The employment relationship

Country specific laws

What laws and regulations govern the employment relationship?

A number of federal, state, and local laws and doctrines govern the employment relationship in the United States, such as:

  • the National Labor Relations Act;
  • the employment at-will doctrine;
  • Title VII of the Civil Rights Act of 1964;
  • the Age Discrimination in Employment Act;
  • the Americans with Disabilities Act;
  • the Family and Medical Leave Act;
  • the Fair Labor Standards Act;
  • the Uniformed Services Employment and Reemployment Rights Act 1994 (USERRA);
  • the Equal Pay Act; and
  • the Immigration Reform and Control Act.

Who do these cover, including categories of worker?

  • National Labor Relations Act—this covers union and non-union employees engaged in lawful protected and concerted activity.
  • Employment at-will doctrine—absent a collective bargaining agreement or an individual employment contract, the employer is free to discharge an employee at any time with or without cause. Several state courts have carved out exceptions to this rule.
  • Title VII of the Civil Rights Act of 1964—employers with 15 or more employees are prohibited from refusing to hire, discharging or otherwise discriminating against any individual in terms and conditions of employment because of race, color, religion, sex (including pregnancy) or national origin. Many state and local governments have mandated additional protected classifications, such as marital status, AIDS and sexual orientation.
  • Age Discrimination in Employment Act—this prohibits private employers with 20 or more employees from discharging or otherwise discriminating on the basis of age against employees who are age 40 or older.
  • Americans with Disabilities Act—this prohibits private employers with 15 or more employees from discriminating against employees or applicants with disabilities.
  • Family and Medical Leave Act—this prohibits employers with 50 or more workers from discriminating against or interfering with employees for exercising their rights to leave under the act.
  • Fair Labor Standards Act—this generally requires the payment of a statutorily prescribed minimum wage to all covered employees except certain younger workers, who may be paid a sub-minimum training wage for up to 180 days. It also requires employers to pay overtime to all non-exempt employees at a rate of one and one-half times the employee’s regular rate for all hours worked in excess of 40 per week. Other federal and state laws may require a higher overtime rate. The Fair Labor Standards Act provisions contain numerous exemptions from the minimum wage and overtime requirements.
  • The USERRA is a federal law that establishes rights and responsibilities for uniformed service members and their civilian employers.
  • Equal Pay Act—this requires that male and female workers receive equal pay for work performed under similar working conditions and requiring equal skill, effort and responsibility.
  • Immigration Reform and Control Act—this makes it unlawful for an employer to hire anyone who is not legally authorized to work in the United States. All employers, regardless of size, must verify the identity and eligibility of employment of every new employee hired. 


Are there specific rules regarding employee/contractor classification?

There is no bright-line test to determine employee/independent contractor classification. The US Internal Revenue Service uses a 20-factor test, the US Tax Court uses a seven-factor test and other state tests vary. As in other areas of employment law, this test has been interpreted recently as somewhat more employer friendly—that is, the “employer” and “independent contractor” classifications are beginning to be more clearly delineated by the courts.


Must an employment contract be in writing?

No—an employment contract generally can be oral, implied and/or expressed. 

Are any terms implied into employment contracts?

Legally enforceable employment promises may be implied in employment handbooks or policy statements. However, employment is generally at will in the United States. Contract interpretation is generally a matter for the state courts under each state’s contract laws. Some states read certain duties into employment contracts (e.g., duty of good faith and fair dealing between employees and employer).

Are mandatory arbitration/dispute resolution agreements enforceable?

Although agreements to arbitrate employment disputes are enforceable under the Federal Arbitration Act (FAA), the issue of whether there is an enforceable agreement is generally a matter of the applicable state law governing the formation of contracts or the enforceability of employer policies. A basic tenet of contract law of most, if not all states is that an employee’s promise to arbitrate is enforceable only if the employer gave some consideration for the promise.  On May 21, 2018 the US Supreme Court held that employment arbitration agreements with class action waivers (requiring individual arbitration of class action claims) are enforceable under the FAA.

How can employers make changes to existing employment agreements?

The two basic approaches to modifying existing employment contracts are the pre-existing duty rule and the Restatement of Contracts approach. The pre-existing duty rule says that doing what you are already obliged to do is not consideration. Consideration is required on both sides. Thus, changes on both sides are required for there to be consideration from both sides. That is, any change in an employment contract should include some type of consideration (e.g., additional wages or a signing bonus).

The Restatement of Contracts approach is more tolerant of one-sided changes. Section 89 of the Restatement (Second) of Contracts provides: “A promise modifying a duty under a contract not fully performed on either side is binding if the modification is fair and equitable…; or to the extent provided by statute; or to the extent that justice requires enforcement”. Such language would apply only to an agreement which has not yet been fully exercised and still is susceptible to revision.

Notably, rules concerning the sufficiency of consideration in contract vary state by state, including with respect to niche areas (e.g., restrictive covenants). 

Foreign workers

Is a distinction drawn between local and foreign workers?

The Immigration Reform and Control Act of 1986 requires employers to verify the identity and entitlement to employment of every new employee hired through a completed Form I-9. All US employers, regardless of size, are subject to the provisions of that act. Employers must document and maintain all verifications and may face significant monetary penalties if proper documentation is not maintained. Employers may not knowingly hire unauthorized aliens. Penalties for hiring unauthorized aliens include heavy fines and, in some cases, imprisonment. The Immigration Reform and Control Act also penalizes employers for discriminating against employees or applicants because of national origin or citizenship status.

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