Employment Laws Every HR Professional Must Know

Introduction

In today's hypercompetitive, globalized economy, businesses must operate as efficiently and effectively as possible. Even the slightest inefficiency can harm an organization's competitiveness and prove detrimental to its profitability. For this reason, each facet of the organization is now typically under the microscope to see what improvements can be made, including Human Resources.

In the early days of the profession, the human resource role was seen as little more than a secretarial function. HR personnel were charged with keeping records of employees and had little to no say in the direction or strategies an organization was pursuing. Today, that role has changed dramatically. As organizations began to realize the importance of not only retaining their employees but also the impact of employee satisfaction on productivity, Human Resource professionals came to be recognized as a valuable organizational asset. Add to this the ever-changing world of employment law, and the field of Human Resources has become a critical piece of the organizational puzzle.

Today, HR personnel no longer simply maintain employment records — their duties extend far beyond that. A Human Resource professional in today's organization wears many hats. They must be experts at attracting and selecting candidates for hire, creative in developing benefit packages, skilled record keepers, and often serve as internal counselors. Above all, Human Resource professionals must be well versed in employment law. Only by fully understanding the employment laws and regulations in place can HR personnel hope to apply them efficiently and effectively. One misstep in the employment process can lead to serious harm — or even the demise — of a company.

Compensation Law and the Fair Labor Standards Act

This paper discusses some of the current employment laws that Human Resource professionals must master, including those governing compensation, discrimination, sexual harassment, and employee and labor relations.

The Fair Labor Standards Act (FLSA) was created in 1938. It was during the Great Depression, when unemployment reached double digits and employers recognized the exploitation possibilities available to those desperate for work, that the FLSA was developed. The Act established new employment guidelines: a 40-hour workweek, minimum wages, child labor standards, and overtime pay (Crampton, Hodge, & Mishra 2003, 331). The FLSA is commonly referred to as the Wage and Hour Act and has been amended many times since its inception. One such amendment, the Equal Pay Act, was added in 1963. The FLSA is considered the starting point for many subsequent pieces of legislation, including the Occupational Safety and Health Act, the Employee Retirement Income Security Act, and the Age Discrimination in Employment Act (Crampton, Hodge, & Mishra 2003, 331).

The predecessor of the FLSA was the National Industrial Recovery Act (NIRA) of 1933. Like the FLSA, the NIRA addressed minimum wages, maximum working hours, and child labor restrictions. However, in 1935, the Supreme Court found it to be an unconstitutional delegation of congressional power. While acknowledging the need for employee protection, the Court ruled that the NIRA impeded the free market. As a result, Congress passed the Walsh-Healy Act in 1936 and eventually enacted the FLSA (Crampton, Hodge, & Mishra 2003, 332).

Rather than restricting the total number of hours an individual may work, the FLSA instituted mandatory overtime pay to compensate employees who worked more than 40 hours in a week, while also regulating minimum wage and child labor. There are three bases of coverage under the FLSA for businesses with two or more employees: employees engaged in interstate commerce (whether import or export), employees involved in the production of goods for interstate or foreign commerce, and employees of organizations engaged in interstate commerce. In 1966, the FLSA was expanded to include federal employees, state and local hospitals, and educational institutions. In 1985, coverage was extended to state and local employees. And in 1995, coverage was further extended to members of Congress, the Capitol Police, and various other government employee groups. Most organizations that do not fall into these categories are regulated by state laws governing work hours and wages (Crampton, Hodge, & Mishra 2003, 332).

The FLSA is enforced by the Department of Labor. The Department's Wage and Hour Division has the right to examine an organization's records and to issue rules and regulations as it sees fit. The Secretary of Labor may file suits on behalf of employees covering recovery of wages or overtime pay, liquidated damages, and injunctions to prevent future violations. The Justice Department may also initiate criminal proceedings against offending employers. Wage and hour compliance officers oversee the recovery and payment of any back wages due (Crampton, Hodge, & Mishra 2003, 333).

Employees have a two-year statute of limitations to file suits seeking back wages, overtime pay, liquidated damages, or reinstatement and legal fees — extended to three years when willful violations by the employer are found. An employee cannot waive his or her right to the compensation guaranteed under the FLSA, nor release an employer from the amount owed, including through agreements specifying that only eight hours per day or 40 hours per week will be counted as work time (Crampton, Hodge, & Mishra 2003, 334).

Some employers attempt to sidestep overtime obligations through internal policies — for example, notifying employees that overtime work is not permitted or requires pre-authorization. However, such policies do not waive an employee's right to overtime pay. If an employee has actually worked overtime, regardless of whether it complied with organizational policy, the organization remains responsible for payment. This misunderstanding of the law is part of the reason employers are currently liable for approximately $39 billion in back overtime pay (Crampton, Hodge, & Mishra 2003, 336). The problem is compounded by employers inadvertently misclassifying workers as exempt from overtime regulations (Goldberg 1997, S1).

The minimum wage provision of the FLSA was originally intended to reduce poverty and preserve workers' buying power during the Great Depression. Yet many workers remain below the official poverty threshold. In 1990, 5.5 percent of the American workforce earned less than $13,359 per year — the official poverty threshold for a family of four at that time (Crampton, Hodge, & Mishra 2003, 337). This is partly due to the varied forms of compensation, including hourly, weekly, or monthly pay, as well as tips, commissions, and piece-rate earnings. For this reason, the Wage and Hour Division has mandated that an employee's total earnings for a week must average at least the minimum wage amount (Crampton, Hodge, & Mishra 2003, 338).

The FLSA requires time-and-a-half pay for any hours worked beyond 40 in a single week, or beyond eight in a single day. Employers may not average hours over two or more weeks. The sole exceptions are hospitals, residential care facilities, and public agencies, which may calculate overtime over an average 28-day period. A workweek is defined as any consecutive seven-day period and may begin on any day; employers may change the starting day but not to avoid paying overtime wages. Certain executives, administrative employees, professionals, and outside salespeople are exempt from overtime pay requirements (Crampton, Hodge, & Mishra 2003, 338).

A common misconception is that salaried employees are not entitled to overtime pay. If an employer docks a salaried employee's pay for days not worked, that employee is deemed hourly and must be compensated for all overtime worked (Crampton, Hodge, & Mishra 2003, 341).

The contract and contingent workforce adds further complexity to compensation responsibilities. Many companies, such as Microsoft, entered into "independent contractor" agreements with temporary workers. Although those workers agreed they were not company employees, courts have found otherwise. In a decision by the U.S. Court of Appeals for the Ninth Circuit, Microsoft's temporary contractors were found to be employees, entitled to all company benefits available to regular employees. Employers must therefore exercise great caution in how they treat contract and contingent workers (Goldberg 1997, S2).

Discrimination Legislation

The growing prevalence of telecommuters further complicates FLSA compliance. While some telecommuting positions fall into the exempt category, others do not. Because remote workers enjoy the freedom to engage in personal activities, employers may monitor when virtual employees log on and may require pre-authorization before working overtime (Gabel & Mansfield 2003, 316). Only by fully understanding the FLSA and the legislation that has evolved from it can HR professionals ensure their organizations remain in compliance.

In addition to monitoring compensation laws, Human Resource professionals must also be well versed in discrimination legislation. The Civil Rights Act of 1964 is one of the most important pieces of discrimination legislation ever enacted. Originally implemented to prevent discrimination against Black men and all women in employment, it now — as amended — prohibits employers from discriminating in hiring, promotion, discharge, pay, fringe benefits, job training, classification, or any other aspect of employment, based on a person's race, color, religion, sex, or national origin. This is in addition to the sex discrimination prohibitions established by the Equal Pay Act of 1963 ("EEO Poster" n.d.).

The Americans with Disabilities Act (ADA) of 1990 is another landmark piece of legislation, created "to address the major areas of discrimination faced day-to-day by people with disabilities" (Mizra 2001, 12). Census data and national polls had confirmed that Americans with disabilities occupied an inferior status in society, suffering not only from social disadvantages but from vocational, economic, and educational disadvantages as well. As currently amended, the ADA protects qualified persons with disabilities from employer discrimination in hiring, promotion, discharge, pay, job training, fringe benefits, classification, and any other aspect of employment. It also requires employers to provide reasonable accommodations so that no undue hardship is imposed on disabled employees ("EEO Poster" n.d.).

Yet the ADA has not been the remedy many disabled Americans had hoped for. The volume of regulations and court decisions makes it difficult for HR professionals to fully understand the law, and statistics show that disabled Americans continue to lag behind in vocational and economic terms (Mizra 2001, 12). Indeed, one of the ADA's unintended consequences has been that the increased costs of employing disabled workers — driven by mandated accommodations — have contributed to lower employment rates for this demographic. In a very real sense, the ADA has become a deterrent to hiring disabled workers (DeLeire 2000, 693).

One of the trickiest aspects of the ADA for HR professionals involves hidden disabilities such as mental impairment. Twenty-one percent of claims filed with the Equal Employment Opportunity Commission (EEOC) stem from hidden mental disabilities. Mental impairment is defined by the EEOC as any mental or psychological disorder that significantly limits a major life activity, including concentrating, learning, or interacting with others. Moreover, medications used to treat such disorders may themselves cause side effects that limit major life activities. HR professionals must therefore inquire not only about diagnosed conditions, but also about ongoing limitations, impacts on daily life, and any medication-related problems, to ensure proper accommodations are made under the ADA ("Legal" 2000, 2).

Even conditions such as sleep apnea, partial vision loss, and difficulty eating may be protected under the ADA. The EEOC has recognized sleeping as a major life activity, meaning each case of sleep apnea must be reviewed individually to determine whether significant limitations exist. Similarly, the Supreme Court has ruled that monocular vision must be evaluated on a case-by-case basis. And the U.S. Court of Appeals for the Ninth Circuit determined that eating is a major life activity. In Fraser v. Goodale, the court found that an employer's refusal to allow a diabetic employee to eat at her desk to manage her blood sugar levels violated the ADA. The employee had lost consciousness as a result of this restriction, was fired months later, and successfully filed suit against her employer ("Legal" 2003, 2).

The Age Discrimination in Employment Act of 1967 (ADEA) is the third major pillar of discrimination law. As currently amended, it protects job candidates and employees aged 40 or older from employer discrimination in hiring, promotion, discharge, compensation, and any other terms, conditions, or privileges of employment ("EEO Poster" n.d.).

With the advent of anti-discrimination legislation, reverse discrimination has also become an issue. Reverse discrimination occurs when policies designed to protect minority groups have the effect of disadvantaging majority groups. This dynamic has appeared in the context of affirmative action. In 1965, the Johnson administration issued Executive Order 11246, amended by Executive Order 11375, which prohibits federal contractors from discriminating against employees and candidates on the basis of race, religion, gender, or national origin, and affirmatively requires contractors to ensure that minorities are employed. Any organization with 50 or more employees and aggregate revenues exceeding $50,000 from federal contracts in a twelve-month period must maintain a written affirmative action plan, including goals and timetables for full utilization of women and racial minorities, based on a comparison of the current workforce with the available labor pool ("Affirmative" 2004). In some cases, hiring the best-qualified candidate must give way to fulfilling government-mandated quotas, or organizations risk losing valuable federal contracts.

Regardless of the basis for a discrimination claim, it is unlawful for an employer to retaliate against any person who files a discrimination charge, participates in a discrimination investigation, or opposes an unlawful employment practice ("EEO Poster" n.d.). Even unintentional bias can result in significant court awards. In Meacham v. Knolls Atomic Power Laboratory, the company laid off 31 employees, 30 of whom were over 40. Although the U.S. Court of Appeals found the age discrimination to be unintentional, it concluded that the organization could have applied safeguards against subjectivity in its workforce reduction process, and awarded 17 former employees between $69,000 and over $1.1 million each ("Late" 2004, 1). In another case, Texaco agreed to pay $172 million to settle a race discrimination class action — the largest discrimination settlement in U.S. history at that time. The Home Depot paid $88 million to settle a sex discrimination class action. As the most litigious nation in the industrialized world, the United States has seen employment litigation rise steadily (Goldberg 1997, PS1). These cases powerfully illustrate the importance of HR professionals fully comprehending discrimination law and anticipating how it may apply to their organization.

Conclusion

The NLRA, as amended, requires unions and employers to give at least a 60-day notice to each other and to mediation bodies before striking or taking other economic action in pursuit of a new collective bargaining agreement. It also grants the President of the United States the power to intervene in strikes or potential strikes that may create a national emergency — as occurred in the United Mine Workers of America case in the 1940s. More recently, President George W. Bush invoked this authority in response to the potential strike by the International Longshore and Warehouse Union, when negotiations with West Coast shipping and stevedoring companies stalled in 2002 ("Taft-Hartley" 2004). As union representation continues to grow across various industries, the NLRA becomes ever more relevant to HR professionals.

With the volume of legislation directed at employment, coupled with the rising tide of employment litigation, it is clear that the role of the Human Resource professional has changed dramatically from its secretarial beginnings. The Human Resource department is a valuable organizational tool that must be fully utilized if a company is to remain competitive in today's rapidly changing, hypercompetitive, and globalized world. HR professionals have become integral members of corporate management teams, helping shape policies, procedures, and strategies that must, in turn, account for the full spectrum of employment law.

Compensation legislation, discrimination legislation, sexual harassment legislation, and labor relations legislation are all critical to an organization's success. Only by fully understanding these often fluid regulations can HR professionals ensure that their organizations are conducting employment activities in a lawful manner and that their employees are fully protected. Often, HR professionals must also anticipate how the law will be interpreted in the future as it applies to their unique organization, since all aspects of employee relations carry legal implications.

By mastering this legal landscape, the Human Resource professional can have a significant impact on preventing employment litigation, as well as on attracting and retaining the best employees — providing the organization with a meaningful and lasting competitive advantage.