Author: Erin M. Reid-Eriksen, Littler Mendelson, PC

Summary

  • When deciding whether to open an office in a particular state, many employers first assess the state's employment-related compliance obligations. See State Developments and Themes.
  • Multistate employers must put into place the proper procedures to handle hiring without running afoul of federal and state laws. Job applications, background and credit checks, preemployment inquiries and other screening methods are important components of the hiring process. See Prehire Relationship.
  • In drafting employment applications, multistate employers must consider the applicable state and local requirements, including variances in equal employment opportunity statements, restrictions on the type of information that can be requested of an applicant (e.g., Ban-the-Box laws) and specific legal disclosures that must be included. See Employment Applications.
  • State laws regarding background and credit checks vary to such a degree that having a single approach to those issues, and applying that approach to each state, may not be the best way to proceed. See Background Checks.
  • There are limits, which may vary by state law, to what an interviewer can ask prospective or current employees when making hiring decisions. These restrictions may include disability-related inquiries, questions related to genetic information and requests for social media passwords. See Preemployment Inquiries.
  • If an employer chooses to use preemployment testing as method to screen for qualified applicants and/or require drug testing for applicants or employees, it must be aware of the applicable restrictions on such testing. See Preemployment Testing.
  • In handling the employment relationship with employees in different states, multistate employers must be prepared to address a variety of issues. See Employment Relationship.
  • Multistate employers must contend with federal immigration requirements and must also be aware of state or municipal requirements, including the mandatory use of E-Verify, a federal program allowing employers to electronically verify newly hired employees' work authorization documents. See Immigration Compliance.
  • Multistate employers may use a simplified new hire reporting method. See New Hire Reporting Requirements.
  • Whether an employer's post-employment restrictions are enforceable is largely a state-driven issue. See Post-Employment Restrictions.
  • Multistate employers may consider maintaining an employee handbook that includes all nonstate-specific policies and procedures and refers the employee to a corresponding, state-specific policy or procedure manual. See Employee Handbooks and Work Rules.
  • State labor departments and civil rights agencies are increasingly taking measures to make sure employees are informed of their rights. Those requirements are frequently updated, and multistate employers should be aware of, and comply with, any updates. See Employee Notifications and Posting.
  • State and local antidiscrimination laws, prohibiting discrimination, harassment and retaliation, may extend protection to groups of employees who are not protected under federal law. See Equal Employment Opportunity and Prohibited Discrimination, Harassment and Retaliation.
  • There are hundreds of federal and state laws protecting employees from retaliation who "blow the whistle" on certain types of conduct. See Whistleblowing and Retaliation.
  • Employers in some states must invest additional resources to comply with state mandated training requirements. See Employee Training and Development.
  • Many states have their own minimum wage and overtime laws that may provide higher wages or more protective wage and hour policies than federal law. The wide variety in wage and hour practices across states and localities demonstrates that multistate employers cannot take a one-size-fits-all approach. See Wage and Hour Policies and Practices.
  • Multistate employers need to be aware of state law variations in how to handle employee surveillance, access to employee's online social media accounts, employment background and credit checks and drug testing. See Employee Privacy.
  • Most state labor laws, except for right-to-work laws and a few others, are preempted by the federal National Labor Relations Act. See State Labor Law Issues.
  • Virtually all employers are subject to the federal Occupational Safety and Health Act or its state-equivalents. See Workplace Health and Safety.
  • Many states have enacted their own statutes providing for family and medical leave, posing a compliance challenge for multistate employers. See Leaves of Absence Policies and Practices.
  • The federal health care reform law, known as the Affordable Care Act (ACA), is very complex with a broad range of provisions affecting individuals, employers and health insurers. See Employer Health Care Policies.
  • The U.S. Supreme Court's June 2013 decision declaring the federal Defense of Marriage Act (DOMA) unconstitutional will have a substantial impact on the design and operation of private employer benefit plans. In addition, the patchwork of state laws providing varying levels of recognition for same-sex relationships creates significant complexities for multistate employers. See Same-Sex Marriages, Domestic Partnerships and Civil Unions.
  • At the end of the employment relationship, a multistate employer should be aware of a variety of issues relating to the payment of final wages, communicating the termination decision, document retention and other federal or state law requirements. See Post-Employment Relationship.
  • A multistate employer must determine whether a centralized HR department, decentralized HR department or a combination centralized and decentralized HR department will be best suited to support the workforce and the employer's strategic business objectives. See Centralized or Decentralized HR.

State Developments and Themes

When deciding whether to open an office in a particular state, many employers first assess the state's employment-related compliance obligations. Employers typically base their assessments on the following kinds of information:

  • Pending, new and existing laws;
  • Pending, new and existing rules and regulations;
  • Judicial interpretations of state laws (i.e., the manner in which state courts interpret the legal issues brought before them); and
  • Whether state employment laws, rules and regulations provide, in general, employees with more protection or nearly the same protection as federal employment laws.

Employers will review the information above and consider whether the state trend is to pass employee-friendly or employer-friendly rulings and legislation or a mix of the two. Employers will also evaluate whether the state's employment-related requirements differ significantly from federal requirements. If state and federal requirements vary, employers generally will need to comply with both requirements so as to provide employees with the greatest possible rights. See HR Strategy, Management and the Law > HR and the Law. Managing both sets of requirements can be difficult and expensive. For example, an employer may be required to:

  • Pay a state minimum wage rate that is higher than the federal minimum wage;
  • Allow additional paid leave time under state law for certain groups of employees; or
  • Provide certain employee notifications that are not required or exceed those required by federal law.

The state trends in California and Connecticut, for example, are to hold employers responsible for compliance obligations that exceed or differ from those imposed under federal law. However, in Florida, Texas, North Dakota and South Dakota, the state trends are to hold employers to compliance obligations that are, typically, more closely aligned with those imposed by federal law.

Keeping track of and managing compliance obligations in a single state, together with federal obligations, may be difficult. Keeping track of and managing compliance obligations in several states is extremely challenging. To minimize the risk of fines, penalties or judgments resulting from mismanaged state and federal obligations, multistate employers should take the following steps:

  • Be knowledgeable regarding state and local compliance obligations;
  • Have procedures in place to manage state and local compliance obligations, in conjunction with federal obligations; and
  • Structure the HR department to allow HR to address employment issues in each of the employer's locations.

Prehire Relationship

Multistate employers must put into place the proper procedures to handle hiring without running afoul of federal and state laws. Employment applications, background checks, credit checks preemployment inquiries and other screening methods are important components of the hiring process. Often overlooked is the need to implement consistent hiring processes across an organization to avoid potential claims of unlawful discrimination.

Due to the fast pace of changes in state laws regarding hiring, HR professional across an organization must remain informed of modifications and additions to relevant laws. In a centralized HR department, HR should consider maintaining and using state-specific checklists to guide HR personnel through the hiring process. See Centralized or Decentralized HR. In a decentralized HR department, HR professionals in each state (or region) should have checklists or internal written procedures instructing HR personnel how to conduct interviews, background checks and other screening methods in accordance with applicable state laws. HR professionals must also remain informed of changes to relevant laws.

Multistate employers that use third-party recruiting and/or employment agencies should also be aware that these agencies must comply with all federal, state and local restrictions regarding recruitment and referral, including anti-discrimination laws. An employer may be held liable for a third party's unlawful hiring practices.

Employment Applications

In drafting employment applications, multistate employers must consider the applicable state requirements, if any. See Recruiting and Hiring > Interviewing and Selecting Job Candidates > State Requirements. For example, employment applications should contain a statement indicating the employer is an equal employment opportunity employer and list the protected categories under federal, state and local law. Because states and localities may provide protections for categories that are not applicable under federal law, such as sexual orientation and gender expression or identity, multistate employers must account for these differences in their employment applications.

There are also state restrictions on the type of information that can be requested of an applicant, such as Social Security numbers and arrest records. Ban-the-Box legislation, referring to the "box" on employment applications where applicants are asked whether they have ever been convicted of a crime, has been an area of particularly intense scrutiny by state legislatures. See Ban the Box - Chart. Additionally, many states have specific legal disclosures that must be included on the applications, such as the company's smoking policy or certain disclaimers regarding the illegality of lie detector tests.

Practical Example

In Maryland, employment applications must set out, in boldfaced uppercase type, the following notice:

UNDER MARYLAND LAW, AN EMPLOYER MAY NOT REQUIRE OR DEMAND, AS A CONDITION OF EMPLOYMENT, PROSPECTIVE EMPLOYMENT, OR CONTINUED EMPLOYMENT, THAT AN INDIVIDUAL SUBMIT TO OR TAKE A POLYGRAPH EXAMINATION OR SIMILAR TEST. AN EMPLOYER WHO VIOLATES THIS LAW IS GUILTY OF A MISDEMEANOR AND SUBJECT TO A FINE NOT EXCEEDING $100.

Each application must include a space for applicants to acknowledge the notice. For additional requirements in Maryland, see Preemployment Screening and Testing: Maryland.

In cases where state and local rules vary from federal law, multistate employers may want to use a state-specific application for employment. As a practical matter, however, many multistate employers use the same employment application regardless of where the job is located or the applicant resides. To take into account state-specific requirements on what should be included in a job application, and/or state prohibitions on the request of certain information, employers using a uniform employment application should segregate and include the requisite state disclosures. For instance, a multistate employer with offices in California and New York may have separate sections appearing at the end of the form application with the headings California and New York with the applicable disclosures underneath the relevant heading.

Background Checks

Criminal History

Employers must also be extremely cautious when making inquiries into an applicant's criminal history on the employment application and during the hiring and interviewing process. Whether, and what, criminal history may be considered by an employer varies by state. For example, state law may preclude inquiries and consideration of misdemeanors generally or certain types of offenses, expunged records, pending charges or convictions that occurred more than a certain number of years prior to the application. See Recruiting and Hiring > Preemployment Screening and Testing > State Requirements.

Practical Examples

  • In Connecticut, employers are prohibited from requiring that prospective employees or employees disclose erased criminal records. Employers may not deny employment to prospective employees because of erased criminal records, and a Connecticut employment application must contain detailed and specific language notifying applicants that they are not required to disclose the existence of certain erased arrests, criminal charges or convictions.
  • In Michigan, it is illegal for employers, except law enforcement agencies, to make preemployment inquiries about misdemeanor arrests not resulting in convictions.
  • In Oregon, employers are prohibited from using expunged juvenile records as the basis for hiring or discharge decisions.
  • Effective January 1, 2014, Rhode Island restricts preemployment inquiries about a job applicant's criminal past until during or after the first interview with the applicant.

See Recruiting and Hiring > Preemployment Screening and Testing > State Requirements;
Employee Management > Employee Privacy > State Requirements.

Accessing criminal records for employment purposes may also be made more complicated by local ordinances restricting its use. For example, effective November 1, 2013, Seattle employers must limit their inquiries into and the use of criminal records for employment purposes. A Newark, New Jersey ordinance also places restrictions on conducting a criminal history inquiry on candidates.

Blanket hiring restrictions based on criminal convictions should generally be avoided, and multistate employers may want to include a statement in their job application indicating that convictions will not necessarily preclude employment. The continued focus on this issue by the federal Equal Employment Opportunity Commission (EEOC) also suggests that employers proceed carefully and seek legal counsel before implementing a criminal record screening policy. See EEOC's Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII; Questions and Answers About the EEOC's Enforcement Guidance on the Consideration of Arrest and Conviction Records and EEOC's Response to Letter from State Attorneys General on Use of Criminal Background Checks in Employment.

Credit Checks

During the hiring process, employers may also choose to conduct credit history checks depending upon the jurisdiction. Some states do not allow employers to base employment-related decisions on credit reports. Others states do allow employers to consider credit reports but set certain parameters. Ultimately, several states regulate the use of credit-related information for employment purposes. See Credit Checks: State Limitations - Chart. Since this has been an area of heightened activity in recent years, multistate employers should be careful to monitor state law developments to ensure that their consideration of an applicant's credit history does not violate state law.

The EEOC also continues to actively investigate the use of credit reports by some employers, which may heighten the risks for employers who seek this information from applicants.

Employers that use credit reports for employment purposes in these states should review and, if appropriate, modify their policies for compliance. A uniform policy across all states is particularly difficult in this area because the state laws vary materially in their details. All employers should continue to stay informed on additional developments in this area. See Determine When to Run a Credit Check for Employment Purposes.

Practical Example

Maryland's Job Fairness Act prevents most employers from using credit reports as a basis for determining the following:

  • Rate of pay;
  • Whether to hire an applicant;
  • Whether to terminate an employee; or
  • For establishing other conditions of employment.

Maryland's Job Fairness Act includes exceptions for certain financial institutions and for situations where employers are required, by state or federal law, to consider credit.

Practical Example

California law limits when private and public sector employers, with the exception of financial institutions, lawfully can use consumer credit reports for employment purposes (e.g., hiring, promotion, reassignment, retention). Specifically, employers may use credit reports only if the individual is applying for or works in the following positions:

  • A managerial position (defined as an employee covered by the executive exemption set forth in California's Industrial Welfare Commission Wage Order 4);
  • A position in the State Department of Justice;
  • A sworn peace officer or law enforcement position;
  • A position for which the employer is legally obligated to consider credit history information;
  • A position that affords regular access to bank or credit card account information, Social Security numbers, and dates of birth (with the exception of routine processing of credit card applications in a retail establishment);
  • A position where the individual is a named signatory on the employer's bank or credit card account and/or authorized to transfer money or enter into financial contracts on the employer's behalf;
  • A position that involves access to confidential or proprietary information; or
  • A position that affords regular access to the employer's, a customer's or a client's cash totaling at least $10,000.

California employers are also required to provide the individual with written notice prior to requesting a consumer credit report and to identify the specific basis for use of the report.

Preemployment Inquiries

As a general rule, any information requested during the preemployment process should be restricted to information essential for determining an applicant's qualifications for the position. There are also limits, which may vary by state law, to what an interviewer can ask prospective or current employees when making hiring, retention, promotion or other employment decisions. These restrictions are typically designed to protect an applicant's privacy and/or prevent discrimination in the hiring process. For instance, while it is permissible for an employer to ask all applicants whether they are authorized to work in the US, it is unlawful to:

  • Single out applicants who appear to be foreign-born or speak a primary language other than English in posing this question; or
  • Ask questions of all applicants on their birthplace or citizenship status.

See Preemployment Screening and Testing and Interviewing and Selecting Job Candidates; Employee Management > EEO - Discrimination > State Requirements.

The Americans with Disabilities Act (ADA) limits the medical information an employer can obtain from an applicant and dictates that any job-related medical examination occur after a conditional offer of employment has been made. As an example, an interviewer may not ask an applicant how much time off he or she needs on account of a disability or medical treatment for a disability.

See also Preemployment Screening and Testing > Restrictions Under the ADA; EEOC's Questions and Answers: Enforcement Guidance on Disability-Related Inquiries and Medical Examinations of Employees Under the Americans with Disabilities Act (ADA).

State-law counterparts to the ADA may place additional restrictions on disability inquiries or medical examinations.

Many states have enacted state laws similar to the federal Genetic Information Nondiscrimination Act (GINA), which restricts the acquisition of genetic information by employers and prohibits the use of such information in making employment decisions.

As a result, multistate employers may want to consider implementing the following procedures:

  • Keep recruiters and hiring managers informed of the law's restrictions and remind them of the risks of making hiring decisions based on personal knowledge of family history, including family medical history (a particular risk in small towns or communities);
  • Avoid accessing applicants' social networking sites without permission or other use of Internet resources, as this could inadvertently uncover genetic information; and
  • Omit inquiries about family medical history from any required post offer, preemployment medical examination.

SeeEmployee Management > Employee Privacy > State Requirements and GINA Policy.

Requests for Social Media Passwords

Although social networking websites (e.g., Facebook and LinkedIn) may be a convenient way to learn about job applicants, the use of these sites may expose employers to legal liability. For example, not only do employers face exposure under federal, state and local antidiscrimination laws if visiting a site sheds light on a protected category, but employers also risk violating the federal Fair Credit Reporting Act (FCRA) if they use an outside agency to conduct any part of the search and do not follow the FCRA's requirements.

A growing number of states have passed laws prohibiting employers from asking applicants or employees for access to their social media sites. See Establish Social Media Strategy for Recruitment and Job Screening; Social Media Password Privacy Protection Legislation - Chart. New Mexico's law is unique in that it prohibits requesting access to social media sites from job applicants, but is inapplicable to employees. For more information on these laws, see Employment Relationship and Employee Privacy.

Preemployment Testing

Multistate employers may want to use preemployment testing as a way to screen for qualified applicants. The different types of tests include:

  • Physical or mental examinations;
  • Aptitude or intelligence tests (e.g., pencil and paper test);
  • Physical fitness or skills tests; and
  • Written, oral or polygraph honesty tests.

Certain tests may, however, be prohibited by state law. Employers must also be aware of their legal obligations with respect to such federal laws (and their state counterparts) as Title VII of the Civil Rights Act of 1964 (Title VII), the Age Discrimination in Employment Act (ADEA), the Americans with Disabilities Act (ADA), the Genetic Information Nondiscrimination Act (GINA) and the Employee Polygraph Protection Act.

See Employee Management > EEO - Discrimination > State Requirements and Employee Management > Employee Privacy > State Requirements. See also EEOC's Informal Discussion Letter Regarding Title VII and the ADA: Integrity Tests.

Drug Testing

Drug testing presents another compliance hurdle for multistate employers. There are federal, state and even some local restrictions on when an employer may require an applicant to take a drug test. See Test a Job Applicant for Drug and Alcohol Use; Employee Management > Employee Privacy > State Requirements and Employee Management >Employee Handbooks - Work Rules - Employee Conduct > State Requirements.

An area of growing complexity for multistate employers is the discovery through drug testing of the use of marijuana by an applicant or employee, either for medicinal or recreational purposes. A number of states have passed laws in recent years requiring employers to accommodate medical marijuana use. There are also a handful of states that have legalized recreational use of marijuana.

Although federal law continues to ban the use of marijuana and may preempt most state laws, employers should consider clarifying their drug policies to account for the variation in state laws. For example, employers that require preemployment drug testing must develop legally compliant action plans for applicants who test positive for marijuana and present a valid medical marijuana card. See Medical Marijuana States - Chart and Hazy Future: Reconciling Federal and State Laws on Marijuana Use.

At the federal level, the Americans with Disabilities Act (ADA) affords certain protections to individuals who have previously been addicted to illegal drugs. While a test to determine whether an applicant is illegally using drugs is specifically exempted from the ADA's definition of what constitutes a medical examination, a preemployment alcohol test for job applicants who have been extended a conditional offer and random alcohol testing of probationary employees are considered medical examinations and must therefore be conducted in compliance with the ADA.

At the state level, some states:

  • Require that job applicants be extended a conditional offer of employment before being asked to submit to a drug test;
  • Require that job applicants receive notice of the drug testing requirement;
  • Require the collection process minimizes intrusiveness and is administered in a reasonable fashion;
  • Permit drug tests only of employees in certain safety-sensitive jobs;
  • Permit drug tests if there is reasonable suspicion or following a workplace accident; or
  • Prohibit drug testing.

See Recruiting and Hiring > Preemployment Screening and Testing > State Requirements.

As a matter of best practices, multistate employers should ensure that they have a written drug-testing policy that complies with both federal and state law, where applicable. See also Acknowledgement and Consent Form for Drug and Alcohol Testing Policy.

Employment Relationship

In handling the employment relationship with employees in different states, multistate employers must be prepared to address a variety of issues, ranging from immigration and wage and hour compliance to post-employment restrictions. There are many state requirements along the way to trip up an unsuspecting employer, and this section is designed to provide an overview of the most significant issues that multistate employers may need to consider.

As an initial matter, nearly all states generally recognize the concept of at will employment, which means that the employment relationship may be terminated by the employer or employee at any time for any reason. The at-will doctrine, however, has been eroded over time by state laws or court decisions placing restrictions on employers' right to terminate employees under certain circumstances. Nonetheless, it is recommended that employers operating in states recognizing the at-will doctrine include a disclaimer in their handbooks and other employee policies to remind employees that their employment remains at will. See At-Will Employment Acknowledgement Form.

Immigration Compliance

Multistate employers primarily must contend with federal immigration requirements, including completing a Form I-9 for new employees to verify identity and authorization to work in the US and reverifying work status for foreign nationals on a work visa. See Form I-9 and Immigration Issues Resource Center and Recruiting and Hiring > Immigration, Form I-9 and Work Visas. The Form I-9 contains specific instructions on the correct way to fill out the form.

Because the employment verification documents are to be reviewed in person when completing the I-9, a potential area of complication for multistate employers is where an employee is hired in a state where the employer and its HR representatives are not physically present. To be compliant with federal law, the employee must have an individual act as an agent for the company, such as a Notary Public, and complete the employer portion of the I-9. Multistate employers may also consider contracting with a third-party vendor as a means to simplify this process. See Designated Representative.

In recent years a growing number of states have enacted immigration-related laws, many of which mandate the use of E-Verify for employers doing business in their states. See State Mandated E-Verify Laws - Chart.

E-Verify is a federal program that allows employers to electronically verify newly hired employees' work authorization documents. Employers that participate in the program are required to enter into a memorandum of understanding with the Department of Homeland Security and participation is free. See Verify an Employee's Eligibility for Employment During the Form I-9 Process. The E-Verify program includes specific instructions for "multiple-site employers" that distinguish between verification locations and hiring sites for purposes of entering employment eligibility information into the E-Verify system.

Multistate employers should:

  • Confirm whether the use of E-Verify in the states in which they operate is voluntary or mandatory:
  • Determine if their company is one that is subject to the E-Verify requirements; and
  • Check if the state(s) in which the employer operates imposes other immigration-related requirements.

Employers also should be aware that several municipalities have adopted ordinances addressing immigration issues. For example, the City of Valley Park, Missouri initially enacted an illegal immigrant employment and housing law in 2006. Following court challenges to the ordinance, the city repealed the provisions dealing with housing and passed amended versions of the employment provisions, which were upheld in 2008 and 2009. The Valley Park example also serves to illustrate that courts have been particularly active in reviewing immigration laws and ordinances in recent years.

Practical Example

North Carolina requires private employers that transact business in North Carolina and employ 25 or more employees in the state to verify the work authorization of employees through E-Verify. When the law was enacted, it provided for a phased-in schedule as follows:

  • October 1, 2012 for employers that employ 500 or more employees;
  • January 1, 2013 for employers that employ at least 100 but less than 500 employees; and
  • July 1, 2013 for employers that employ at least 25 but less than 100 employees.

Employers should also be careful not to discriminate against noncitizen residents on the basis of citizenship status and should note that some state laws limit requests for and use of Social Security numbers and authorization to work in the US with or without visa sponsorship.

New Hire Reporting Requirements

The federal New Hire Reporting Program requires all states to establish new hire reporting laws that comply with a minimum number of federal requirements. States are free to enact new hire reporting laws that require additional information to be submitted or require a shorter reporting timeframe. See New Hire Paperwork; Payroll > New Hire Reporting.

Notably, the federal New Hire Reporting Program includes a simplified reporting method for multistate employers, defined as employers:

  • With employees in two or more states; and
  • That file new hire reports either electronically or magnetically.

The federal law permits multistate employers to designate one state to which they will transmit all of their reports twice per month, rather than filing hire reports in each state. An employer who chooses to designate one state must notify the Secretary of the US Department of Health and Human Services in writing. See Payroll > New Hire Reporting; Multistate Employer Notification Form and Report Newly Hired or Rehired Employees.

Post-Employment Restrictions

Some employers require employees to sign post-employment restrictions (also referred to as post-termination restrictions or restrictive covenants) as a condition for commencing or continuing employment. See Recruiting and Hiring > Terms of Employment; Employee Management >Employee Discipline; Employee Management > Employee Communications; Organizational Exit > Process of Termination; and Determine When to Require Employees to Sign a Restrictive Covenant.

Post-employment restrictions are limitations placed on an individual's conduct that remain in force after the individual's employment has ended. Post-employment restrictions are designed to protect the employer and typically prevent an individual from disclosing the employer's confidential information or soliciting the employer's employees or customers. These restrictions may also prohibit individuals from engaging in competitive employment, including competitive self-employment, for a specific time period after the employment relationship ends.

In states where post-employment restrictions are enforceable, employers need to provide the employee with consideration for the agreement to be binding. Providing consideration means giving something of value - i.e., a promise to do something that the employer was not otherwise obligated to do, such as extending an offer of employment to a new employee or a small bonus for an existing employee. States differ to the extent to which they recognize new or continued at-will employment as sufficient consideration. Therefore, multistate employers should assess applicable state laws before offering consideration to employees in exchange for having them sign post-employment restrictions.

Postemployment restrictions are used in many different industries and are very common in the sales or financial services professions or in other professions where employees typically have access to the employer's confidential or proprietary business information. See Hot Topics in the Financial Services Industry > Restrictive Covenants.

Noncompete Agreements

Noncompetition agreements (also referred to as non-compete agreements or covenants not to compete) are another type of post-employment restriction. See Recruiting and Hiring > Terms of Employment: Restrictive Covenants in Employment; Organizational Exit > Process of Termination; and Staggering High Number of Noncompete Lawsuits Affect Recruiting, Hiring.

Noncompete agreements seek to prevent employees from engaging in competitive employment, or competitive self-employment, for a certain period after the employee's employment ends. States differ on whether they will enforce noncompetition agreements in cases where the employee did not leave employment voluntarily. See also Noncompete Contract Clause; Certification That Employee Is Not Bound by a Noncompete or Nonsolicitation Agreement.

Nonsolicitation Agreements

Postemployment restrictions that prevent employees from enticing the employer's clients, customers or employees to do business with or work for another employer are referred to as nonsolicitation agreements (also referred to as nonsolicit agreements). See Nonsolicitation Contract Clause; Recruiting and Hiring > Terms of Employment: Restrictive Covenants in Employment; and Organizational Exit > Process of Termination.

Nonsolicitation agreements directed at clients or customers seek to prevent employees from soliciting certain clients regardless of whether the employee first introduced them to the employer.

A nonsolicitation may have the same effect as a noncompete. For instance, in sales positions, being unable to solicit certain customers may, in effect, be a restriction on competition. As a general rule, courts tend to prefer limited nonsolicitation agreements over noncompete restrictions, which place restrictions on an employee's ability to earn a living and may be overly broad.

Enforceability of Post-Employment Restrictions

Whether an employer's post-employment restrictions are enforceable is largely a state-driven issue.

Generally speaking, post-employment restrictions that are narrowly defined in terms of time, geography and scope of prohibited conduct stand a better chance of being enforced. Post-employment restrictions should require no more than what is reasonably necessary to protect an employer's confidential or proprietary business information, customer relationships or company goodwill. When post-employment restrictions are too broad, courts may, depending on the state, take one of the following actions:

  • Decline to enforce the post-employment restrictions;
  • Blue pencil the restrictions; or
  • Reform the restrictions.

See Recruiting and Hiring > Terms of Employment; Organizational Exit > Process of Termination.

Blue penciling refers to the court striking portions of a post-employment agreement it deems unenforceable.

Reformation, on the other hand, refers to the court modifying a post-employment agreement to make it enforceable, which may include introducing new terms into the agreement. See Recruiting and Hiring > Terms of Employment: Restrictive Covenants in Employment.

In addition to making sure post-employment restrictions are narrowly defined, multistate employers may improve the chances of their restrictions being enforced by adding governing law and venue provisions:

  • Governing law provisions dictate the state law under which the agreement will be construed.
  • Venue provisions (e.g., forum-selection clauses) dictate the state and, at times, the area within the state, where legal disputes regarding the post-employment restrictions will be resolved.

See Recent Ruling Reinforces Importance of Controlling State Law in Noncompete Agreements.

Employers should be aware that in states, such as California, where post-employment restrictions are strongly disfavored, courts may disregard the employer's governing law and venue provisions. Recruiting and Hiring > Terms of Employment: Restrictive Covenants in Employment.

Multistate employers must understand the state laws that affect the enforceability of their post-employment restrictions. There is no guarantee that any post-employment restrictions will be enforced. Multistate employers with a compelling business need to protect trade secrets or other proprietary or confidential information should consider working with lawyers to create post-employment restrictions for each state.

Multistate employers that do not want to create state-specific post-employment restrictions should consider taking these steps:

  • Provide all employees, regardless of the state in which the employee is located, with a small bonus or other consideration for entering into agreements that contain post-employment restrictions.
  • Narrowly define post-employment restrictions in terms of time, geography and scope of prohibited conduct.
  • For noncompete agreements (or nonsolicitation agreements that have the same effect as noncompete agreements), add a provision requiring the organization to pay the employee his or her salary, or a portion of it, during the noncompete period.
  • Add to post-employment restrictions a governing-law provision that imposes the laws of a state likely to enforce the restrictions. .
  • Add a venue provision where post-employment restrictions are more likely to be enforced.

See Recruiting and Hiring > Terms of Employment; Organizational Exit > Process of Termination.

In states where post-employment restrictions are strongly disfavored, it is unlikely that these best practices will help an employer enforce otherwise unenforceable restrictions. However, for multistate employers that choose not to create state-specific restrictions, these best practices will place those employers in a better position to have restrictions enforced in the states that allow them.

Nondisclosure Agreements

Nondisclosure agreements are agreements not to divulge trade secrets or other confidential business information. These agreements are usually presented to employees prior to or soon after the start of employment so that they receive notice of and acknowledge the confidential nature of the information to be protected. See also Keep Trade Secrets Confidential.

Differing slightly from nonsolicitation and noncompete agreements, the enforceability of a nondisclosure agreement generally rests on the reasonableness of its terms and the extent to which the employer made efforts to ensure the confidentiality of the information.

Assignment of Invention Agreements

Employers commonly require new hires to assign their legal rights in work-related inventions to their employer. That assignment is generally accomplished through an assignment of invention agreement (sometimes referred to as work-for-hire agreements). These agreements can be valuable, especially for employers in the technology sector. Whether an employee's invention is work-related is often a point of controversy between the employer and employee. That issue may turn on a number of factors:

  • Whether the employee developed the invention on his or her own time; and
  • Whether the employee developed the invention without using the employer's equipment, supplies, facilities or trade secrets.

See How to Handle Employee Inventions, Patents and Copyrights; Form for the Ownership of Intellectual Property; Intellectual Property Policy; and Protecting Intellectual Property - Supervisor Briefing.

Practical Example

In California, assignment of invention agreements may be enforced under limited circumstances. At the time the agreement is made, California employers must provide a written notification to the employee explaining the agreement will not apply to an invention the employee developed under the following circumstances:

  • Entirely on his or her own time; and
  • Without using the employer's equipment, supplies, facilities or trade secret information, unless:
    1. When the invention was conceived or "reduced to practice" (referring to an invention that was actually created or one where a patent application was filed) it related to the employer's business or to actual or demonstrably anticipated research or development by the employer; or
    2. The invention resulted from any work performed by the employee for the employer.

If an assignment of invention agreement requires an employee to assign rights in inventions otherwise excluded under California law, the provision would likely be unenforceable.

Multistate employers should review their assignment of invention agreements and ensure they comply with the laws in each state where they have employees.

Employee Handbooks and Work Rules

Employers are required to communicate certain information to employees, such as employees' rights under the Family and Medical Leave Act (FMLA) and the employer's antiharassment policy. In addition to communicating policies to employees, employers may wish to communicate workplace procedures and work rules. See HR Strategy, Management and the Law > HR Management; Employee Management > Employee Communications; and Employee Management > Employee Handbooks - Work Rules - Employee Conduct.

Employers use work rules to reserve certain rights and set acceptable standards of conduct in the workplace. While employers are not required to have an employee handbook, most employers find that it is more efficient to compile policies, procedures and work rules into a handbook. Handbooks are also useful as a means to communicate benefit information and to provide certain required employee notifications. See Employee Notifications and Postings.

To avoid state claims that an employee handbook constitutes an implied promise not to terminate except for good cause, handbooks should include disclaimers stating that the handbook and its provisions do not constitute a contract or a contractual commitment of continued employment. It is also recommended that handbooks contain language emphasizing that terms (with the express exception of the at-will disclaimer) may be modified with or without notice and with or without cause.

For multistate employers, employees working in different states may be entitled to different benefits, notifications, information on leaves of absence, etc. To address these differences, employers may adopt one of three potential strategies:

  1. Some employers may find it easier to adopt uniform policies across all states, which requires providing the greatest benefits to all employees. Although this may create a situation where some employees receive more benefits than legally required, it also eases administrative burdens and creates a more cohesive organizational culture.
  2. Other employers opt to use one general handbook and manage state differences by providing state supplements or addendums to capture applicable state policies. This method helps to capture variances in state law and bring them to the attention of employees. It also captures specific notifications that may be required by state law.
  3. A minority of multistate employers who do not want to adopt uniform policies across all states and do not want the hassle of maintaining state supplements may choose to keep their handbook very general. For example, in the case of state counterparts to a federal law, such as family and medical leave laws, employers may generally assert that family and medical leave will be granted in accordance with the requirements of applicable state and federal law in effect at the time the leave is granted and specify:

No greater or lesser leave benefits will be granted than those set forth in the relevant state or federal laws. In certain situations, the federal law requires that provisions of state law apply. In any case, employees will be eligible for the most generous benefits available under either law.

General language allows multistate employers to signal compliance with state law without formally including state-specific written policies. This option will not be available if the employer operates in a state that imposes specific notification requirements - unless the multistate employer also includes a limited state-specific policy with the required notifications.

Employee Notifications and Postings

Federal law requires employers to notify employees of certain rights. Multistate employers must manage those employee notification requirements along with requirements imposed by the various states in which they are located. State labor departments and civil rights agencies are taking increased measures to make sure employees are informed of their workplace rights. Those increased measures include imposing new or updated notification obligations on employers.

Postings are the most commonly used vehicle for providing employees with notice of their rights. See HR Strategy, Management and the Law > HR Management and Employee Management > Employee Communications > State Requirements.

For example, federal laws require employers to post notices concerning a host of employee rights, including the federal minimum wage and the employee's Equal Employment Opportunity (EEO) rights. See HR Strategy, Management and the Law > HR Management; Employee Compensation > Minimum Wage; Employee Management > EEO - Discrimination; Employee Management > EEO - Harassment and Employee Management > EEO - Retaliation.

State laws typically impose additional posting requirements that can vary greatly from state to state. For example, several states, including New York, Maryland and California, require employers to provide employees with written notice of certain information, such as the following:

  • The manner in which employees are paid (i.e., by the hour, shift, day, week, or commission);
  • Allowances taken as part of the minimum wage (i.e., meal or lodging);
  • The use of credit report or credit history for a bona fide, substantially job-related purpose; and
  • The employer's workers' compensation insurance carrier.

Further complicating matters, local governments may also have their own posting requirements. For example, San Francisco requires employers to post a notice informing employees of their rights to paid sick leave time.

Federal, state and local posting requirements are modified frequently, and multistate employers must be aware of, and comply with, any changes. Updates to posting requirements are usually found on the federal and state department of labor sites. See Employee Management > Employee Communications > State Requirements.

While postings are most common, employee notification can take many different forms - most notably through new hire notifications. See Recruiting and Hiring: New Hire Paperwork. The employer's specific notification obligations will depend on which state law applies.

Practical Example

Effective January 6, 2014, employers in New Jersey with 50 or more employees must provide notice to employees of their right to be free from gender discrimination in the workplace, including inequity or bias in pay, compensation, benefits or other terms and conditions of employment under existing federal and state laws. The state agency, the Department of Labor and Workforce Development (LWD), has published the required notice on its website. The notice must be posted in a conspicuous, accessible location in each New Jersey workplace and should be posted in both English and Spanish. Notably, if 10% or more of an employer's workforce is other than English or Spanish, the employer is also required to provide notice in that language, provided that such notice is available through the LWD.

Wage Notifications

Several states require employers to provide notice of pay rate and pay day to their employees. While there may be similarities in the wage notification laws in each state, the penalties for failing to provide such notice as well as an employer's specific notification obligations (e.g., must the notice be in writing, when must notice be provided, etc.) may vary. See Employee Compensation > Recordkeeping > State Requirements.

Practical Example

The New York Wage Theft Prevention Act (WTPA) requires employers to provide notices to new employees at the time of hire, annually, on or before February 1st of each year of employment and within seven days of a change if the wage change is not listed on the employee's pay stub for the following pay period.

Multistate employers should consider creating a form wage notice that meets all of the employer's federal, state and local requirements. A single notice may help mitigate administrative burdens.

Equal Employment Opportunity and Prohibited Discrimination, Harassment and Retaliation

Title VII of the federal Civil Rights Act (Title VII), the Age Discrimination in Employment Act (ADEA), the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA) prohibit discrimination and harassment on the basis of race, color, religion, sex (including pregnancy), national origin, age (40 or older), disability or genetic information. These laws also prohibit an employer from retaliating against an employee who complains of employment discrimination or harassment or participates in a related investigation or lawsuit. See Employee Management > EEO - Discrimination; Employee Management > EEO - Harassment; Employee Management > EEO - Retaliation and Employee Management > Disabilities (ADA).

State and local antidiscrimination laws may extend protection to groups of employees who are not protected under federal law. See Employee Management > EEO-Discrimination > State Requirements. Sexual orientation and marital status are common examples of categories afforded protection under state and/or local antidiscrimination laws but not under federal laws. See States and Major Municipal EEO Protected Classes - Chart; LGBT Rights in States and Major Municipalities.

State laws may also prohibit discrimination and harassment on the basis of gender identity or gender expression. As another example, the New York State Human Rights Law prohibits discrimination because of an employee's domestic violence victim status. In one area of recent activity, some states have enacted prohibitions against discrimination based on an individual's past or current unemployed status.

To meet their compliance obligations under both state and federal equal employment opportunity (EEO) laws, employers' antidiscrimination policies should not only prohibit commonly understood forms of discrimination but should explain that the employer's antidiscrimination policies will apply with equal force to each category of employees protected by federal, state or local EEO laws. In other words, there should be a "catch-all" provision to the effect that the employer "does not discriminate against employees on any other basis prohibited by federal, state or local law." This language will not only help ensure that all protected employees are covered within the employer's policies, but will also minimize the need for constant revision or modification.

Multistate employers must be knowledgeable of state and local EEO laws and any developments in those laws that will affect their organization. In addition, employers should adopt an antidiscrimination and antiharassment policy. See EEO Policy and Investigate a Claim of Discrimination. An effective, easily understood policy is critical for an employer to establish it exercised reasonable care to prevent unlawful harassment.

The policy should generally include:

  • A clear explanation and examples of prohibited conduct;
  • A clearly described and accessible complaint procedure, which includes the ability for an employee to bring complaints to more than one person;
  • An assurance of confidentiality to the best extent possible consistent with applicable law;
  • An assurance of immediate and appropriate corrective action when discrimination or harassment has occurred; and
  • A statement of protection against retaliation for an employee who brings forth a complaint of discrimination or harassment.

See also Complaint Form for Workplace Discrimination.

As a matter of best practices, employers should foster a work culture in which employees demonstrate professional courtesy toward colleagues and employees are encouraged to speak up if they see any form of discriminatory behavior in the workplace. Doing so will not only protect employers from liability but will also improve workplace dynamics.

In 2014, employers operating in certain states must also grapple with two emerging trends: state laws requiring employers to accommodate pregnant employees or employees who are victims of domestic violence, sexual assault or stalking and new employment protections for the homeless.

Reasonable Accommodations for Certain Employees

Pregnancy Accommodations

Mimicking the well-established requirement that employers provide reasonable accommodations to individuals covered under the federal Americans with Disabilities Act (ADA), a handful of jurisdictions now require employers to provide similar accommodations to pregnant employees and/or victims of domestic violence, sexual assault or stalking.

The requirement to provide reasonable accommodations for pregnant employees has become more established in recent years. Examples of reasonable accommodations may include:

  • Allowing restroom breaks or breaks to facilitate increased water intake;
  • Assistance with manual labor; or
  • Light duty assignments or transfers to less strenuous jobs.

Several states, such as Alaska, California, Connecticut, Hawaii, Illinois, Louisiana, Maryland, New Jersey and Texas include pregnancy accommodation provisions in their state laws. Legislation has also been proposed in Congress and in state legislatures around the country. See also States and Major Municipal EEO Protected Classes - Chart; Prevent Pregnancy Discrimination; How to Handle Requests for Flexible Work Arrangements and "Bumpy" Road Ahead: A Prudent Employer's Guide to Pregnancy Discrimination Laws

The trend has also begun to emerge at the local level. For example, the New York City Human Rights Law (NYCHRL) requires employers with four or more employees to provide reasonable accommodations for pregnancy, childbirth and related medical conditions, unless the employer can prove that the accommodation would cause an undue hardship. Notably, pregnant employees would not have otherwise been covered under the ADA or the disability provisions of the New York State Human Rights Law because pregnancy, in and of itself, is not considered a disability under these laws (only pregnancy or childbirth-related impairments or complications constitute disabilities). Similarly, Philadelphia's Fair Practices Ordinance requires employers with one or more employees to provide reasonable accommodations, upon request, to pregnant employees (including those with healthy non-disabling pregnancies) to enable the employee to perform the essential functions of her job.

Domestic Violence, Sexual Assault or Stalking Accommodations

Additionally, effective January 1, 2014, California's extended protections for victims of domestic violence, sexual assault or stalking includes a requirement that employers engage in a "timely, good faith, and interactive process with the employee to determine the effective reasonable accommodations" to ensure his or her safety at work.

Reasonable accommodations may include such activities as:

  • Transferring, reassigning or modifying an employee's schedule;
  • Changing the employee's work telephone and/or work station; or
  • Installing a lock.

Employers operating in California should review their policies and implement internal protocols to handle requests for reasonable accommodations.

Employment Protections for the Homeless

Rhode Island was the first state to pass a Homeless Bill of Rights. Connecticut and Illinois followed suit by enacting legislation providing employment protection for the homeless. For examples, the Connecticut Homeless Person's Bill of Rights was created "to guarantee that the rights, privacy and property of homeless persons are adequately safeguarded and protected under the laws of Connecticut." Included among these enumerated rights is "equal opportunities for employment."

Since this appears to be a new trend that other states may follow, employers should monitor state legislation in this area.

Whistleblowing and Retaliation

There are hundreds of federal and state laws protecting employees who "blow the whistle" on certain types of conduct. The most notable federal laws include the Sarbanes-Oxley Act of 2002 (SOX), which includes antiretaliation protections for employees who provide information and/or assist in an investigation related to federal securities violation, and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), which strengthens SOX's antiretaliation provisions and incentivizes whistleblowers to come forward through a bounty program. In addition, the federal False Claims Act encourages individuals to file lawsuits (referred to as qui tam action) and receive a portion of the government's recovery when they allege that an organization committed fraud on the federal government.

Most states have enacted their own whistleblowing laws and/or false claims acts. The whistleblowing statutes, in particular, may vary significantly from federal law in terms of who is protected, what unlawful conduct is covered and to whom the individual must report to receive protection. See Filing Requirements for Whistleblower Statutes - Chart.

To best combat against the growing wave of whistleblowing and retaliation lawsuits, employers should review their complaint procedures and protocols to ensure they are prepared to respond to employees who complain about alleged company wrongdoing or unethical behavior. Employers may also want to consider implementing whistleblowing and retaliation training for managers and senior executives. See Manage an Employee Whistleblower.

Employee Training and Development

Employee training and development are important in keeping employees engaged and helping them to grow within their current role or into new roles within the organization. See Employee Management > Training and Development and Employee Management > Employee Retention. Many employers, therefore, invest substantial resources in formal and informal employee training and development initiatives.

Employers in some states must invest additional resources to comply with additional, state mandated training. As the following demonstrates, states handle the issue of sexual harassment training, in particular, differently:

  • California, Connecticut and Maine, for instance, require mandatory sexual harassment training for certain employees.
  • California specifically requires that employers with at least 50 employees provide all supervisory employees with instruction or training in harassment prevention, discrimination and retaliation. That training must meet specific requirements (e.g., the sexual harassment prevention training needs to be interactive and last two hours). There are also specific guidelines regarding training timing and frequency. An employer headquartered in or that has supervisors with a connection to California should consider conducting or providing training for all employees, regardless of supervisory status or geographic location.
  • Colorado, Hawaii, Maryland, Massachusetts, Michigan, Nevada and a number of other states include statements encouraging harassment training and/or prevention strategies for eliminating sexual harassment.
  • A 2002 New Jersey Supreme Court case held that absent managerial and supervisory training on harassment, there were questions of fact as to whether an employer's antiharassment policy was effective. In its decision, the court also noted the importance of making such training available to all employees.

See also Employee Management > EEO-Harassment > State Requirements; Employee Management > Training and Development > State Requirements; and Employee Management > Training and Development > Minimizing Workplace Liability.

Employee training and effective reporting mechanisms addressing how to handle complaints when they arise may reduce risk and should be part of each multistate employer's compliance strategies. See Complaint Form for Workplace Discrimination and Train an Employee.

Wage and Hour Policies and Practices

The Fair Labor Standards Act (FLSA) is a federal law that requires most employees be paid a federal minimum wage for all hours worked and receive overtime pay at time-and-one-half the regular rate of pay for all hours worked over 40 hours in a workweek.

Many states have their own minimum wage and overtime laws that may provide higher wages or more protective wage and hour policies than federal law. See Employee Compensation >Employee Classification >State Requirements; Employee Compensation > Minimum Wage > State Requirements; Employee Compensation > Hours Worked > State Requirements; and Employee Compensation > Overtime > State Requirements.

These laws address such wage and hour issues as minimum wage, overtime and possible exemptions to the minimum wage or overtime requirements.

The wide variety in wage and hour practices across states and localities demonstrates that multistate employers cannot take a one-size-fits-all approach. As a general rule, federal wage and hour laws do not preempt state laws. Therefore, an employer must comply with each applicable law and, if the state and federal law impose different requirements, the employer must adhere to the standard that is most beneficial to employees.

HR practices and policies must be tailored to ensure compliance with both applicable federal and state laws, by either having uniform practices and policies adopting the broadest possible rights or by having state-specific practices and policies. See Employee Management > Employee Handbooks - Work Rules - Employee Conduct. Failure to tailor HR practices may result in penalties, fines or hefty judgments.

Minimum Wage Requirements

The federal minimum wage has been set at $7.25 per hour since 2009. Minimum wage differences between the federal government and state governments include:

  • Several states have minimum wage requirements higher than the federal amount.
  • In Nevada, the required minimum wage depends on whether the employer offers health benefits.
  • Several states adjust their minimum wage each year based on a potential increase in the cost of living.

At least six cities around the country have also implemented their own ordinances providing for higher minimum wages on certain covered employers: San Jose, San Francisco and Long Beach, CA; Washington, DC; Albuquerque and Santa Fe, NM. Additionally, a number of other cities and counties have enacted "living wage" ordinances, which require employers contracting with a governmental entity to provide a higher minimum wage and, sometimes, health insurance benefits to their employees.

Overtime Requirements

The FLSA also requires overtime pay for hours worked in excess of 40 in a workweek. See Employee Compensation > Overtime. Certain states, however, have daily overtime requirements. For example, in Alaska, California and Nevada, employees generally are entitled to overtime when they work more than eight hours in a workday.

California and Kentucky also provide for overtime if employees work a seventh consecutive day in a workweek. California further requires that double time be paid for all hours over 12 in a day and for all hours of work in excess of eight hours on the seventh consecutive day of work in a single workweek.

The FLSA provides certain white-collar exemptions from the overtime requirements for employees employed as bona fide executive, administrative, professional and outside sales employees. Among a host of additional exemptions, the FLSA also exempts certain computer professionals or employees. See Classify an Employee Under the FLSA; Employee Compensation > Minimum Wage; Employee Compensation > Hours Worked and Employee Compensation > Overtime.

States do not necessarily adopt all of the exemption categories available under federal law, so multistate employers should carefully examine applicable state exemptions to determine whether their employees fall into an exemption category.

Additionally, for the white-collar exemptions to apply under federal law certain compensation requirements must be satisfied and, in most instances, an overtime-exempt employee must be paid on a salary basis. The salary necessary to be an overtime-exempt executive, administrative or professional employee under federal law is $455 per week ($23,660 per year). The minimum salary requirements under state white-collar exemption tests often differ from the federal $455 per week minimum, although only a few states have a higher minimum salary requirement than the federal requirement. However, if an employer is covered by both federal and state law, the higher of the two minimum salaries must be paid.

Multistate employers pay attention not only to the requirements of the various state laws but also to judicial interpretations instructing how those laws should be applied in the workplace. For instance, the California Supreme Court has interpreted the state Labor Code to apply to overtime work performed in California for a California-based employer by out-of-state residents.

Additional Wage and Hour Obligations

State laws also regulate the ministerial aspects of an employer's wage and hour obligations. Such matters as when, how often and in what form employees' wages must be paid and permissible deductions that may be taken from employees' wages are typically regulated by states. There are also state income tax withholding rules, including the application of the income tax to residents and/or nonresidents, that vary by states. See Payroll > Withholding Taxes: State Requirements. As a result, there can be significant variety in how wages must be paid depending upon the state.

As another example, in certain states, vacation pay is a form a wages and, in others, it is a forfeitable benefit of employment. See Payroll >Payment of Wages: State Requirements.

Practical Example

In California, vacation pay is another form of wages that vests as it is earned. Vacation pay accrues (or adds up) as it is earned and cannot be forfeited, even upon termination of employment, regardless of the reason for the termination. Since paid vacation benefits are considered wages, vacation pay must be included in the employee's final paycheck. Accordingly, in California, a policy that provides for the forfeiture of vacation pay that is not used by a specified date (a use-it-or-lose-it policy) is unlawful and will not be honored. See Payroll > Payment of Wages: California > Termination Pay.

These same principles apply to a paid time off (PTO) plan or policy. PTO programs grant employees a fixed number of annual paid days off, which employees may use for any purpose, including vacation and sick leave. In California, the law imposes the following:

  • Vested PTO days cannot be forfeited; and
  • At the time the employment relationship ends, employees must be paid for any unused earned and accrued PTO days;
  • However, earned and accrued PTO days can be reasonably capped.

As a matter of best practice, multistate employers should establish a reasonable cap on the accrual of vacation and PTO. Establishing a cap prevents an employee from earning vacation or PTO over a certain amount of hours and limits the payment the employer may be required to make to a terminated employee. See Employee Leaves > Other Leaves: Compensation for Leave Time.

States may also regulate holiday work and days of rest for employees. For example, a few states require that employees be given a day of rest each week and/or that employees be excused from work on specified holidays or be compensated at a premium rate for work performed on those holidays. These laws may be specific to certain categories of employees, such as retail employees, or apply to all employees.

Independent Contractor Status

Wage and hour laws apply only where an employer-employee relationship exists. Because an independent contractor is not considered to be an employee and will not be protected by federal or state wage and hour laws, an employer needs to accurately classify individuals to avoid potentially significant penalties. See Employee Compensation > Independent Contractors; Managing Independent Contractors - Supervisor Briefing; and Does an employer have to report independent contractors as new hires?.

As a general rule, all individuals who are economically dependent on an employer will be considered to be employees of the employer under the FLSA. The broad definition of employee contained in the FLSA has left a correspondingly narrow area within which an individual will be regarded as an independent contractor. Most state labor laws also contain a narrow definition of an independent contractor.

Meal and Rest Periods

Federal law does not require employers to supply meal time or break periods, with the exception of allowing for mandatory, unpaid breaks for the purpose of expressing breast milk. When employers offer short breaks (between five and 20 minutes), those breaks should be counted as "hours worked" under the FLSA and are compensable work time.

If an employee needs to extend the break period and does so without the employer's authorization, the extended time may not be compensable. Unlike break periods, meal times (usually 30 or more minutes) are ordinarily not compensable. However, to remain unpaid, the employee must be completely relieved from duty for the purpose of eating regular meals and must not be required to perform any duties while eating. See State Meal and Rest Break Requirements - Chart; Determine if an Employee Must Be Paid for Meal Breaks; Determine if an Employee Must Be Paid for Rest Breaks; and Employee Management > Employee Handbooks - Work Rules - Employee Conduct.

The majority of states have enacted meal or rest period laws. However, the requirements vary in terms of who must be offered breaks, under what circumstances breaks must be given and whether the breaks are compensable. As examples:

  • California, Colorado, Kentucky, Minnesota, Nevada, Oregon and Washington require paid rest periods for adults.
  • Many states require that minors not work for more than a certain number of hours (usually around four or five hours) without begin given a "nonworking period" or rest period of 30 minutes. The laws vary for minors from state to state.
  • Absent certain exceptions, Connecticut requires employers to provide a 30-minute meal period to employees working seven-and-a-half or more consecutive hours.
  • In Massachusetts, employees are entitled to a 30-minute meal period after working six hours.
  • In North Dakota, a shift exceeding five hours would render an employee entitled to a 30-minute meal period, so long as there is more than one employee on duty.

See Employee Compensation > Hours Worked > State Requirements.

Lactation Accommodation

The federal Patient Protection and Affordable Care Act (PPACA), the comprehensive health care bill enacted in 2010, amended the FLSA to require that large employers provide a reasonable break time to accommodate an employee each time she needs to express breast milk for her infant child. Unpaid breaks must be provided for at least one year after the child's birth.

Employers must provide a place (other than a bathroom) that is shielded from view and free from intrusion from coworkers and the public. Employers with fewer than 50 employees are not required to comply with the lactation accommodation and break requirements if doing so imposes an undue hardship. See Establish Breastfeeding Breaks for Nursing Mothers and Employee Management > Employee Handbooks - Work Rules - Employee Conduct.

A number of states have passed legislation addressing breastfeeding in the workplace. The state laws vary as to the level of accommodation required and the length of time after the birth of a child that the accommodation must be given. Most states require that the break time run concurrently with the break time already provided to employees where possible. See State Breastfeeding Break Requirements - Chart.

Practical Example

In Colorado, employers must make "reasonable efforts" to provide a room in close proximity to the work area (other than a toilet stall) where an employee may express breast milk in private. Employers are required to provide a nursing mother with reasonable unpaid break time to express breast milk for her nursing child, or permit an employee to use paid break time, paid meal time or both for this purpose. A nursing mother has a right to express breast milk at her workplace for up to two years after a child's birth.

Practical Example

Oregon requires employers with 25 or more employees to provide reasonable unpaid rest periods for the purpose of expressing breast milk. Reasonable rest periods are defined as being no less than 30 minutes during each four-hour work period or major part of a four-hour work period, to be taken by the employee approximately in the middle of the work period. Employers must also make reasonable efforts to provide a location (other than a public restroom or toilet stall) in close proximity to the employee's work area for the employee to express milk in private.

Employee Privacy

Workplace privacy issues have grown increasingly complex as new technologies have entered the workplace and legislation and case law continues to develop. For example, multistate employers should take note of state law variations in how to handle employee surveillance, access to employee's online social media accounts, employee background and credit checks and drug testing. See Employee Management > Employee Privacy.

Employee Surveillance

New technologies have changed how employers monitor their employees' job performance. Monitoring can take many forms, including monitoring telephone, voice and electronic mail, computer terminal or Internet usage as well as the use of Global Positioning System (GPS) tracking devices. Each type of monitoring typically is subject to different legal constraints.

For example, when monitoring a telephone call, an employer must be aware of state laws that may require that participants be informed that a conversation is being recorded or monitored. While a majority of states (as well as federal law) allow audio recording of phone conversations as long as one party on the call consents to the recording, some states require that all parties in a conversation consent. State laws may also place restrictions on where, how and why an employer may videotape employees. Video cameras that capture audio recordings may also be subject to wiretap and eavesdropping laws. See Conduct Video Surveillance of Employees.

Additionally, several states have enacted legislation prohibiting a private employer from placing a location tracking device on an employee's vehicle without that employee's consent. Even in a state where there is no statute prohibiting the use of a GPS tracking device, employers should proceed cautiously as their actions will be subjected to a reasonableness test. The potential for an excessive search is heightened if an employer activates location tracking on a company-issued smartphone or on a personally owned phone used in a Bring Your Own Device (BYOD) program because an employee is more likely to take the smartphone into private places (e.g., an employee's home). See How To Manage and Monitor BYOD (Bring Your Own Device) and Podcast: Why BYOD Is Creating New Employment Concerns.

The complexities involved in ensuring that an employer's monitoring is lawful advocate strongly for employers to review their workplace policies and procedures. Multistate employers will need to take into account the various state laws, and their policies should clearly outline for employees where monitoring may take place so that they do not have a reasonable expectation of privacy. See Employee Privacy Policy; Acknowledgement and Consent Form for Employee Surveillance; Use of Employer Provided Cell Phones Policy; How to Protect and Manage Employee Privacy in the Workplace; How to Monitor Employee Use of Company Property Including Vehicles and Cell Phones; and How to Lawfully and Legally Search Employees.

Social Media Password Protection Laws

A growing number of states have passed laws prohibiting employers from asking applicants or employees for access to their social media sites. For example, between 2011 and 2013, 12 states enacted social media or internet privacy laws affecting employers:

See also Social Media Password Privacy Protection Legislation - Chart.

Beyond the clear restriction against requesting or requiring applicants or employees to disclose their user name, password or other information needed to access a personal social media account, these states have created a patchwork of laws with no true uniformity. See Employee Privacy > Monitoring Use of Social Media Networks; DOs and Don'ts of Social Media - Supervisor Briefing; and Podcast: Key Social Media Issues Affecting the Workplace.

For example:

  • Illinois, Michigan and Washington prohibit employers from requiring that applicants or employees:
    • Accept a request, such as a Facebook "friend request," that would permit access to restricted content;
    • Allow their employer to observe their restricted social media content after they have logged in (often referred to as "shoulder surfing;" and
    • Change their privacy settings in a manner that would permit the employer to access their restricted social media content.
  • With respect to workplace investigations, Illinois, Nevada and New Mexico have no exception for workplace investigations. Arkansas, California, Michigan and Utah have what could be characterized as a broad exception (e.g., California allows employers to ask an employee to divulge personal social media that is reasonably believed to be relevant to an investigation of employee misconduct). Colorado, Maryland, Oregon and Washington have relatively narrow exceptions for workplace investigations. The Colorado and Maryland laws, for instance, allow requests for access to employees' personal social media content only when necessary to investigate violations of securities laws or potential misappropriation of trade secrets.

Because of the differences among state password protection laws, multistate employers may not be able to create a uniform policy applicable to all employees. Employers should also be aware that the federal Stored Communications Act and other laws also prohibit employers from gaining unauthorized access to private areas of a social-media account.

Going forward, employers should:

  • Monitor state law developments in this area;
  • Seek legal counsel before accessing an employee's restricted social media content; and
  • Train supervisors and in-house investigators to be cautious about seeking access to such content in the midst of a workplace investigation.

Background & Credit Checks on Current Employees

Because various laws affect the use of criminal records and credit checks for employment purposes, such as Title VII, the federal FCRA and state fair employment and fair credit reporting laws, employers must be mindful of their obligations to comply with all of these laws when conducting background and credit checks on current employees. As noted at the hiring stage, state laws prohibit inquiries and consideration of certain types of offenses, expunged records, pending charges or convictions. A growing number of state laws also restrict or prohibit consideration of credit reports when making employment decisions. See Employee Management > Employee Privacy > State Requirements.

Drug Testing for Current Employees

Drug testing for current employees may arise, for example, from a reasonable suspicion following a workplace incident or as a matter of employer policy for employees in certain safety-sensitive jobs. Because there is significant variety across states in whether and how an employer conducts lawful drug tests, multistate employers should review their drug-testing policy to determine if it complies with both federal and state law. See Employee Management > Employee Privacy > State Requirements; Employee Management >Employee Handbooks - Work Rules - Employee Conduct> State Requirements and Acknowledgement and Consent Form for Drug and Alcohol Testing Policy.

As noted at the hiring stage, an employer's treatment of marijuana use by an employee may need to be adjusted based on state law. Medical marijuana laws - which currently exist in approximately one-third of the states and the District of Columbia - should be considered by multistate employers before disciplining or terminating an employee who tests positive for marijuana because some state laws require that an employer accommodate an employee's medical marijuana use. Notably, however, a number of court cases in these states have soundly rejected the suggestion that employers are obligated to accommodate medical marijuana use by workers with disabilities because federal law (e.g., the ADA) continues to prohibit the use of marijuana regardless of the reason. See Podcast: How Marijuana Legalization Laws Impact the Workplace.

Practical Example

Connecticut's medical marijuana law forbids employers from refusing to hire, discharging, penalizing, or threatening individuals based on their medical marijuana use. However, the law explicitly allows an employer to prohibit use of intoxicating substances during work hours and supports an employer's right to discipline employees for being under the influence of intoxicating substances during work hours. In addition, the law permits employers to take an employment action that is required either by federal law or for purposes of obtaining federal funding even if such action is based on the person's status as a medical marijuana user. Connecticut's law remains untested in the courts to determine whether the employment-related provisions can be enforced vis-à-vis federal law.

In addition, a growing number of states recently have liberalized their criminal codes to allow for the possession and recreational use of marijuana. Because federal law continues to forbid the use of marijuana, the impact of these laws on multistate employers may remain negligible. Nonetheless, employers should monitor this area of the law for additional developments and be prepared to address the inconsistencies between state and federal law. As a primary example, there are significant complexities created by the intersection of recreational marijuana laws and state laws prohibiting an employer from taking adverse action based on an employee's off-duty, lawful conduct.

Practical Example

Colorado, like many states, has a statute prohibiting employers from discharging employees for engaging in lawful, off-premises activities during non-working hours. These statutes are often referred to as lifestyle discrimination statutes and they restrict employer action based on an employees' lawful use of alcohol or tobacco, for example. The scope of these statutes has arguably expanded, however, in states that have legalized the recreational use of marijuana by adults. Colorado falls into this category after voters approved Amendment 64 in 2012 to legalize the distribution, possession and use of small amounts of marijuana for recreational purposes.

Ultimately, the intersection of lifestyle discrimination statutes and state legalization of marijuana calls into question employer policies that prohibit all marijuana use by employees. While federal law may provide significant protection for employers, they should generally be cautious before taking action against an applicant or employee who tests positive for marijuana. Multistate employers should also review their substance abuse prevention policies to, at a minimum, ensure that the policy prohibits being under the influence of an intoxicating substance during work hours.

State Labor Law Issues

Most state labor laws, except for right-to-work laws and a few others, are preempted by the federal National Labor Relations Act (NLRA). See HR Guide to National Labor Relations Board (NLRB) Organization and Procedure - Chart.

More than one-third of the states have enacted right-to-work laws, which make it illegal for an employer and union to enter into an agreement that requires employees, as a condition of employment, to either become a member of a union or otherwise provide financial support to a union. These laws should not be interpreted, however, as an invitation for employers to ignore federal law or to negate an employer's obligation to recognize and bargain with an existing labor union. Any state labor law that survives preemption by the NLRA must still comply with the federal law.

Unionized employers operating in a right-to-work state should take a close look at their current bargaining agreement. Many agreements, negotiated before a right-to-work law was enacted, may have included a traditional union security clause that would require employers to withhold union dues. That instruction likely remains effective even after a right-to-work law is enacted until the employer and union negotiate a new bargaining agreement. In addition, because unionized employees will remain obligated to pay union dues, employers will need to take a look at their policies to determine whether employees who no longer want to pay dues must proactively revoke existing authorizations to deduct dues from their paycheck or whether all authorizations are deemed void without any employee action required. See Right to Work States - Chart

Workplace Health and Safety

Virtually all employers are subject to the federal Occupational Safety and Health Act or its state-equivalents, which impose complex and detailed standards and requirements relating to workplace safety and health, including training, recordkeeping, reporting and posting requirements. See HR and Workplace Safety (OSHA Compliance).

The federal law is set up to encourage states to develop and operate their own safety and health programs, which are in turn approved and monitored by the Occupational Safety and Health Administration (OSHA). There are currently over 20 states that operate OSHA-approved state plans. See State Occupational Safety and Health Plans - Quick Reference Chart. The majority of those plans apply to private employers, with only the Connecticut, Illinois, New Jersey, New York and Virgin Islands plans covering public sector employment only. Because there may be differences in the state regulations, multistate employers need to be aware of the various requirements in the jurisdictions in which they operate.

Leaves of Absence Policies and Practices

Many states have enacted their own laws providing for family and medical leave, posing a compliance challenge for multistate employers. In many cases, these laws do not affect the employer's obligation to comply with collective bargaining agreements or employee benefit plans that provide greater employee leave rights than those provided under the law. Where there are differences in federal and state family and medical leave laws, those differences, typically fall into the following categories:

  • Whether the employer is covered under the leave law (e.g., some states' leave laws apply to employers with less than 50 employees);
  • Whether the leave may run concurrently with other paid or unpaid leaves;
  • Whether the employer is required to maintain health benefits for employees who are on leave and at what level those benefits must be provided;
  • Whether, and to what extent, family and medical leave laws apply to employees in domestic partnerships, civil unions or same-sex marriages;
  • Allowable duration of employees' leave period;
  • Conditions under which employees will qualify for family and medical leave; and
  • Whether employees' eligible for family and medical leave are entitled to state disability insurance benefits.

See Employee Leaves > FMLA > State Requirements.

Multistate employers must know the family and medical leave laws in each state in which it has employees. To ease administrative burdens and create a more cohesive culture, employers can consider adopting uniform policies across all states, but those policies have to provide employees with the greatest possible rights. Multistate employers may also want to consider creating state-specific policies. See Employee Management > Employee Handbooks - Work Rules - Employee Conduct > State Requirements.

Multistate employers must also monitor new developments, particularly in reviewing the applicability of state family and medical leave laws for employees in same-sex marriages, civil unions or domestic partnerships. This is an area of rapid development since the US Supreme Court's June 2013 decision declared a portion of the federal Defense of Marriage Act (DOMA), which prohibited the federal government from recognizing legally married same-sex couples and providing them with federal benefits, unconstitutional. See Same-Sex Marriages, Domestic Partnerships and Civil Unions.

Specifically, now that Section 3 of DOMA has been invalidated, the definition of spouse in the FMLA regulations will apply and cover same-sex married couples who live in a state that allows same-sex marriages or that gives validity and recognition to same-sex marriages legally performed in other states. However, because the FMLA regulations define spouse in terms of the employee's state of residence's definition of "marriage" (as opposed to including civil unions or domestic partnerships), it appears that spousal standing under the FMLA may be generally restricted to marriages and not to civil unions or domestic partnerships. However, to add to the complexity, states may legislate in this area, as demonstrated below. See also LGBT Rights in States and Major Municipalities.

Practical Example

Effective August 7, 2013, the Colorado Family Care Act (FCA) requires that federal FMLA-covered employers provide FMLA leave to an FMLA-eligible employee so he or she can care for a civil union partner or domestic partner with a serious health condition.

Practical Example

Same-sex couples in Oregon and Wisconsin are entitled to spousal leave, which explicitly includes a civil union partner or domestic partner, under their respective state leave laws. California, Maine and Vermont have similar provisions in their laws, but also recognize same-sex marriage. Employers with employees in these seven states must comply with state leave laws applicable to same-sex couples regardless of whether FMLA leave is required for such couples.

Paradoxically, in the three states with greater recognition for same-sex couples (California, Maine and Vermont), the interaction between the federal FMLA and state family and medical leave laws will mean that same-sex married couples may now receive less leave time. Specifically, since DOMA has been declared unconstitutional, leave time - including time to care for a spouse - will now count as time taken under both the FMLA and the state law. Previously, employees in these states could take leave to care for their same-sex spouse under the state leave law without tapping into any of their 12 weeks of federal FMLA-leave entitlement.

Notwithstanding state or federal developments in this area, employers with employees in multiple states - some recognizing same-sex marriage and some not - may wish to consider permitting all employees in a same-sex union (marriage, civil unions or domestic partnership) to take spousal leave to ensure equal treatment. As a potential negative consequence of this change, however, employers may still have to contend with the complexities (e.g., tracking leave) caused when an employee who is not legally entitled to use FMLA leave is granted leave by the employer, but still retains the right to 12 weeks of untapped FMLA leave. Before implementing changes to leave policies, employers are strongly encouraged to consult legal counsel to determine the impact (intended and unintended) of any possible changes.

Other State-Specific Leaves of Absence

In addition to state equivalents of federally required leaves of absence, states provide for leaves of absence that have no analogous federal law. Examples include the following:

  • School visitation leave for employees to attend or assist with their children's educational activities;
  • Domestic violence leave for employees who have been the victim of domestic abuse, stalking, sexual assault and the like;
  • Bone marrow, blood and organ donation leave for employees donating organs or bone marrow;
  • Leave to permit an employee to perform emergency duty as a volunteer firefighter or emergency rescue personnel; and
  • Paid sick leave.

See Employee Leaves > Other Leaves > State Requirements; Paid Sick Leave - Chart.

Each of those leaves of absence laws has its own standards regarding which employees are covered, which employers must comply and how employers must comply. Multistate employers not only have to be aware of these standards but must consistently monitor changes to state leave laws and adjust business practices accordingly. For example, in 2014, Oregon became the first state to require certain employers to provide bereavement leave for employees.

Multistate employers are not required to, but should consider, providing all employees, regardless of state, with the same types of leave. For instance, if the employer is legally obligated to provide bone marrow, blood and organ donation leave to certain employees, the employer should consider extending that type of leave to all employees.

Employer Healthcare Policies

The federal health care reform law, known as the Affordable Care Act (ACA), is very complex with a broad range of provisions affecting individuals, employers and health insurers. One of the key provisions of the law, the employer "pay or play" mandate, requires that employers with 50 or more full-time employees, including full-time equivalent employees, must pay a penalty if they do not offer health care coverage that meets certain standards. Originally slated to begin in 2014, the federal regulators in charge of administering the ACA announced in July 2013 that the pay or play mandate would be delayed for a year to help regulators simplify the reporting requirements. See Health Care Reform Resource Center.

The ACA also created a mechanism for states to establish health insurance exchanges, which will act as virtual marketplaces for individuals and small employers to purchase health insurance. For small businesses, the Small Business Health Options Program (SHOP) Marketplace runs exchanges open to small employers with up to 50 employees in 2014. Beginning in 2016, all SHOPs will be open to employers with up to 100 full-time employees. A full-time employee is generally described as an employee who works, on average, 30 or more hours per week.

Because implementation of the ACA remains in a constant state of flux, all employers must keep abreast of new developments affecting their workforce.

Same-Sex Marriages, Domestic Partnerships and Civil Unions

In a highly anticipated decision, the US Supreme Court in United States v. Windsor ruled that Section 3 of the federal Defense of Marriage Act (DOMA), which required federal laws to define marriage as the legal union of one man and one woman, was unconstitutional. Previously, DOMA acted to prohibit partners in same-sex marriages from receiving certain federal benefits received by heterosexual married couples, such as insurance benefits for government employees, advantageous tax treatment and Social Security survivors' benefits.

The Windsor decision substantially impacts the design and operation of private employer benefit plans, including retirement plans, health benefits and other benefit plans (e.g., COBRA, long-term disability plans and supplemental life insurance programs). See Employee Benefits > Compliance, Reporting and Disclosure Requirements > Pension Plans; Employee Benefits > Health Care Benefits: Meeting the Needs of a Diverse Workforce and Employee Benefits > Health Care Continuation (COBRA): Qualified Beneficiaries.

As discussed in the section on Leaves of Absence Policies and Practices, the decision also affects the number of employees who may be eligible for family medical leave.

Notably, the Windsor decision does not eliminate much of the confusion for multistate employers as to how to handle the patchwork of state laws providing recognition of same-sex relationships. 17 jurisdictions (with Utah and Oklahoma pending) currently provide full marriage equality to same-sex relationships:

  • California (as a result of the Supreme Court's decision in Hollingsworth v. Perry that supporters of Proposition 8, a voter initiative that banned same-sex marriages, did not have standing to appeal a decision by a federal district court that ruled the initiative unconstitutional);
  • Connecticut;
  • Delaware;
  • District of Columbia;
  • Hawaii;
  • Iowa;
  • Illinois (effective June 1, 2014, with one exception);
  • Maine;
  • Maryland;
  • Massachusetts;
  • Minnesota;
  • New Hampshire;
  • New Jersey;
  • New Mexico;
  • New York;
  • Rhode Island;
  • Vermont; and
  • Washington.

A handful of other states provide for civil unions or domestic partnerships that either provide all of the legal rights and benefits of marriage or only some.

In light of Windsor, employers need to revisit their benefit plans and decide how they want to proceed going forward. Many open questions remain following the decision and it is recommended that employers seek counsel from experienced benefit attorneys for advice.

Among many of the necessary considerations, employers will want to:

  • Revisit their retirement plan design and administration, including a review of the plan's definition of "spouse" and whether certain spousal-type rights are provided to employees in civil unions or domestic partnerships (See Employee Benefits > Compliance, Reporting and Disclosure Requirements > Pension Plans);
  • Review summary plan descriptions and other employee communications to ensure that employees with same-sex spouses or in civil unions or domestic partnerships understand how they can direct benefits to their spouses or partners, or whether they will need spousal consent for a non-spouse beneficiary.
  • Adjust their payroll systems to eliminate the additional imputed income for the value of health coverage for same-sex spouses under federal tax law. Previously, an employee in a same-sex marriage had to include the value of health coverage provided to a non-dependent same-sex partner as taxable income (also referred to as "imputed income") See Payroll > Taxation of Employee Benefits: Nontraditional Living Arrangements.
  • Determine whether any employees who have entered into a same-sex marriage are subject to state income tax in a state that does not recognize the marriage. Employers will then need to adjust their payroll systems accordingly.
  • Decide how to treat federally-recognized same-sex spouses and non-federally-recognized same-sex relationships (civil unions and domestic partnerships) and review plan documents, summary plan descriptions, employee handbooks, benefit notices and policy manuals for compliance with federal and state laws.

Post-Employment Relationship

At the end of the employment relationship, a multistate employer should be aware of a variety of issues, relating to the payment of final wages, communicating the termination decision, document retention and other federal or state law requirements.

Payment of Wages

Organizations employing workers in multiple states should be mindful of the need to pay wages, including any accrued unused paid time off, in accordance with state law governing the time for payment (e.g., on the date of termination or within a prescribed number of days following the termination). In some states, earned and unused vacation time must be paid to the employee at his or her final rate of pay, and an employment contract or policy forfeiting that pay upon separation may be unenforceable. See Payroll > Payment of Wages: State Requirements.

Communicating Termination Decision

Certain states may require employers to provide a letter to the employee stating the reason for the termination. See Organizational Exit > Involuntary Terminations > State Requirements.

If an employee is subject to a post-employment restriction, it is recommended that an employer remind the employee, in writing, of their obligation under the contract. If an exit interview is conducted, an HR representative can also discuss the restriction with the employee at that time. See Organizational Exit > Process of Termination and Conduct an Exit Interview.

When it comes to enforcing a post-employment restriction, a multistate employer's governing law or forum-selection clause will generally - although not always - operate. To review, this clause dictates the state law under which the agreement will be construed and some state laws are more favorably predisposed to noncompete clauses. Therefore, it is both a legal and business decision as to which state law a multistate employer will want to govern.

Right to Inspect Personnel File

In some states, employees have the right to inspect their personnel files during employment and for a period of time after the employment relationship has ended. This right of access typically entitles employees to inspect their personnel records at reasonable times and intervals. See HR Strategy, Management and the Law > HR Management > State Requirements; States Requiring Employers to Allow Employees to Review or Copy Personnel Records - Chart and California Request to Inspect or Copy Personnel File Form.

Document Retention

While this issue implicates the employment relationship as well, it is discussed here under post-employment considerations because the question of when an employee document can be destroyed most often comes up in an HR representative's mind after an employee leaves employment.

Both laws and state regulations govern the minimum amount of time that specified documents, such as those relating to wage and hour law, occupational safety and health, employment discrimination, workers' compensation, personnel files and unemployment insurance, should be retained. While workplace record retention requirements vary by state law, an employer may also find it generally prudent to retain certain documents until the relevant time period to file a lawsuit (i.e., statute of limitation) on the specific claims have expired. In some instances, this time frame may exceed the statutory or regulatory retention period. See Federal Record Retention Requirements by Law - Chart and Record Review and Destruction - Checklist.

Restructure, Reorganization or RIF

If a restructuring, reorganization or reduction in force (RIF) results in mass layoffs or plant closings, employers may need to manage employee terminations in conjunction with the federal Worker Adjustment and Retraining Notification Act (WARN). See Conduct a Reduction in Force (RIF) Under the WARN Act.

A multistate employer must also be aware of similar state laws, which may have different or additional requirements. See Organizational Exit > Involuntary Terminations > State Requirements.

Some common differences include the following:

  • Definition of a covered employer;
  • Definition of a covered mass layoff; and
  • Notification requirements.

Additionally, some states, such as California, have requirements that must be observed for a waiver or release of claims provided in exchange for severance.

COBRA

Upon the termination of the employment relationship (whether the termination of employment is voluntary or involuntary), employers must take care to comply with the mandates of the federal Consolidated Omnibus Budget Reconciliation Act (COBRA) and/or state programs that are similar to federal COBRA (often referred to as "mini-COBRA" laws). Under COBRA, employees may elect to continue their employer-provided group health care coverage in circumstances when coverage might otherwise end, such as with the loss of employment. Federal COBRA applies to group health plans sponsored by employers with 20 or more employees and generally lasts for up to 18 months. State mini-COBRA laws typically require that employers with fewer than 20 employees comply with the state's COBRA law. See also Determine COBRA Eligibility.

Centralized or Decentralized HR

A centralized HR function means that HR sits in one location (usually the employer's corporate headquarters) and all HR functions (i.e., performance management, benefits administration and payroll) are administered from that central location. In a decentralized HR model, the employer's business operations are supported by local or regional HR departments that have responsibility over employees in their region.

In a centralized HR model, the potential for consistency may be greater because the employer is speaking in a single voice on all HR issues. However, in a centralized HR model, employees may feel HR is less accessible, increasing employees' reluctance to bring grievances to HR's attention. Also, HR may not be aware of certain local concerns or cultural differences. HR may circumvent some of those concerns by visiting other offices to conduct new-hire orientation and employee training. In addition, HR should consider making periodic visits to remote locations and having office hours (time set aside to address employee complaints and questions). During those periodic visits, HR should have access to a private location to speak with employees.

Multistate employers may wish to use a combined centralized and decentralized approach. Performance management, benefits administration and diversity and inclusion initiatives may be handled by HR from the employer's corporate office. Other issues such as leaves of absence, employee grievances and employee discipline may be managed by local HR teams with a potential reporting structure up through central HR. In this mixed centralized-decentralized HR structure, employers could maintain one general handbook on centralized issues (diversity, benefits, etc.) and smaller state-specific policy manuals on decentralized issues. HR should work closely with internal lawyers in each state or external law firms to develop and maintain state-compliant policy manuals.

Future Developments

There are no developments to report at this time. Continue to check XpertHR regularly for the latest information on this and other topics.