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Whether hiring your first or fiftieth employee, any employer needs to know the wide array of laws — federal state and local — governing the minutiae of the employer-employee relationship.  The following is an outline of some of the laws.  It is NOT intended to be a comprehensive survey.  Rather, an overview of many key provisions and some obscure ones.  Enjoy (if you can get beyond the formatting catastrophe – MSWord and WordPress don’t “play nice” when it comes to auto-numbering).

Pre-Employment

1.  Determine if position is one of employee or A. independent contractor — IRS 20 factor test:

  1. Level of instruction
  2. Amount of training
  3. Degree of business integration
  4. Extent of personal services (contractors assigning work to anyone)
  5. Control of assistants
  6. Continuity of relationship
  7. Flexibility of schedule
  8. Demands for full-time work
  9. Need for on-site services
  10. Sequence of work (company dictate?)
  11. Requirements for reports
  12.  Method of payment (Fixed fee vs. hourly?  W-2 vs. 1099?)
  13. Payment of business/travel expenses
  14. Provision of tools/materials
  15. Investment in facilities
  16. Realization of profit/loss
  17. Work for multiple companies
  18. Availability to public
  19. Control over discharge
  20. Right of termination

Serious consequences if incorrect, including liability for overtime or minimum wage, FICA, unemployment insurance premiums and workers comp premium

2.  Classify position for purposes of wage and hour laws

  1. Exempt employees –
    1. Means exempt from overtime laws
    2. Typically highly compensated and highly skilled
    3. Must be paid salary (minimum $23,400), not hourly
  2. Main categories
    1. “White collar” administrative, executive, professional and computer exemptions
    2. salary basis and duties tests
    3. Other miscellaneous exempt categories (can be paid hourly)
    4. Outside sales employees, interstate truckers, certain agricultural employees, seamen, lumberjacks, certain radio and TV employees
  3. Non-exempt –
    1. Everyone else
    2. Must pay time and a half for each hour worked in excess of 40 hours/week
    3. If employer requires employee ask permission to work overtime in employee handbook and employee works overtime without requesting permission, employer must pay overtime. Remedy is to fire the employee.
    4. Timekeeping rules – Fair Labor Standards Act (“FLSA”) regulations requires employers track time of all non-exempt employees; no specific manner specified
  4. Best practice – in complicated or doubtful situations, get an opinion letter from an attorney. It can save you in subsequent litigation from a determination that violation was “willful,” exposing you to damages for three years of unpaid overtime rather than two. In addition, “good faith reliance” on an attorney’s opinion letter can save you from liquidated damages(two times actual damages), which are presumed under the law.
  5. Best practice – have exempt employees keep track of all hours worked, if not daily than at least weekly. If a court subsequently disagrees with your classification decision, the employees’ best recollection of hours worked will be presumed correct, in the absence of written time records or other good substitutes (e.g. times logged into computer).
  6. Quiz:  An Assistant Manager at Walgreens spends 75% of his/her working day performing non-exempt tasks, including stocking shelves, operating the cash register and cleaning up. The remaining 25% is spent supervising employees and attending to other administrative duties.  Exempt or non-exempt?
  7. Answer:   non-exempt, according to many courts.  The test is not based on percentage of time, but importance of duties to the business.

4.  Determine whether non-compete/non-solicitation agreement is needed (see below)

  1. State laws vary widely, so determine which state’s law applies
  2. Void as against public policy in California and North Dakota. The law in North Dakota is unclear as the situation in which a North Dakota employee working for a Minnesota employer whose contract specifies application of Minnesota law to any dispute.

5.  Screening applicants

  1. o.k. to do public records search to look for judgment liens, confirm residency, number and make of vehicles owned, determine if wages have been garnished to pay child support?
  2. Yes, except howeverMinnesota prohibits discrimination on basis of family status, so finding filings related to child support should not be searched.
  3. o.k. to run credit report?
  4. No, unless consent is given. Potential Violation of Fair Credit Reporting Act (FCRA).
  5. Employer who rejects employment based on FCRA must provide employee a copy of the report, along with “A Summary of Your Rights Under the Fair Credit Reporting Act” document
  6. Unlawful to require employee or applicant to pay the cost of running a criminal background or credit check. Stat. § 181.645.

6.   Interview

  1. O.k. to ask about criminal convictions?
  2. No, per recent MN law, can’t inquire before making a job offer. However, can make employment conditional on passing a criminal background check, so statute is pretty weak
  3. Different in Wisconsin. People with criminal records are a legally protected class.  Unlawful to refuse job offer on that basis, absent exceptional circumstances
  4. o.k. to ask about medical history?
  5. No, strictly prohibited under the Americans With Disabilities Act (“ADA”). Also many not ask employee about the nature of an obvious disability.
  6. Also unlawful to require employee to take a medical examination
  7. After a job offer is made, however, employer can condition offer on passing a medical exam or answering medical questions if relevant to performance of the job duties

7.   Employer may not require employee or job applicant to pay the cost of obtaining a medical exam. Stat. § 181.61

8.  Polygraph Tests

  1. Strictly prohibited, whether given to an applicant or existing employee. Violations can result in a lawsuit for damages and criminal penalties (misdemeanor)

Hiring

  1. Job offer
    1. Doesn’t have to be in writing. However, that is a best practice.  Also include any conditions upon which employment is based, including successful completion of reference check.
    2. Non-competes also don’t have to be in writing. But a verbal non-compete is a terrible idea.
    3. Traps for the unwary under Minnesota law
    4. For the non-compete to be enforceable, essential terms must be given to would-be employee withthe offer, and not after acceptance of offer. Best practice: attach a copy with the offer letter.
    5. Non-compete must be signed beforeemployee begins employment as well to be enforceable..
  2. Relocation of employee
    1. Minnesota has a special statute which prohibits making “false statements” about the kind or character of a job, or of its pay, in order to induce a person to move from another place in Minnesota or any other state in order to accept a job.
  3. Consideration for Securing Employment
    1. It’s unlawful to demand or accept a part of an employee’s wages or other consideration (e.g, money) in exchange for getting a job

Employment

  1. Presumption of Employment “At Will”
    1. Unless governed by a contract or collective bargaining agreement, employment is considered “at will,” meaning the relationship may be terminated, or wages reduced, for any reason at any time, so long as the action does not otherwise violate Minnesota or Federal law (as discussed below)
    2. Quiz: Long term employee shows up to work one day wearing red socks.  New supervisor, who is New York Yankees fan, explodes in anger and yells, “Get outta here.  You’re fired! I hate the Red Sox.”  Employee wants to sue.  Case or no case?

Answer:  No case.

  1. Quiz: Same facts, except supervisor yells, “Get outta here.  You’re fired!  I hate Commies.”

Answer:   Probably a case.  Minnesota protects employees from discrimination based on political activity, exercises of constitutional rights, or other forms of private political action.  Minn. Stat. § 10A.36.  Violation is misdemeanor offense, but even though there is no statutory right of action for damages, a court would likely find the discharge to be wrongful in violation of public policy.

  1. Contracts of Employment
    1. If employee hired under a contract, contract must specify the following:
      1. Date agreement entered into
      2. Starting date
      3. Rate of pay
      4. Hours of work per day
      5. Statement of what conditions will permit a reduction of wages
  1. Payment of wages
    1. Does it have to be bi-weekly?
    2. No. Under Minnesota law, wages must be paid at minimum one time a month, on a regularly scheduled payday.
    3. Can wages be docked for faulty workmanship, loss, theft or damage caused by an employee?
      1. No. Under Minnesota, wages may be docked only with the voluntarywritten consent of employee afterthe loss has occurred.  Amount cannot be in excess of wage garnishment statute (25%).  Exceptions apply for deductions for employer to employee loans and for disciplining commissioned salespeople.
      2. Employee can be fired though, of course, if he/she is “at will” (not subject to a union collective bargaining agreement or contract of employment specifying when and how the relationship may be ended)
    4. Quiz: Single employee of bait shop (besides owner) works 50 hours in a week.  Does employer have to pay employee 10 hours of his pay at time and a half?

Answer:   No. The FLSA only applies to employers with two or more employees that have annual sales of $500,000 or greater.  Correct answer is 2 hours of overtime. Minnesota’s version of the FLSA requires overtime be paid after 48 hours of work in a single week.  NOTE: state laws vary widely in this area.  In California, for instance, there is a daily as well as weekly test. Exempt employees there are entitled to overtime for each hour worked in excess of 8 hours in a day, even if the weekly total ends up being less than 40 hours, as well as for the first eight hours of work on the seventh consecutive day of work.

  1. Benefits
    1. Patient Protection and Affordable Care Act (“ACA”) – health insurance benefits must be provided by employers with 50 or more employees
    2. Unpaid Leave – by Statute
      1. FMLA (up to 12 weeks for “serious medical condition” of employee or close relative; can be intermittent); for employers with 50 or more employees within 75 miles of worksite; to qualify, employee must have worked at least 1,250 hours in previous year
      2. School conferences, voting, jury duty leave, bereavement leave
      3. Pregnancy, childbirth and adoption leave – expanded rules under Minnesota’s Parental Leave statute, greater than Federal law
      4. Military leave – immediate family of military personnel injured or killed in active service; leave to attend military ceremonies
    3. Paid leave – by Statute
      1. Donation of blood marrow or organs (applies to employers with 20 or more employees)
    4. Paid sick leave – by ordinance in Minneapolis and St. Paul (one hour of earned sick leave for every 30 hours worked, up to 80 hours in a two-year period); Minneapolis exempts employers with five or fewer employees
    5. Military Leave
      1. Uniformed Services Employment and Reemployment Rights Act (“USERRA”) provides job-protected leave for members of the uniformed services to the position held pre-deployment or position to which employee would have attained through seniority but for deployment
      2. Leave of up to five years
      3. Applies to all employers, regardless of size; employee must have been honorably discharged
  1. Know Your Protected Classes – it is unlawful to discriminate on the basis of:
    1. Race, religion, national origin, disability, gender (includes pregnancy), military service, sexual preference (Minnesota, “probably” not Federal), public assistance (Minnesota), family status (Minnesota)
    2. Quiz: Is it lawful to discriminate on the basis ofyouth(e., to require any employee be age 30 or older)?

Answer:   Yes and no.  Under Federal law, only persons age 40 or older are a legally protected class. Under Minnesota law, by contrast, it is unlawful to discriminate on the basis of age at any age, or on the basis of youth.  So this also means a 39-year old employee can sue if he/she is fired for being too old under State, but not Federal law.

  1. Sexual Harassment Reporting Policy
    1. Although not required under Federal law, it’s important to include one in the employee handbook written policy prohibiting sexual harassment and providing a reporting mechanism and protocol
    2. Failure to have such a policy subjects employer to liability for sexual harassment of a subordinate by a supervisor or co-worker
    3. With limited exceptions, employees who suffer sexual harassment but failto make a report under a anti-harassment program are barred from recovery in court
    4. Rationale: employers shouldn’t be liable for prohibited activities of which they are unaware; this gives them the chance to take prompt corrective measures, including discipline up to firing the harasser
  2. Minnesota Whistleblower Act
    1. Unlawful to take adverse employment action against employee who reports, in good faith, known or suspected violation of law (public or private law, latter to include breach of contract) to public official or supervisor
  3. Women’ Economic Security Act
    1. Prohibits policies barring employees from discussing with one another the amount of their wages
    2. Family status and pregnancy added as protected classes
    3. Pregnancy accommodation – employers with 21 or more employees must allow maternity leave to employees who have been employed for 12 consecutive weeks
    4. Also must provide more frequent restroom, food, and water breaks, seating, and lifting limits over 20 pounds, without proof of medical necessity
  4. Accommodating Disabilities in the Workplace
    1. ADA requires “interactive process” to determine if employee can perform essential job duties, with or without an accommodation
    2. Accommodations must be reasonable, and reasonableness is determined on a case-by-case basis. It may include devices (special chairs or keyboards), extended breaks from work, working from home, extended unpaid leave, beyond FMLA maximum of 12 weeks, if doing so doesn’t present an undue hardship on employer
    3. Chemical dependency is a recognized disability, but an employee may be legally terminated for showing up to work intoxicated
  5. Concerted activity
    1. Federal labor law protects against retaliation all employees who engage in “concerted activities,” meaning to act together to improve wages or working conditions, even ones in non-union workplaces. This includes social media posts.
  6. Lawful consumables
    1. Minnesota protects employees from adverse employment actions based on use of lawful consumables, which includes alcohol and tobacco, so long as it is not during working hours on employer’s premises
  7. Work breaks
    1. Restroom breaks – one per four hours; if under 20 minutes, must be paid
    2. Meal breaks – “sufficient time” to eat for employee with 8 hour shift; can be unpaid
  8. Drug testing
    1. Very difficult under Minnesota law. Onerous requirements and draconian penalties if not properly done.  Consult with a lawyer before attempting this.
  9. Personnel File
    1. Under Minnesota law, a “personnel record” for employers with 20 or more employees, “to the extent maintained by employer,” must include:
      1. any application for employment
      2. wage or salary history
      3. notices of commendation, warning, discipline, or termination
      4. authorization for a deduction or withholding of pay
      5. fringe benefit information
      6. leave records
      7. employment history with the employer, including salary and compensation history, job titles, dates of promotions, transfers, attendance records, performance evaluations, and retirement record
    2. May exclude letters of reference, education records, employee testing records, employer salary system, supervisor’s comments (as long as they’re kept in sole possession of supervisor), medical records, co-worker statements
  1. Posters
    1. Various state and federal statutes require posting notices on the employers’ premises in a “conspicuous and accessible place,” usually in a break room, of employees’ rights under the law including OSHA, FLSA, NLRA. Minnesota’s is available for free download: http://www.dli.mn.gov/ls/Pdf/posters/mn_poster_pack.pdf
  2. Mandatory Retirement
    1. Permitted for individuals who have attained the age of 70 or greater
    2. Exception: 65 years old if person for preceding two years held an “executive or high policy-making position,” provided employee has a retirement benefit of at least $27,000.

Post-Employment

  1. Payment of final wages
    1. 24 hours if employee is fired.
    2. Next regular pay period if employee quits, so long as it’s not greater than 20 days.
    3. Late payment of wages – penalty of up to 15 days of unpaid wages, plus attorney fees if employee must sue to collect
  2. Does unused vacation pay need to be paid to an employee who quits or is fired?
    1. It depends. Under Minnesota law, vacation pay is not “wages.”  It is “earned” based upon what the employer’s policy, employment agreement or handbook states, and is also subject to forfeiture if policy so provides.  Thus, “use it or lose it” policies are enforceable, as are forfeiture policies for employees who quit or who are fired for cause.
    2. Best practice – put it in writing. Verbal vacation policies, although legally enforceable, can lead to misunderstandings, disputes and ultimately litigation
  3. Under Minnesota law, employee’s personnel file or record must be provided at employer’s request upon written request, within 14 days of request. Requests may be made for up to a year from date of separation from employment.  Current employees may review personnel file once every six months.
    1. Right to review applies to employers with one or more employees, even though the required records (for larger employers who maintainpersonnel files) only apply to employers with 20 or more employees
  4. “Contesting” unemployment
    1. Employers are required to truthfully respond to state questionnaire concerning reasons for employee’s separation from employment
    2. It is unlawful for an employer to enter an agreement with employee under which it will not contest unemployment or agree to not submit information to the Department of Employment and Economic Development (“DEED”)
  5. Statement of Reasons for Termination
    1. Within 15 days of separation, employee may demand in writing truthful reason for his/her termination from employment, to be provided within 10 days of employer’s receipt of request
    2. The statement may not be basis for a defamation lawsuit.