Employment Law Basics for Employers and Business Owners

As we find ourselves in the last half of 2024, we felt it was right to go back to the basics for those navigating the complex landscape of employment law. Understanding these laws helps to protect your business from legal disputes and fosters a positive environment for employees while ensuring compliance and a fair and productive workplace. 

Outlined below are some fundamental aspects of federal employment laws that every employer should be familiar with, along with California-centric examples for insight into how state laws can be more specific.

1. Hiring Practices

Employers must follow federal and state laws when hiring new employees. This includes:

• The Civil Rights Act, Americans with Disabilities Act (ADA), and Age Discrimination in Employment Act (ADEA) prohibit discrimination based on race, color, religion, sex, national origin, disability, or age. Ensure your job postings, interview questions, and hiring criteria do not violate these protections.
• While conducting background checks is a common practice, employers must comply with the Fair Credit Reporting Act (FCRA) and state-specific laws, which require obtaining written consent from the candidate and providing them with a copy of the report if adverse action is taken. 
• California’s Fair Chance Act (FCA) and Fair Employment and Housing Act (FEHA) prohibit California employers from asking questions about criminal history or felony convictions before making a conditional job offer. Further, the employer must assess the situation before making a final decision on the job offer. If the offer is rescinded, the employer must notify the applicant in writing and give the applicant at least five business days to respond with additional information and documents. If the employer still decides not to hire the applicant, written notice must be sent regarding the decision, including the right to file a charge with the California Civil Rights Department. 

2. Wage and Hour Laws

Compliance with wage and hourly laws is critical to avoid lawsuits and penalties. Key details to know include:

• Employers must pay the minimum wage set by federal, state, or local laws, whichever is highest.
• Under the Fair Labor Standards Act (FLSA), non-exempt employees must receive overtime pay at one and a half times their regular rate for hours worked over 40 in a workweek. California law requires that non-exempt employees receive overtime pay, whether authorized or not, at the rate of one and a half times their regular pay for all hours worked. This includes more than eight and up to 12 hours in any workday for the first eight hours of work on the seventh consecutive day in a workweek. The pay rate required is doubled for all hours over 12 in any workday for over 8 hours worked hours on the seventh consecutive day in a workweek.  
• Maintain accurate records of hours worked and wages paid to employees, as required by the FLSA and state laws.

3. Employee Classification

Proper classification of workers is essential to avoid issues with taxes, benefits, and wage laws. It’s critical to note that misclassification can result in significant penalties. Other key details include:

• Exempt employees are not entitled to overtime pay, while non-exempt employees are. This classification depends on the employee’s job duties and salary level.
• Misclassifying employees as independent contractors can lead to liability for back taxes, wages, and penalties. Ensure that the worker’s role meets the criteria set by the IRS and relevant state laws.
• Under California law, workers are presumed to be employees unless the hiring entity can prove otherwise. The burden is on the employer to show that the worker is an independent contractor rather than an employee. The evidence must show that the independent contractor is free from control and direction in performing the work; the work must be performed outside the usual course of the business that hires the worker; and the worker must be customarily engaged in an independently established trade, occupation, or business.

4. Workplace Policies and Procedures

Having clear, written policies helps protect your business and provides employees with a clear understanding of your workplace expectations. Two recommendations include:

• Having an Employee Handbook – A comprehensive employee handbook should outline company policies, including attendance, conduct, anti-harassment, and disciplinary procedures.
• Harassment and Discrimination Policies – Employers are legally required to prevent and address harassment and discrimination in the workplace. Regular training and clear reporting procedures are essential.

5. Termination and Employee Rights

Terminating an employee can be a legal minefield if not handled properly. Priority details to note include:

• In at-will states, employers can terminate employees for any lawful reason. However, exceptions include discrimination, retaliation, or breach of contract claims.
• While not required by law, severance agreements can protect employers by including a release of claims clause, but these must be carefully drafted to comply with federal and state laws.
• In California, it is now illegal for employers to enforce non-compete agreements that put limits on an employee’s future job prospects. There are certain narrow exceptions, such as if an employee sells business goodwill, if the business owner sells his interest, or if the business owner sells all operating and goodwill assets. 

Employment law is an intricate field that covers all aspects of the employer/employee relationship. Staying informed about ongoing and proposed laws and regularly reviewing and updating your policies is crucial for legal compliance and fostering a positive workplace culture. 

Above all, employers should consider consulting with a legal professional to navigate these complexities and ensure they are fully compliant with all applicable laws.

For more detailed guidance or specific legal advice, feel free to contact us here at Fennemore.