In practicing employment law, I have noticed a pattern of common misconceptions about personnel law. Below I have addressed some topics often misunderstood or not widely known by employers. Read on to ensure you avoid these traps for the unwary.
1. The National Labor Relations Act applies to union-free workplaces.
From time to time, you hear or read about the National Labor Relations Board issuing an edict or ruling in a case about topics such as social media policies or severance agreements. You may think, “I don’t have to worry about that because my employees don’t belong to a union.” Think again. Employees at union and non-union workplaces are subject to the National Labor Relations Act (“NLRA”). As a result, non-union employees also have the right to help each other by sharing information, signing petitions, and seeking to improve wages and working conditions. These employee activities are considered “protected concerted activity” under the NLRA.
2. You generally cannot forbid your employees to discuss their compensation with each other.
The Maryland Equal Pay for Equal Work Law prohibits employers from banning employees from discussing compensation. However, employers may adopt a written policy imposing workday restrictions on time, place, and manner of asking about pay as long as the policy complies with other federal and state laws. Among other things, this law also prohibits an employer from asking applicants about pay history. As a result, employers should remove questions about prior pay from applications. Additionally, employees who discuss with each other their compensation are generally engaging in “protected concerted activity.” Therefore, prohibiting employees from discussing their compensation may violate the NLRA.
3. Most “interns” cannot work for free.
Many people associate interns with free work. After all, the intern is gaining valuable work experience and resume material. Indeed, employers sometimes receive unsolicited offers from students or recent graduates to intern for you for free. However, employers should beware. If the “intern” is actually an employee for purposes of the FLSA, you may be violating the law by not paying minimum wage and overtime.
Courts generally apply a 7-prong “primary beneficiary test” to determine whether the individual or the employer is the primary beneficiary of the compensation-free relationship. For example, if the employer primarily benefits from the working relationship, the worker must receive minimum wage and overtime. In evaluating whether the “primary beneficiary” is the employer or the worker, the court will consider:
- The extent to which the intern and the employer clearly understand compensation is not expected. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
- The extent to which the internship provides training similar to that given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
- The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
- The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
- The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
- The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
- The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job after the internship
No one factor is determinative, but rather the court should apply this test flexibly.
4. There is no such thing as a “1099 employee.”
The above statement is an oxymoron. IRS Form 1099 is the form that a payer issues for non-employee payments. Therefore, if a worker has provided services to your company and you issue a 1099, then the worker should be an independent contractor, as that term is defined according to the various laws that impose employee payroll tax obligations.
To determine whether the person providing service is an employee or an independent contractor for federal payroll taxes, all information that provides evidence of the degree of control and independence must be considered.
Facts that provide evidence of the degree of control and independence for federal payroll tax purposes fall into three categories:
- Behavioral: Does the company control or have the right to control what the worker does and how the worker does their job?
- Financial: Are the business aspects of the worker’s job controlled by the payer? (These include how workers are paid, whether expenses are reimbursed, who provides tools/supplies, etc.) and
- Type of Relationship: Are there written contracts or employee-type benefits (i.e., pension plan, insurance, vacation pay, etc.)? Will the relationship continue, and is the work performed a key aspect of the business?
Employers also should be aware that the Maryland Unemployment Law and its supporting regulations assume that the worker is an employee, and the company has the burden to demonstrate independent contractor status. The test for independent contractor status under the Maryland Unemployment Law is more stringent than many other statutes. The next potential gotcha is a corollary to this one….
5. Just because you call your worker an independent contractor doesn’t make it so.
As I noted in the prior gotcha, several factors must be established to demonstrate that a worker is an independent contractor. Simply dubbing the relationship as that of an independent contractor is insufficient to avoid payroll and other obligations imposed by employee status.
6. You can’t refuse to pay an employee overtime because it wasn’t pre-authorized.
You’ve been a good employer and have adopted an employee manual that you update regularly, right? Your employee manual mandates pre-authorization to work overtime and yet, you have that problematic non-exempt employee who works unapproved overtime every once in a while. Or, you have the eager and industrious employee who wants to demonstrate dedication to your company and stays to burn the midnight oil. Your first reaction may be to refuse to pay the employee for that unapproved overtime. Stop. Right. There. Under the Fair Labor Standards Act, “[w]ork not requested but suffered or permitted is work time. For example, an employee may voluntarily continue to work at the end of the shift. He may be a pieceworker, desire to finish an assigned task, or wish to correct errors, paste work tickets, and prepare time reports or other records. The reason is immaterial. The employer knows or has reason to believe he is continuing to work, and the time is working time.” As a result, when a non-exempt employee works unauthorized overtime, the employer should pay the employee for that overtime. The employer may, however, discipline the employee for violating the policy regarding unapproved overtime.
7. You can’t require your employees to use direct deposit.
While most employees prefer direct deposit, private employers may not mandate it.
For example, Maryland law permits direct deposit, but an Attorney General’s Opinion from 1994 states that an employer may not require an employee to use direct deposit. However, an employer may encourage employees to use direct deposit and, when certain conditions are met, are permitted to pay employees by cash card.
A county or municipal corporation may require a direct deposit as a condition of employment but cannot require the payment of wages by direct deposit for an employee (a) who was hired before October 1, 2011, unless the county or municipal corporation, before that date, required – by local law, regulation, or collective bargaining agreement – the payment of wages by direct deposit; (b) whose employment is not conditioned on the employee receiving the payment of wages by direct deposit; or (c) who does not have a personal bank account and informs the employer of their intent to opt out of the direct deposit program.
8. Private employers can’t furlough an exempt employee’s pay for less than one week at a time.
During economic downturns, several municipalities, counties, and federal agencies have implemented employee furloughs as cost-cutting measures, requiring employees to take off at least one day without pay. Unfortunately, private sector employers may not furlough exempt employees under the Fair Labor Standards Act (“FLSA”) for less than one week at a time.
To qualify for the so-called “white collar” exemptions under the FLSA, an employee must meet certain duty requirements and be paid on a “salary basis.” Being paid on a “salary basis” means an employee regularly receives a predetermined amount of compensation each pay period on a weekly or less frequent basis. An employers cannot reduce the predetermined amount because of variations in the quality or quantity of the employee’s work. Subject to limited exceptions, an exempt employee must receive the full salary for any week the employee performs any work, regardless of the number of days or hours worked. If the employer makes deductions from an employee’s predetermined salary, i.e., because of the operating requirements of the business, that employee is not paid on a “salary basis.” If the employee is ready, willing, and able to work, deductions may not be made when work is unavailable. If the employee performs absolutely no work during a week, an employer does not have to pay the salary for that week and still preserves the employee’s salaried status.
9. It’s important to have an Employee Handbook, even if you only have a few employees.
Some employment statutes have notice obligations in addition to the substantive protections they provide for covered employees. For example, the Family and Medical Leave Act, which governs certain employers with fifty or more employees, requires employers to maintain and publish FMLA policies. In addition, many federal civil rights laws, such as Title VII of the Civil Rights Act of 1964 and the Americans with Disabilities Act, cover employers with fifteen or more employees. However, several local jurisdictions in Maryland have enacted anti-discrimination and anti-harassment laws government smaller employers, and a wrongful discharge action may exist against a small employer not covered by an anti-discrimination or anti-harassment statute. Therefore, every employer with fifteen or more employees should maintain and enforce anti-discrimination and anti-harassment policies. Good anti-discrimination and anti-harassment policies help prevent discrimination and harassment and promptly mitigate it when it may occur.
Moreover, many federal, state, and local statutes, such as the federal Fair Labor Standards Act, apply to employers of any size. As a result, it is good practice to adopt policies and procedures regarding issues such as, among others, proper recording of time worked and requirements for pre-authorization of overtime.
It is also prudent for small employers to maintain policies for discipline and termination to manage performance expectations. In instances where a terminated employee may file for unemployment benefits, maintaining and applying such policies assist the employer in establishing misconduct and other issues that bear on entitlement to unemployment benefits.
These common misconceptions can trip up even the most well-meaning employer. Make sure that you are operating your workplace in accordance with applicable laws. Please contact me if you have questions or concerns about the above information.
 The information in this article is for informational purposes only and not for providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. The use of information in this article does not create an attorney-client relationship between the author or her law firm and the reader.