The Basics of US Employment Law Part V: Overtime Pay

This final blog in the series on United States Employment Law Basics discusses the how to determine which employees are entitled to overtime pay. The determination is based on whether an employee is “exempt” or “non-exempt”. Only non-exempt employees are entitled to overtime pay.

The concept of “exempt” versus “non-exempt” is an important one in United States employment law. One of the biggest issues employers often face is the determination of whether a particular employee or class of employees is exempt or non-exempt. The terms “exempt” and “non-exempt” relate to whether an employee is covered by the Federal Labor Standards Act (the “FLSA”) or whether he is “exempt” from coverage. Being covered (i.e. being non-exempt) provides employees with certain protections beyond federal and state law and subjects employers to additional requirements, one of the most important being overtime pay.

The FLSA provides that “non-exempt” employees who work more than a certain number of hours per week are entitled to “overtime pay”, which is generally one and a half times their normal hourly rate. Accordingly, it is generally advantageous to employers to have their employees to be considered “exempt” so that they do not have to pay them overtime and abide by the other FLSA requirements.

There are very specific (and often complex) rules to determine whether an employee or class of employees is exempt. In the most general of terms, professional employees (such as lawyers, accountants, doctors, and business executives) are usually exempt. These are the kinds of professions where long workdays are common, salaries are competitive, and higher education is usually a job requirement. It is assumed that individuals with a higher education level have more bargaining power and therefore do not need the protection of the FLSA. On the other end of the spectrum are the unskilled laborers, such as a clerk in a store or a maid in a hotel. These kinds of workers are generally paid by the hour, often at minimum wage, and do not need to be college-educated. These workers are typically covered by the FLSA. However, just because a worker receives a salary (as opposed to an hourly wage) does not automatically mean that he is exempt. There are a lot of companies that pay all their employees salaries, but just because you pay your file clerk a salary does not mean you can get away with not paying him overtime. It is a common mistake to assume that salaried workers are exempt and that only hourly workers are entitled to overtime pay and other FLSA benefits. Although hourly workers are often non-exempt and salaried workers are often exempt, the manner in which an employee is paid is in no way determinative of whether the employee is FLSA-exempt. Figuring out whether an employee or class of employees is exempt often involves a great deal of factual and legal analysis in consultation with your legal department or outside counsel.


The Basics of US Employment Law Part III: Vacation Time

This blog in the US Employment Law series focuses on vacation time.

One of the key differences between United States employees and employees in most of Europe is the amount of vacation time employees have come to expect. American employees think that four weeks vacation is extremely generous. Europeans, on the other hand, commonly enjoy four or more weeks of vacation even at entry-level jobs, and many European countries mandate a minimum amount of vacation time.

In the US, there are no federal laws mandating how much paid time off an employee must receive. Absent a collective bargaining agreement or other employment contract, most US employers do not have to offer any paid time off to their employees. However, some local laws mandate a certain amount of paid time off, including my home city of Philadelphia, which requires employers with a minimum number of employees to offer a certain amount of paid sick leave. There are also laws governing unpaid time off, such as the federal Family and Medical Leave Act. So employers should be sure to check with their legal counsel about their particular requirements.

It is also important for employers to understand that although they may not be legally required to offer any paid time off, a certain amount of paid time off has come to be expected in the US as a matter of practice. One might say that vacation time in the US is largely governed by custom. Most salaried (i.e. non-hourly) employees expect to receive one to two weeks of paid time off per year. This paid time off may be in the form of some combination of vacation time, sick days, and personal days. As employees advance in their careers, they expect to receive more vacation time. In general, it is customary for employees to receive between two and four weeks of vacation time per year, depending on their level of experience and years of service, with more senior executives enjoying more generous paid time off packages. Most entry-level jobs provide up to two weeks vacation. Six or more weeks of vacation time is generally reserved for the most senior executives – those who have worked hard, proven their loyalty, and are being rewarded towards the end of their career.

A common problem multi-national companies face is when they bring over an employee from Europe to work in the US office. The European employee often expects to continue to receive her four to six weeks of vacation. This, however, may not go over too well with her US colleagues working in the same office at the same level, but who are only getting two weeks of vacation. Employers need to be sensitive to this potential land mine.


The Basics of US Employment Law Part II: At-Will Employment

This blog on US employment law focuses on the concept of “at-will” employment.

One of the key elements of United States employment law is the idea that an employer can fire an employee at any time without notice and without cause. In other words, an employee is employed at the will of the employer and can be fired at the will of the employer without the employer needing a justification for the firing. This is what is known as being an “employee-at-will”.

There is no federal law that mandates at-will employment or that protects employees against being employed at-will. At-will employment is governed by state law. Most states, including Pennsylvania, are “at-will” states, meaning that these states have embraced the concept that an employer may fire an employee without cause. When an employee is employed “at will”, an employer is free to fire that employee “without cause”. In other words, an employer can fire an employee even if the employee has adequately performed his duties and has done nothing wrong. Perhaps, for example, the employer wants to reduce its staff for business reasons. Or perhaps a particular employee is doing an adequate job, but the employer knows of someone else whom the employer believes will do a better job. Or perhaps, even, a particular employee is doing an outstanding job, but the employer’s son needs a job and there isn’t enough work for both of them. Or maybe the employer just does not like the employee’s personality. Although a particular state may have more protective laws, under federal law, none of the foregoing would be illegal reasons for firing someone, and most “at-will” states would allow an employee to be fired for any of those reasons.

However, as discussed in Part I of this series, an employer cannot fire an employee on the basis of race, gender, age, or any other classification protected by federal law (or applicable state and local law). So while an employer may fire an employee to replace her with his own child, or because he did not like her personality, he could not fire her simply because she is a woman, or because she is old, or because she is Muslim. As one might imagine, even if the employer’s motivation behind the firing were perfectly legal (e.g. the employer wanted to downsize or make room for his relative), a terminated employee might not see it that way and may try to claim that the firing was motivated by prohibited discrimination. Therefore, even if your business is in an at-will state, it is still a good idea to document disciplinary actions taken against any employees and to have a valid business reason for firing someone.

It is also important to keep in mind that just because your business is located in an at-will state does not mean that all your employees are automatically at-will. If an employee and the employer enter into an employment contract, that contract can override the at-will status. This can happen if, for example, the contract provides for a set term of employment or requires cause or notice for termination. Employers need to be wary when they give the employee anything in writing or even verbally (such as an offer letter, a verbal job offer, or even an employee handbook) that they are not inadvertently creating an employment contract with terms that could override the at-will status.


The Basics of US Employment Law Part I: Protected Class Discrimination at the Federal, State, and Local Levels

For the next few weeks I will be doing a blog series on some of the key elements of United States employment law and how they differ from European employment law. This blog series is meant to familiarize Europeans (and others) who may be breaking into the US market and employing people in the United States. Topics covered in this series will include whether and how employees can be fired, vacation time, group benefit plans, and overtime pay.

Employment law in the United States is quite different than in most European countries. In general, the laws in Europe are considered much more protective of employees. For example, it is generally more difficult to fire an employee in most European countries than it is in the United States. While this may appear to benefit European employees, there is a flip side: an employer who does not have the ability to easily fire someone, may be more reluctant to hire in the first place, making the job market more competitive for employees. When employees are less willing to leave one job in search for another, the result is a more stagnant job market. While this may be great for people with good jobs, it may not be so great for those trying to break into the job market or make career changes. Proponents of United States employment law might argue that our less restrictive employment laws create a more productive work force as well as more job opportunities for the American worker. However, this blog series is not meant to be a commentary on the merits of one country’s employment laws over another’s. The purpose of this series is to explore some of the core principles of United States employment law.

One of the first concepts to understanding employment law in the United States is to understand that employment law is governed by both federal and state law. Accordingly, an employer located in Pennsylvania will be governed by both Pennsylvania employment law and United States federal law. In addition to state laws, there may be additional laws and ordinances for the city or township in which your business is located. While cities and states have a significant amount of authority to govern the laws that employers and employees are subject to, there are certain federal laws that trump any state or local law. The general rule of thumb is that while state and local laws can and often do provide additional protections for employees, state and local laws are not going to be less protective of employees than federal law.

One of the most notable categories of federal laws that apply to all employers and employees regardless of the state in which the business is located are the laws that protect employees against discrimination on the basis of certain protected classifications. These classifications include race, gender, religion, national origin, disability, and age. Accordingly, no state law can permit an employer to fire an employee, or chose not to hire a job applicant, on the basis of any of these protected classifications. State and local law can, and often do, go further and provide additional protections to employees. For example, while federal law does not prohibit private employers from discriminating against an employee on the basis of sexual orientation, many states and cities have enacted such prohibitions. Pennsylvania does not include sexual orientation in its listing of protected classes, but the City of Philadelphia (along with Pittsburgh and several other Pennsylvania cities) does prohibit employment discrimination on the basis of sexual orientation.

The next blog will examine the concept of employment at will.