July 25, 2024
Publishing

Spotlight on Employee and Other Matters in Corporate Settings

Independent Contractors

Determining whether an individual is an employee or an independent contractor is crucial for compliance with various laws and regulations. The classification hinges on several criteria, regardless of how the contract describes the relationship. If an independent contractor is later deemed an employee, the employer could face significant liabilities, including back taxes, penalties, and workers’ compensation obligations.

Key Criteria for Independent Contractor Status:

Control Over Work: Contractors control the manner and means of completing their projects, unlike employees who work under the employer’s supervision with set work hours.
Provision of Tools: Contractors provide their own equipment, tools, and materials at their expense, while employers usually supply these for employees.
Work Location and Schedule: Contractors perform services at locations, places, and times they choose, whereas employees typically work at the employer’s site.
Project-Based Work: Contractors work on a project basis, in contrast to employees who are employed by the hour or on a salaried basis.

For those providing programming and technical services, an Independent Contractor Services Agreement is appropriate. For non-technical services like graphic design, consulting, or marketing, a Consulting Agreement should be used.

Exempt vs. Non-Exempt Employees

Both federal and state laws presume employees are non-exempt, entitling them to minimum wage, rest breaks, meal periods, and overtime compensation. To classify an employee as exempt, the employer must demonstrate that the employee meets all criteria for one of the exemptions under the Fair Labor Standards Act (FLSA) and applicable state laws. Common exemptions include executive, administrative, and professional employees, as well as outside salespersons and computer professionals.

Employment Agreements and Workers’ Compensation

Indemnity Agreements and Workers’ Compensation: Nearly all California employers must comply with state workers’ compensation laws, even if they have only one part-time employee. Coverage is provided by authorized issuers, and employers should consult their insurance agents and the State Compensation Insurance Fund for details.

Key Labor Laws

While it’s beyond this blog’s scope to discuss all laws governing wages and employment conditions, some important regulations and notices required in California include:

Industrial Welfare Commission Orders: From the California Department of Industrial Relations.
Federal Minimum Wage Notices: From the Wage and Hour Division, U.S. Department of Labor.
Health and Safety Notices: From the California Department of Industrial Relations.
Fair Employment and Housing Act Notices: From the California Fair Employment and Housing Commission.
Federal Civil Rights Notices: From the U.S. Equal Employment Opportunity Commission.
Payday Notices: From the California Department of Industrial Relations.
Workers’ Compensation Notices: From the California Employment Development Department.
Unemployment Insurance Notices: From the California Employment Development Department.

Employment Eligibility Verification

The Immigration Reform and Control Act of 1986 mandates that employers verify the employment eligibility of anyone hired after November 8, 1986, using Form I-9. Employers should retain this form and follow the instructions provided by the U.S. Immigration and Naturalization Service.

Anti-Discrimination Laws

Several laws regulate hiring practices to prevent discrimination:

California Fair Employment Practices Act
Title VII of the Federal Civil Rights Act
Age Discrimination in Employment Act of 1967
Fair Labor Standards Act of 1938

Employers must ensure compliance to avoid personal liability and potential lawsuits.

Insurance Requirements

Corporations should obtain standard insurance coverage, including general liability, fire and casualty, automobile, business interruption, key-person, and workers’ compensation insurance. California employers must comply with state workers’ compensation laws, which may require insurance or a Certificate of Consent to Self-Insure.

Employment Litigation Risk Management

Preventive measures can reduce the risk of employee lawsuits and increase workforce productivity. Key strategies include:

Recruiting and Hiring:

Target Appropriate Candidates: Ensure recruiting materials accurately describe job requirements.
Review Application Forms: Avoid asking for information on protected characteristics.
Interview Wisely: Focus on job-related abilities and avoid questions about protected characteristics.
Know the Applicant: Check references and background information.
Implement At-Will Employment Policies: Include at-will language in all employment-related documents.
Standardize Documents: Coordinate offer letters and agreements with HR and legal counsel.
Be Consistent: Ensure all statements about employment terms are consistent and avoid making unkeepable promises.

Maintaining the At-Will Relationship:

Review Employment Policies: Ensure they support the at-will relationship.
Review Personnel Files: Confirm signed employee agreements with at-will language.
Maintain Flexibility: Avoid committing to rigid discipline policies.
Train Managers: Ensure they understand and consistently apply company policies.

Evaluating Employee Performance:

Be Timely: Stick to a performance review schedule.
Be Honest and Tactful: Provide both positive and negative feedback professionally.
Document Reviews: Keep signed performance appraisals on file.

Handling Employee Grievances:

Establish a Grievance Policy: Implement and adhere to procedures.
Investigate Complaints Promptly: This helps defend against claims.
Choose an Appropriate Investigator: Ensure trust and credibility.
Document Results: Report outcomes to the employee.

Disciplining Employees:

Understand the Issues: Ensure a solid basis for discipline.
Provide Notice and Opportunities to Improve: Communicate problems and expectations clearly.
Act Promptly and Document Decisions: Avoid delays that might appear suspicious.

Terminating Employment:

Review At-Will Status: Consider the employee’s tenure and representations about continued employment.
Analyze Termination Reasons: Ensure they are fair and consistent with company policy.
Assess Discrimination and Public Policy Risks: Consider protected classifications and potential retaliation claims.
Consider ERISA Risks: Review the impact on retirement, health, or stock option benefits.
Conduct Sensitive Termination Meetings: Have necessary documentation ready and maintain confidentiality.

Providing References:

Limit Information: Refer all reference checks to HR and provide only basic information like title, employment dates, and final salary.

Conclusion: Employee and Other Corporate Matters

By understanding and implementing these practices, corporations can mitigate risks associated with employee management, enhance compliance with labor laws, and foster a more productive work environment. Careful attention to employment policies and documentation, as well as consistent training and communication, are essential in maintaining a healthy employer-employee relationship and reducing litigation risks.

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