsel to ensure compliance with the federal, state and local laws that are relevant to your specific situation.

The Hiring Process
In hiring employees, companies are required to be transparent about job requirements, and are not permitted to discriminate on the basis of gender, race, age, marital status or religion. In addition, the federal Americans with Disabilities Act (ADA) and similar state statutes prohibit employers from discriminating against candidates with disabilities who are otherwise qualified to do the job, and also require that employers reasonably accommodate the special needs of disabled applicants during the application process. Employment decisions must be made on job-related criteria such as education, years of experience and skills, and hiring managers should be well-trained in lawful (i.e. non-discriminatory) interviewing parameters. Questions such as “Are you married?” or “Are you a Christian?” or “How old are you?” can generate good grounds for expensive civil lawsuits and regulatory actions.

Job descriptions should describe the position being offered, outlining salary and benefits, job requirements and qualifications, and the terms of employment, e.g. “6-month contract” or “full-time position”. Applicants should be informed of any requirements for employment, such as a drug screening, availability to work overtime, training/probation period or physical agility requirements.

Finally, privacy laws govern not only the hiring process but also every aspect of the employment journey, through resignation/termination. And during the hiring process, state and federal laws govern employers’ obligations when conducting background checks either directly or via third-party agencies. These laws require employers obtain consent from candidates/employees and provide certain notices to candidates/employees.

Companies seeking to hire or transfer foreign nationals to work in the United States must apply for visas for those employees, and the continually changing political environment governing U.S. immigrant and non-immigrant work visas means employers often must pursue a variety of strategies to achieve their staffing objectives.

There are a number of non-immigrant visas available to foreign workers, including business travel, trainee and intracompany transfer visas, in addition to specialty occupation visas; and immigrant visas, which though they generally take longer to obtain, can lead to permanent resident status, which can be beneficial to both employer and employee.

Eligibility, requirements, processing times and benefits for accompanying family members vary by visa classification, and perhaps needless to say, companies are advised to assign a high priority to compliance with immigration laws.

Managing Your Workforce
Much of U.S. labor law is designed to protect employees from exploitation, and parameters for wages, working hours, leave, pensions and workplace safety are set out in laws at both the federal and state levels. The law also governs the work environment in ways that may not appear to directly relate to the employer-employee relationship, for example in cases of discrimination or harassment between employees.

Federal and (often more stringent) state laws impose requirements for minimum wage and overtime payments and they also govern how much overtime can be requested of and worked by employees. The laws incorporate exceptions for “white collar” workers, contractors and others, but correct interpretation of the law is vital to avoiding possible regulatory and/or civil liability.

Discrimination and Harassment
Federal law prohibits discrimination against employees and applicants based on an individual’s race, color, religion, sex (including pregnancy), national origin, age (for those aged 40 or older), disability or genetic information. Again, most of the 50 states have anti-discrimination laws that mirror federal law, or go farther in protecting employees, e.g. some jurisdictions have laws barring discrimination on the basis of political affiliation or sexual orientation.

Federal and state laws also protect employees from harassment based on the anti-discrimination categories. Sexual harassment in particular has increased as an issue for companies to monitor as social mores have changed in relation to appropriate (and inappropriate) workplace behavior.

The law protects employees not only from top-down harassment by supervisors, but also from inappropriate behavior by colleagues and even clients, customers and suppliers.

For employers, protection against liability for harassment complaints should begin with a personnel policy that clearly defines and prohibits discrimination and harassment, outlines procedures for making complaints, and authorizes disciplinary action against violators of anti-discrimination and anti-harassment policies.

Leave Policies
The United States is notably ungenerous in its support of federally mandated paid vacation, sick leave and maternity/paternity leave. That said, if paid leave is awarded in some/all of these categories, it may be subject to state or municipal regulation. Thirteen states and Washington, D.C. have enacted laws to require paid sick leave, and cities that require employees provide paid sick include San Francisco, Seattle, Chicago, Philadelphia and New York.

Though the United States does not mandate paid leave in most circumstances, a number of federal and state laws require that employers provide their employees with unpaid leave if they request it. Examples are leaves of absence for pregnancy, childbirth, military service, disability, jury duty, voting and religious observance.

Company personnel policies should clearly articulate employee rights to paid and unpaid leave, and the procedures for requesting leave.

Employee Benefits
The United States requires employers provide employees with federal Medicare benefits (health benefits for retired or active workers aged 65 or older and disabled persons), federal Social Security benefits (pensions for retired workers) and unemployment compensation. Employers and employees split the cost of Medicare and Social Security benefits.

Many U.S. employers also provide some form of pension plan (including 401k plans) and offer medical, dental and vision insurance, life insurance, and disability income plans. Again, the costs for funding most of these plans are generally shared by the employer and employee.

And though the federal Affordable Care Act of 2010 established a federally mandated health care system that does not require that employers offer group health plans to employees, the law does impose penalties on companies that do not offer their employees affordable healthcare coverage.

Workplace Safety
The Occupational Safety and Health Act of 1970 (“OSHA”) went into effect with the mandate to provide “every working man and woman in the Nation safe and healthful working conditions.” Around half the U.S. states have enacted their own occupational safety and health legislation as well.

Three categories of business are covered under OSHA – construction, agriculture and general industry – with employers obligated to provide a workplace “free from recognized hazards that are causing or are likely to cause death or serious physical harm.”

OSHA has the right to conduct workplace inspections during working hours, and employers are entitled to request a search warrant prior to allowing access. The inspection process incorporates meetings with the inspectors before and after a facility walkthrough that allow employers to understand and limit the scope of an inspection and to understand the nature of any alleged violations.

When OSHA inspectors believe they have identified violations, they provide formal notification by certified mail with a citation, giving employers time to either take corrective action or contest the citation. Penalties for OSHA violations vary according to the severity of the offense.

Employees injured on the job are entitled to workers’ compensation, which every state requires employers to provide. Coverage requirements vary by state, and employers may provide coverage through an insurance company or they may self-insure; premium costs are based on the number of employees, their job duties and the level of risk.

Workers’ Unions
The National Labor Relations Act (“NLRA”) establishes the right of workers to engage in collective activity, including to form, join, and assist unions. Though less than 15% of U.S. workers, and less than 10% of private sector workers, are unionized, the NLRA not only regulates what employers can and cannot do in response to employee collective activity and in terms of bargaining with unions, but also affords rights and protections to non-unionized employees in non-union workplaces. In practice, this means the law can protect the right of non-unionized employees to raise group concerns relative to pay, hours, or working conditions, and prohibits employers from taking adverse action (e.g. termination) against employees undertaking collective activities.

Employee Monitoring, Data Protection and Privacy Rights
Many employers, especially in “white collar” working premises, can easily monitor employee communications, but this monitoring is governed by federal, state and local laws designed to protect employee privacy. Restrictions on monitoring vary widely by jurisdiction, but in general, employers are required to inform employees about monitoring, and obtain consent. Employers generally obtain this consent through equipment use policies that explicitly state the company may monitor employee communications and activities on company systems and equipment. Organizations that operate in more than one jurisdiction should check and comply with the laws and regulations applicable in each premises in which employees are performing work or where company systems or electronic devices are located.

Noncompete Agreements
Most states allow employee noncompete agreements, but some do not. California not only does not enforce employee noncompete agreements, but employees can sue an employer that seeks to require they sign one.
States that allow employee noncompete agreements generally will not enforce an agreement that too greatly limits an employee’s future job prospects. An employee noncompete agreement is most likely to be enforced if it is limited in:

  • Time. The shorter the time for prohibited competition, the more likely the noncompete agreement will be enforced.
  • Geographic Area. The smaller the geographic for prohibited competition, the more likely the noncompete will be enforced. The geographic area will largely depend on the geographic reach of the industry and the business.
  • Definition of competition. The more limited the prohibited nature of competition, the more likely the noncompete will be enforced.

A noncompete that prohibits an employee from working for one of three direct competitors in the same state for one year is a lot more likely to be enforced than a noncompete that prohibits an employee from working for any company in an entire industry for three years.

Termination and Resignation
Much of American employment operates under an “at will” hiring model, which makes termination relatively straightforward compared to some countries. Yet it is worth remembering that American society is relatively litigious, and that anti-discrimination laws and regulations may give terminated employees am opportunity to pursue claims against their former employers. More than 80% of the employment-related lawsuits in the United States stem from employee terminations.

The best advice to employers that must terminate employees is universally applicable: be fair and be transparent. Expectations of employee behavior and performance should be set out at the beginning of the employee’s service and any shortcomings in performance should be thoroughly documented and communicated to the employee. How to handle an actual termination tends to be so situation- and location-specific that there is little point in discussing that here.

Conclusion
“Be fair and be transparent” is our best advice for companies looking to establish operations in the United States.

Prepare thoroughly by consulting professional counsel to ensure compliance with the federal, state and local laws, as well as industry-specific regulations, relevant to your specific situation.

Prepare thoroughly by establishing a comprehensive human resources infrastructure setting out the rights, responsibilities and avenues of recourse in a universally available handbook.

Prepare thoroughly by ensuring that executives, managers and supervisors are well-versed in the laws governing employment issues (e.g. anti-discrimination, workplace safety) and well-trained in how to maintain compliance.

And finally, good luck!