The employment relationship is highly regulated. Dozens of federal, state and local laws set standards for how employers must treat employees and handle employment matters. These laws change frequently and vary significantly from state to state. Accordingly, legal compliance isn’t easy and even conscientious and well-intentioned employers can run the risk of legal claims.
In this installment (the 2nd of 3), I will discuss three common misstates that Pennsylvania employers often make. (Please see our first article for Part 1 and look for Part 3 in our next edition in April.)
- Talking about former employees
Picking up where I left off in Part 1 (which discussed the myth of “at-will” employment and the three-steps to take to mitigate legal risks when terminating someone’s employment), many employers don’t realize that what they do after the termination can create legal issues. For example, employers can face legal claims if they talk about departed employees to others – both inside or outside the organization. This can happen in two ways.
First, employees often bring defamation claims if they believe that their past employer is speaking to others (like a former co-worker or a prospective employer) in a way that puts them in a bad light or costs them a job offer. An employer that feels the need to explain the ex-employee’s absence to curious co-workers or customers are particularly susceptible. Some employers underestimate the continued contact that former employees continue to have with current employees, who can share what is said or announced about someone’s departure. The best practice is to say only that the former employee no longer works for the organization (carefully avoiding even confirming that the former employee was let go, as opposed to leaving on his/her own) and that, to protect the privacy of all current and former employees, the organization does not discuss the specifics of anyone’s employment. In the case of an employment reference, the employer should only confirm dates of employment and title held.
Second, in addition to the defamation issue, by sharing any information regarding someone’s departure, employees risk characterizing the separation in a way that is inconsistent with what was said to the former employee, reported on an unemployment compensation filing (see below), etc. Any such inconsistency can be used to establish that the stated reason for the separation was pretextual, which can lead to a finding of discrimination even in the absence of any direct evidence. (See Part 1) (For example, an employee who was told that his job was being eliminated as part of a restructuring due to economic reasons but later hears that the employer told others that he had performance issues, can claim that the reason he was given was pretextual and that the real reason was his age, race, etc.)
- Not properly responding to unemployment compensation (UC) claims
Another post-termination situation that can unexpectedly create legal issues is the employer’s response to a UC claim. Some employers treat such claims casually, thinking that they’ll challenge a UC claim and if they lose, oh well, it’s just a UC claim. The problem with this approach is that information submitted or testimony given during UC proceedings can have a significant impact on other employment claims brought by the departing employee. (And, because the UC claim is usually filed and processed right away, the employer typically won’t know about other claims until after the UC claim has concluded.) An employer who suspects that a former employee may have broader employment claims is well-served by seeking legal advice when submitting information to the UC Bureau.
- Misclassifying employees as independent contractors
Employment laws require businesses to do things for employees that they don’t have to do for non-employees (such as withhold employment taxes, pay a portion of certain payroll taxes, abide by employment discrimination laws, provide access to established employee benefit plans/programs, comply with overtime, minimum wage and other wage-and-hour laws, include in workers’ compensation coverage, etc.). As such, it is critical for businesses to know who is an employee and who isn’t (a so-called independent contractor).
Answering this question is more complicated than it seems. Many businesses believe that someone is an independent contractor if the business says so, if the parties agree that the individual isn’t an employee, or if the business takes a certain action (like report payments made on an IRS Form 1099). But this is NOT how the law works.
Whether an individual who performs services for a business is an employee or an independent contractor is a legal conclusion, not an election of the business and/or the individual. In other words, that individual isn’t an independent contractor simply because the employer says so or even if both parties agree.
What really matters is the true real-life nature of the relationship between the business and the individual. Although each law can have its own specific legal test, there are some general common factors to consider, such as whether the company has retained the right to control the manner and means by which work is accomplished, even if not exercised and what the economic realty of the relationship is. Businesses should be aware that the default classification is employment and the burden is on the business to show that the applicable independent contactor standard is met. Lastly, the laws are generally getting stricter. For example, the U.S. Department of Labor is pushing toward a new rule that will make it harder for a business to claim that someone in not an employee for wage-and-hour law purposes.