You are on page 1of 19

Chapter 31

The
EmployerEmployee
Relationship

Duties of Employer
and Employee to Each Other

31-2

One of the most important legal relationships is


that of employer to employee.
An employer must:
Pay an employee the agreed-upon wage, subject to
company policy, union contracts, and government
mandates, for his or her services.
Protect the employee by providing:
A safe and sanitary place to work.
Careful and competent employees with whom to work.
An environment free of discrimination and harassment.

Warn the employee of any danger that exists in


connection with the work.

2013TheMcGrawHillCompanies,Inc.Allrightsreserved.

Duties of Employer
and Employee to Each Other (cont.)

31-3

An employee must:
Obey his or her employers lawful orders concerning the
employment.
Exercise good faith toward the employer.
Do his or her work carefully and conscientiously.

The acts of an employee committed while performing


duties are considered the acts of the employer.

Respondeat superior: Coming from a legal doctrine, a Latin term


meaning let the master answer.

The employer is liable to third parties for injuries caused

by an employee, whether the acts are willful or negligent,


so long as the acts were committed by the employee
within the ordinary course of employment.
2013TheMcGrawHillCompanies,Inc.Allrightsreserved.

Example: Duties of Employer


and Employees to Each Other

31-4

Facts:
Carly, an employee at City Grocery Stores, failed to mop up
a broken bottle of cooking oil in one of the aisles, even after
being instructed by her manager to clean it up.
Andre, a customer at the store, slipped on the spilled oil and
sustained severe head injuries. He filed a suit against both
the employer and Carly.
Carly contended that only the employer can be held liable,
and she was not responsible for the accident.

However, Carly is incorrect. The employee is also


personally liable for wrongful acts that result in
injuries to a third party, whether they are intentional
or the result of negligence.
2013TheMcGrawHillCompanies,Inc.Allrightsreserved.

Employees vs. Independent


Contractors

31-5

There is a distinct difference between an


employee and an independent contractor.
It is important to recognize the importance of
these distinctions because in order to apply the
applicable law, a court first needs to determine
whether or not the employer-employee
relationship actually existed.
In all cases, it is not the workers title, or the tax
treatment he or she receives, that determines
whether or not he or she is an employee, but it
is what the individual does on the job that
defines the relationship.
2013TheMcGrawHillCompanies,Inc.Allrightsreserved.

31-6

Independent Contractors

Independent contractor: A person or firm that performs


services for another.
Independent contractors are not under the direct control of the
person who engages them.
Examples: Freelance writers, photographers, private-duty
nurses, painters, and plumbers.

It is important to distinguish between employees and


independent contractors:
Employees usually cannot sue their employers for on-the-job
injuries, whereas independent contractors can sue the person
with whom they made the contract.
An employer is responsible for an employees torts committed
within the scope of employment; the person who engages an
independent contractor, on the other hand, is generally not
responsible for the independent contractors torts.

2013TheMcGrawHillCompanies,Inc.Allrightsreserved.

31-7

Internal Revenue Service Test

The Internal Revenue Service publishes a kind


of test that is used to aid individuals in
determining whether a worker fits the status of
an employee or an independent contractor.
If the IRS discovers that a company has
misclassified employees as independent
contractors, it may impose substantial penalties
on the company.
In a case of deliberate misclassification, The IRS can
impose fines that can amount to millions of dollars for
large employers.

2013TheMcGrawHillCompanies,Inc.Allrightsreserved.

31-8

Internal Revenue Service Test

This Internal Revenue Service test aids


businesses and individuals in distinguishing
employees from independent contractors.
Understanding this distinction affects how an
individual pays federal income taxes, Social Security
taxes, and Medicare taxes.
It also determines whether the individual receives a
W-2, a tax form provided to employees, or a 1099, a
tax form provided to independent contractors.

2013TheMcGrawHillCompanies,Inc.Allrightsreserved.

31-9

Doctrine of Employment at Will

Doctrine of employment at will: Just as an


employee may choose to terminate his or her
employment at any time he or she wishes, so
too an employer may terminate an employees
employment at any time for a good reason, a
bad reason, or no reason at all.
Early exceptions to the doctrine disallowed an
employee from being terminated for:
Jury duty service
Being called to active duty in the military
Whistleblowing

Today, there are numerous reasons for which it would


be illegal to terminate an employee.
2013TheMcGrawHillCompanies,Inc.Allrightsreserved.

Example: Doctrine
of Employment at Will

31-10

Facts:

Markham worked as a mechanic for Gigantic Car


Service.
Jackie, the manager, instructed him to repair the cars
and charge a higher fee for certain high-end car models
without any valid reason.
Markham, knowing that such conduct was highly
immoral, refused, and Jackie fired him on the spot.
Markham contended that it was illegal to terminate him
from the job based on his refusal.

Jackie held that the employment of Markham was at


will, and he could be terminated at any time - for a
good reason, a bad reason, or no reason at all.

2013TheMcGrawHillCompanies,Inc.Allrightsreserved.

31-11

Employment Contracts

Employment contract: Specifies that the


employer agrees to pay, and the employee
agrees to work, for a specified period of time at
a specified salary.
These contracts frequently have clauses related to
maintaining confidentiality with respect to trade
secrets, restrictive covenants, and agreements to
arbitrate in the event of a dispute between the parties.

2013TheMcGrawHillCompanies,Inc.Allrightsreserved.

31-12

Employment Contracts

The U.S. Supreme Court has ruled that


arbitration clauses in employment contracts are
enforceable provided the employee:
Has signed the agreement.
Has a reasonable time to file a claim.
Has access to the same remedies that a court could
provide.
Has access to an arbitrator with expertise in
employment law.
Has the right to be represented by an attorney.
Does not have to pay the cost of arbitration.

2013TheMcGrawHillCompanies,Inc.Allrightsreserved.

31-13

Employee Handbooks

Employee handbooks: Manuals that contain the


many policies of the firm.
In some states, the provisions contained in the
handbook are considered a kind of contract between
the employer and the employee.
In other states, legislatures and courts have made it
clear that employee handbooks are not to be
construed as contracts.

2013TheMcGrawHillCompanies,Inc.Allrightsreserved.

31-14

Employee Handbooks (cont.)


Typically, the employee handbook contains the
following information:

History of the company


Hiring procedures
Hours of employment
Payment of salaries
Salary increments and promotions
Termination procedures
Benefits
Leaves of absence
Safety and security
Miscellaneous policies
2013TheMcGrawHillCompanies,Inc.Allrightsreserved.

31-15

Employee References

Often, employers are asked to provide references


for employees who are currently working for them or
who have worked for them in the past.
Employers need to be extremely careful as to how they
respond to these requests.

A negative reference can give rise to three kinds of


lawsuits brought by current or former employees.
Invasion of privacy
Defamation
Negligent misrepresentation.

2013TheMcGrawHillCompanies,Inc.Allrightsreserved.

31-16

Invasion of Privacy

Invasion of privacy: Disclosing personal, irrelevant


information about a former employee, irrespective of
whether such information is true or false.
An employer can safely disclose information about a
current or former employee in the following areas:
The employees prior employment and educational
history.
The employees character as such relates to the job
(teamwork, leadership abilities, etc.).
The employees performance capabilities.
The employers willingness to rehire the employee.

2013TheMcGrawHillCompanies,Inc.Allrightsreserved.

31-17

Defamation
A current or former employee may sue his or her
employer for defamation if the employer provides
information to a third party that is untrue, irrespective of
whether or not it relates to the employees job
performance.
Such defamation is considered:
Slander, if spoken.
Libel, if written.

Many states have enacted laws to shield employers from


the risk of liability for defamation, provided the previous
employer has a good-faith belief that the statements
made in the reference are truthful.
2013TheMcGrawHillCompanies,Inc.Allrightsreserved.

31-18

Negligent Misrepresentation

Occasionally, employers attempt to reduce their risk of


liability in providing references by:
Withholding negative reference information, and
Simply not responding to reference requests.

However, if a prospective employer hires an employee


based on an incomplete reference, and then suffers
damages that may have been avoided had the previous
employer provided an accurate reference, the
prospective employer may sue the previous employer for
negligent misrepresentation.

2013TheMcGrawHillCompanies,Inc.Allrightsreserved.

The Fair Labor Standards Act of


1938

31-19

The FLSA sets standards for:


The minimum age an employee can be,
The minimum wages an employee can earn, and
The rate at which an employee is paid if he or she works more
than a certain number of hours in a given workweek.

Currently, the federal minimum wage is $7.25, and the


overtime pay rate for employees who work more than 40
hours in a workweek is 1.5 times regular wages.
Four categories of employees excluded from coverage:
(1) executives; (2) professional employees; (3) outside
sales associates; and (4) administrative employees.

2013TheMcGrawHillCompanies,Inc.Allrightsreserved.