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On the Right Side of the Law
A survival checklist for the small-business employer
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Business New Haven
4/6/1998
By: Andrew L. Houlding
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Small businesses by definition don't have a lot of employees, but they have a disproportionate number of employment problems. That's because owners of small businesses, especially new ones, rarely have time to pay close attention to labor and employment laws. They're too busy focusing on staying in business to worry about forms, filling them out, coloring within the lines.
The good news for small business employers is that many federal employment laws do not apply unless the number of employees exceeds certain thresholds. For example, Title VII of the Civil Rights Act, forbidding gender discrimination (which includes sexual harassment), applies to firms with 15 or more workers.
The same 15-employee threshold applies to the Americans with Disabilities Act. The Age Discrimination in Employment Act, which protects the over-40 set, applies to employers with 20 or more workers. And the Family & Medical Leave Act applies to employers of 50 or more. (The Connecticut version of the FMLA, adding certain requirements to those found in the federal law, applies to those employers with more than 75 workers.)
The CEO with just 13 subordinates would be ill-advised to act Presidential, though: Connecticut state law prohibits sexual harassment, and much more, including discrimination on the basis of sexual orientation - not protected under federal law - and it applies where there are as few as three employees.
Because the damages available to an employee under the Connecticut Fair Employment Practices Act are limited in comparison with those available under the federal law, the employee count can be critical in the event an employee sues. This also raises the question who is an employee and who is not. The legislatures and courts have produced a plethora of factors and tests to be considered in making that determination.
The Connecticut Fair Employment Practices Act offers the circular, and unhelpful, definition that an employee is “any person employed by an employer” (except a domestic servant or someone employed by his own parents, spouse or child). “Employer” is defined as “any person or employer with three or more persons in his employ.”
The federal Fair Labor Standards Act, establishing minimum wage and overtime standards, defines “employ” expansively, meaning “suffer or permit to work.” The parallel Connecticut labor law defines the word similarly. But one may perform work for a company as an independent contractor, without being treated as an employee, if one can pass the correct test.
At least four tests may apply, depending on the statute. The Supreme Court says that if a statute does not provide the definition, then the “common-law agency test” should be applied. That focuses primarily on the hiring party's right, in the care of an employee, to control not only the end result of the work but also the manner and means by which the work is done.
Courts have sometimes streamlined the common law test and applied the “economic reality test,” asking whether the individual is economically dependent on the business in question or is, as a matter of economic fact, in business for himself. The test considers the degree of control exerted by the alleged employer over the worker, the worker's opportunity for profit or loss, the worker's investment in the business, the permanence of the working relationship and the degree of skill required to perform the job.
Connecticut courts generally apply an “ABC” test: workers are employees unless A) the organization for which they perform services exerts no control or direction over them as they perform those services; B) they perform services that are not part of the organization's usual course of business, or the services are performed away from the place of business; and C) the workers are customarily engaged in an independently established business, trade or profession. This test comes into play especially in determinations of employer liability for workers compensation and unemployment compensation insurance premiums.
And there's the far more detailed IRS 20-factor test to determine if an employer should withhold taxes from workers' pay. Thus the definition of “employee” depends on what sort of trouble the (alleged) employer faces. But because the consequences of a mischaracterization can be severe, the small-business owner should tread carefully in hiring “independent contractors” who are not truly independent.
Connecticut employment laws prohibit discrimination by employers on the basis of race, color, religion, age, gender, marital status, national origin, sexual orientation, mental illness or disability, or physical handicap. The Connecticut Commission on Human Rights & Opportunities (CHRO) has the primary responsibility for enforcing these laws through administrative proceedings.
In most cases, an employee must go through the CHRO to bring a claim of employment discrimination. If an employee attempts to file a state-law discrimination complaint in court without first going through the CHRO, the complaint may be subject to dismissal. But some courts have held that, since the CHRO cannot award punitive and emotional-distress damages, the requirement of exhausting the plaintiff's administrative remedies may be excused.
In addition to these statutory protections, employers generally may not base employment decisions on such factors as an employee's: exercise of constitutional rights; family leave of absence; garnishment of wages; refusal to work in hazardous conditions; complaints about the existence of hazardous conditions; jury duty; medical leave of absence; pregnancy; exercise of rights under the toxic substance law; filing of unemployment compensation claims; filing of workers compensation claims; or union membership.
Consistent with the nondiscrimination laws, employers may not advertise job opportunities limited by race, sex, age or any of the other protected classifications.
In interviewing, employers should not ask job applicants for information about membership in protected classifications. Often this impedes the gathering of information which would be readily exchanged in a social setting; but the interview process, no matter how informal, is more than a social chat. A rejected candidate who has been asked even indirect questions about age, marital status or physical handicap may contend that the rejection was based on unlawful factors, citing the interviewer's questions as evidence of discriminatory motivation.
Connecticut employers may test employees or applicants for drug use, but only under carefully controlled circumstances. Job applicants may be required to submit to a urinalysis drug test if they are informed in writing that a drug test is part of the application process, and the applicant must be given a copy of any positive test result. Also, any such result must be confirmed, if the applicant so requests, by a separate, state-certified testing procedure.
An employee may be required to submit to urinalysis if the employee has “reasonable suspicion” that the employee's use of drugs or alcohol is adversely affecting job performance. The state supreme court recently heard a case that is expected to define the “reasonable suspicion” standard.
Test results must not be disclosed to anyone other than employer representatives who need to know. Results of drug tests must be maintained along with other employee medical records and are subject to the same privacy provisions.
If a job offer is made, it may be made contingent on a physical examination to determine whether the employee can perform the essential functions of the job. Employers should devise carefully-drafted job descriptions that include the physical and, where appropriate, psychological demands of the job.
“Are you legally authorized to work in the United States?” This question must be asked and answered affirmatively before the employment relationship begins. The employer should have, in every employee's personnel folder, a properly-executed form verifying the employee's identity and legal authorization to work. The verification system requires every employer to use the Employment Eligibility Verification Form, also known as Form I-9.
That's by no means all that must be on file. State law requires employers to advise each employee, at time of hiring, of the rate of compensation, hours of employment and the schedule of pay days, and disclose in writing the employer's policies on wages, vacation pay, sick leave, health and welfare benefits and “comparable matters,” and any changes in those policies. Employers who violate this provision are exposed to fines and even imprisonment. Great care must be taken in drafting these policies to avoid a guarantee of lifetime employment.
Once the employment relationship begins, unless there is an agreement as to its duration or grounds for termination, the relationship may be terminated “at will” by either party at any time, for any reason or for no reason, with or without notice. However, the courts have carved out several exceptions to that “default” rule to require employers to show cause for termination under certain circumstances.
Many employers require employees to sign acknowledgements that the employment relationship is at will, and that this relationship may only be modified by another, superseding written agreement signed by both parties.
Many employers also require employees, when the employment relationship begins, to sign agreements that they will preserve the confidentiality of the company's proprietary information, including customer lists and other data that might constitute trade secrets. The confidentiality agreement should clearly bind the employee from disclosing the company's information for a reasonable period of time after employment ends, as well as throughout its duration.
Employment law is especially dynamic, changing as the courts interpret the broad array of statutory and common-law rules which govern the employment relationship - which, in turn, reflects a mixture of personality, economic reality and social mores. Small-business employers need to pay careful attention to these laws in order to avoid the expense and disruption of employment litigation. BNH
Andrew Houlding, formerly an investigative reporter for WTNH-TV in New Haven, is a principal of the law firm Rome McGuigan Sabanosh, P.C., with offices in Bridgeport and Hartford, representing management in labor and employment matters.
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