by: Kevin V. Parsons
For most businesses, the greatest threat of liability arises from the employment relationship. It is a common misconception, held by many employers in North Carolina, that because their employees are employed “at will”, management can act as they see fit to manage or terminate that relationship. Although it is true that employees are presumed to be employed “at will” in the absence of a written employment agreement for a specified duration, the legal regulations that apply to employment are complex, often confusing, and significantly curtail an employer’s freedoms to manage employees. Consequently, a simplified, practical understanding of the basic principles of employment law is essential for employers to avoid the potential liabilities presented by mismanaging employment relationships. The following is an effort to provide employers with general principles applicable to their legal relationships with their employees but is not designed to provide the fully informed legal counsel necessary for employers to make sound decisions about specific legal issues. Employers should consult with a qualified employment attorney for questions about specific legal issues.
Categories of Employment Regulation and Liability
There are five basic types of legal regulations that apply to the employment relationship:
Employers are prohibited from discriminating against their employees on the basis of certain protected traits under North Carolina and Federal law. Under the law, discrimination means treating similarly situated people differently because of a protected trait. For example, terminating an employee for a certain infraction, while refusing to terminate a similarly situated employee of a different gender, may be gender discrimination. Discrimination also includes situations in which employers tolerate conditions which create a hostile work environment based on some protected trait. This form of discrimination is known as harassment.
Federal law prohibits certain employers from discrimination through several statutes. Title VII of the 1964 Civil Rights Act, as amended, prohibits discrimination on the basis of race, gender, religion, national origin and skin color. Section 1981 of the 1866 Civil Rights Act also prohibits discrimination on the basis of race. The Americans with Disabilities Act (ADA) prohibits discrimination based on disability and also requires employers to reasonably accommodate disabled employees. Age discrimination is prohibited by the Age Discrimination in Employment Act (ADEA). Title VII and the ADA apply to employers with 15 or more employees while the ADEA applies to employers with 20 or more employees. Section 1981 applies to all employers regardless of the number of employees they employ. Federal law also prohibits employers with 15 or more employees from discriminating against employees on the basis of genetic information. This form of prohibited discrimination most commonly arises when employers discriminate on the basis of diseases or disorders in an employee’s family history. As interpreted by the federal courts, the prohibitions of discrimination under these statutes include discharge, harassment, promotion, hiring, compensation, transfers, and other terms and conditions of employment.
North Carolina law also prohibits certain forms of employment discrimination. Generally speaking, in North Carolina, employees are employed at-will which means they can terminate employment, or be terminated, for any reason that is not illegal. North Carolina courts have held that there is an exception in the common law to the employment at-will doctrine when employers terminate employees for reasons that are contrary to the public policy of the state expressed in the North Carolina Equal Employment Practices Act (NCEPPA) and other statutory or regulatory laws. This theory of liability is substantially similar to Title VII, the ADA and the ADEA. When wrongful discharge is alleged in violation of the NCEEPA, it applies only to employers with 15 or more employees. This theory, however, only applies when employees are terminated. It does not prohibit discrimination in other terms and conditions of employment such as compensation or harassment.
If employers violate these laws, they can be required to provide back pay, compensatory and punitive damages, front pay and reinstatement. Employers are also subject to an injunction prohibiting discrimination and awards of attorney’s fees and costs of litigation to a prevailing party.
All of the previously mentioned statutes prohibit retaliation against employees who engage in protected activity. As interpreted by the courts, protected activity takes two general forms. First, oppositional activity, which includes objecting to employer practices or policies that the employee, in good faith, believes are discriminatory on the basis of a protected trait. It is not necessary that employers are actually discriminating on the basis of these protected traits. It is enough that an employee engaging in protected activity reasonably believes the employer is discriminating based on a protected trait. Second, participation in the statutorily created procedures established by these statutes is protected from retaliation. This type of activity generally takes three forms; either filing an EEOC charge, testifying in a lawsuit brought under these statutes, or providing information to the EEOC.
The common law theory of wrongful termination in violation of public policy does not cover retaliation claims. However, North Carolina law also prohibits certain forms of retaliation in the Retaliatory Employment Discrimination Act (REDA). This whistleblower statute prohibits, in its most common application, employers from retaliating against employees who either file, or threaten to file worker’s compensation claims, OSHA complaints, or wage and hour claims with the NC Department of Labor. The remedies available for those prevailing in retaliation claims are the same as those afforded under the discrimination statutes. The remedies available under REDA are substantially the same as those afforded by Title VII. However, unlike Title VII, REDA allows for trebled (i.e. triple) damages for willful violations.
The two major statutes that regulate an employer’s compensation practices and policies are the federal Fair Labor Standards Act (FLSA) and North Carolina’s Wage and Hour Act (NCWHA). The FLSA requires employers to pay their employees a minimum wage and overtime at the rate of one and a half times the regular rate paid to them for time worked in excess of 40 hours in a work week. The FLSA applies to nearly all employers.
Those employers not covered by the FLSA are covered by the NCWHA which also requires payment of a minimum wage and overtime like the FLSA. More importantly, unlike the FLSA, the NCWHA requires employers to pay employees accrued wages on their regular payday which can be daily, weekly, bi-weekly or monthly. This obligation to pay wages covers commissions, vacation pay, severance pay (if provided by policy or practice) bonuses, and any other amounts promised by an employer.
Employers most commonly violate these statutes in two ways. First, they misclassify employees as exempt from the obligation to be paid overtime either because they misunderstand what conditions are necessary for an employee to be exempt or they misapply the criteria which qualifies an employee for exemption.
Generally, an employee qualifies for an exemption if two conditions are satisfied. First, the employee must be paid a salary. Second, employee’s job duties, rather than their titles, satisfy the criteria established in the regulations to qualify for an exemption. The most common exemptions are the so-called white collar exemptions of executives, administrative, professional, and outside sales employees. One common mistake employers make when assessing an employee for exemption is to assume that if the employee is paid a salary and holds the title of “manager” then that employee is exempt and not entitled to overtime. A salaried employee must both be paid a salary and have job duties sufficient to satisfy the standards for an exemption before they qualify.
Both the FLSA and the NCWHA have anti-retaliation provisions similar to those contained in the federal equal employment statutes like Title VII. If an employer violates the FLSA, the employee will be entitled, among other possible remedies, to back pay, an award of attorney’s fees and costs and, in the case of willful violations, liquidated (i.e. double) damages. These remedies are significantly amplified if the employer has several misclassified employees and a collective or class action is brought.
Employers with 50 or more employees are required by the Family Medical Leave Act (FMLA) to provide eligible employees with a period of unpaid leave for any serious health condition, the birth of a child, adoption, or care for a spouse, child or parent with a serious health condition. An employee is eligible for FMLA leave if they have been employed for at least 12 months and worked at least 1,250 hours during that time.
Most commonly, employees seek FMLA leave for their own serious health condition(s). Generally, an employee has a serious health condition if he is incapacitated (i.e. unable to work) by an illness, injury, impairment or other condition that involves inpatient care in a medical facility or an incapacitating condition that requires treatment two or more times by a healthcare provider or an incapacitating conditions requiring an ongoing regime of treatment supervised by a healthcare provider. Usually, but not always, if an employee has been receiving ongoing treatment for a condition by a healthcare provider, that employee typically has an FMLA qualifying serious illness.
Employees covered by the FMLA are entitled to a maximum of 12 weeks of unpaid leave during a 12 month period. Employers may elect how to calculate the 12 month period in one of four ways: (a) a calendar year; (b) a fixed 12 month period; (c) a rolling 12 month period or (d) a 12 month period beginning when the employee first begins on FMLA leave. Employers must affirmatively select one of these methods of calculating the 12 week period and communicate this policy to employees. The FMLA also affords 26 weeks of unpaid leave to covered service members in a single 12 month period.
Intermittent leave is also required by the FMLA when it is medically necessary. More specifically, intermittent leave is available when an employee needs it to care for a spouse or child with a serious health condition or due to the employee’s own inability to perform an essential job function due to a serious health condition.
Employees can be required to give their employer 30 days advance notice of a covered leave if that leave is reasonably foreseeable. If the leave is not reasonably foreseeable, the employee must give notice as soon as practicable. Importantly, employees need not specifically request FMLA leave. Instead, it is sufficient that they provide the employer with enough information to allow the employer to infer the requested leave is covered by the FMLA. Employers may require written certification for FMLA leave from a healthcare provider. Employers can also require employees to use accrued paid time off during an FMLA leave to avoid so-called “double dipping.” If employers elect to require the taking of paid leave during FMLA leave, they must give employees notice of the requirement.
During an FMLA leave, employers must maintain health coverage for their employee taking an FMLA qualified leave. When an employee returns from an FMLA leave, the statute entitles them to reinstatement to either the same position held by the employee when the leave started or to a position equivalent in pay, benefits and other terms and conditions of employment.
An employer violates the statute if it interferes with or denies any right afforded by the FMLA or discharges or discriminates against an employee for opposing practices made unlawful by the FMLA or participating in a proceeding relating to the FMLA. If an employer violates the FMLA, it is subject to various sanctions including, payment of lost wages and benefits, the cost of care up to the equivalent of 12 weeks wages, liquidated (i.e. double) damages for willful violations, reinstatement and an award of attorney’s fees, costs and expert witness fees.
Employers may also be required to provide employees unpaid leave under the ADA as a reasonable accommodation under certain circumstances. For example, the EEOC takes the position that unpaid leave can be required by the ADA when necessary for an employee to obtain medical treatment, rehabilitation or therapy, avoiding temporary adverse conditions in the workplace or recuperating from an illness. Indefinite leave is generally not required by the ADA. Employers are also not required to provide ADA leave for sporadic absences that violate generally applicable attendance policies prohibiting absences or tardiness since regular attendance is an essential job function.
The ADA and Title VII require reasonable accommodation for certain protected traits. The ADA requires employers to reasonably accommodate disabilities. Title VII requires employers to accommodate the sincerely held religious beliefs of their employees. However, the accommodation obligations mandated by these laws differ significantly.
Under the ADA, employers discriminate against qualified individuals if they fail to reasonably accommodate an employee’s disability unless an undue burden is created by accommodating an employee. More specifically, employers are required to reasonably accommodate employees that are disabled, or those with a record of being disabled, if the employee can perform the essential functions of the job with or without a reasonable accommodation.
Generally, reasonable accommodations involve any change in the work environment that enables a disabled person to work on equal terms with non-disabled employees. In order to satisfy this obligation, employers must interactively engage a disabled employee to determine the nature of the disability and develop, with the employee’s input, how best to reasonably accommodate the disability. While employers are not required to provide an employee’s preferred accommodation, they are required to give a disabled employee’s preferred accommodation consideration. Reasonable accommodations can take many forms including modifications to the work environment, modifications to the workplace rules, policies or practices, providing leave for treatments or recuperation, job restructuring, schedule modifications and job transfers. However, employers are not required to eliminate or modify essential job functions to fulfill their obligations to reasonably accommodate disabled employees. Additionally, employers are not required to provide every conceivable accommodation to disabled employees. Instead, only reasonable accommodations are required and employers may choose among multiple alternative reasonable accommodations if there are multiple possible alternatives. Likewise, employers need not provide accommodations which create an undue hardship such as prohibitive expense or an intolerable disruption to the employer’s business operations. Similarly, employers need not accommodate disabling conditions which pose a direct threat to the health or safety of its employees or others.
Title VII also requires employers to accommodate the sincerely held religious beliefs of employees. However, the obligation to accommodate religious belief is significantly less rigorous than the duty to accommodate disabilities.
Under Title VII’s religious accommodation duty, employers must accommodate bona fide religious beliefs by changing working conditions or transferring to a reasonably comparable position so long as the accommodation would not result in de minimus costs to the employer or negative effects on other employees. If the accommodation causes the employer something more than de minimus cost or negatively affects other employees, the employer is not required to provide religious beliefs or practices any accommodation.
As the above demonstrates, even the basic legal requirements imposed on employers under state and federal employment laws create real challenges. In order to meet these challenges, employers must be well informed enough to recognize and understand the many conditions that can be presented to them with the potential for creating liability. Employers should avoid an approach guided by what merely seems like common sense and instead make decisions with an informed understanding of the basic legal principles in order to avoid being caught in expensive and time consuming litigation
Counting employees for the purpose of determining coverage under employment laws discussed in this article requires legal guidance that is beyond the scope of this article. Employers should consult with a qualified employment attorney for more specific guidance.