The employment relationship in the United States is subject to markedly less regulation than in other countries. With the exception of some minimum protections for wages, working hours, and the prohibition of discrimination, the parties to an employment relationship in the United States are generally free to negotiate and set the terms and conditions of their relationship.
Moreover, the default position is that private sector employment relationships are "at will": either the employer or the employee may terminate the employment relationship at any time, for any lawful (i.e., non-discriminatory or non-retaliatory) reason, with or without notice.
Issues arising on hiring individuals
Foreign nationals without permanent resident status or a work visa are not permitted to work in the United States.
An employer seeking to hire a foreign national may, on behalf of the prospective employee, file a petition with the United States Department of Homeland Security/United States Citizenship and Immigration Services (USCIS) for an employment visa. If the prospective employee is already in the United States with a valid non-immigrant visa, he or she can begin working for the employer upon approval of the petition, provided that approval for change of status or extension of stay has been obtained. If the prospective employee is outside of the United States or was ineligible for a change of status, the petition will be sent to the United States embassy or consulate nearest to the prospective employee's foreign residence, and the prospective employee must apply for and obtain the appropriate temporary worker visa. It should be noted that different procedures apply for Canadian citizens.
All employers are obliged to verify that all the individuals they employ are authorised to work in the United States.
To do so, employers are required to complete a USCIS Form I-9 for each newly hired employee. Employers have the option of participating in the on-line E-Verify programme, under which USCIS confirms whether or not an employee is in fact authorised to work in the United States.
Employment structuring and documentation
Under United States law, there are no minimum requirements for an employment contract, and in most circumstances, no written contract is required. An employment relationship in the United States is presumed to be "at will", i.e. terminable by either party, with or without good reason or notice. Indeed, a majority of employees in the United States are employed without a written contract, and just with a written offer of employment that outlines their basic terms and conditions of employment. In some states, such as New York, employers must by law notify new employees in writing of some of their terms of employment (but not as extensively as is required under the law of EU Member countries). Generally, however, there are no requirements as to the minimum contents of an offer letter.
Whether the employment relationship is "at will" or pursuant to a written employment contract, parties are free to negotiate and set the terms and conditions of their relationship, provided none of the provisions violate any federal, state, or local law, rule or regulation governing the employment relationship.
There are no legal provisions governing fixed-term contracts. Unlike many other countries, American law does not limit the duration of a fixed-term contract or the circumstances under which the parties may enter into a fixed-term contract.
Many employers have an internal policy on trial periods, often referred to as "introductory periods" or "probationary periods", but there are no legal provisions governing these.
Issues arising during the employment relationship
Wages, annual leave and working time
The Fair Labor Standards Act prescribes a (national) minimum wage for all non-exempt employees, of USD 7.25 per hour. States are free to legislate a higher minimum wage. In 29 states and the District of Columbia, the minimum wage is higher than the federal minimum wage. The most common Fair Labor Standards Act exemptions are referred to as `white collar exemptions'. The term commonly refers to exemptions for executive, administrative, professional, outside sales and computer professional employees.
American workplace law does not impose maximum working hours. However, many state statutes provide for daily rest periods as well as a one day rest period each week. For example, a number of states require that employees who work more than four hours per day receive a break of at least ten minutes for every hour worked.
Under federal law, non-exempt employees must receive overtime pay of x1.5 their regular pay for all hours worked in excess of 40 hours per week. Generally, nonworking time, including absence, rest periods, leave, etc. is not counted towards the 40 hours per week overtime threshold.
Although the United States government recognises several "national holidays", no federal law requires employers to provide employees with time off for these holidays. However, it is customary for employers to provide employees with paid time off to observe nationally- and locally-recognised holidays.
Similarly, no federal law requires employers to provide employees with paid annual leave, although in practice, most employers provide this. It may range from one week per year during the employee's first few years of employment to three or four weeks for long-serving employees. Employees who are represented by a trade union may receive more generous annual leave.
Trade unions constitute the largest and most influential employee organisations in the United States. Most trade unions are organised under two umbrella organisations, the American Federation of Labour and Congress of Industrial Organisations (AFL-CIO) and the Change-to-Win Federation.
Due to the United States Constitution's guarantee of freedom of association, employees are free to form and join trade unions. Approximately 14.8 million workers, or 11.1% of the workforce, are members of a trade union.
More public sector employees than private sector employees are unionised. While only a small portion of the workforce is unionised, trade unions wield significant lobbying power in the United States, especially within the Democratic political party.
United States law provides for retirement benefits and subsidised health insurance under federal Social Security and Medicare programmes. Social Security is financed by a 12.4% tax on wages up to an annual threshold (USD 127,200 in 2017), with half (6.2%) paid by workers and half by employers. Employers and employees each pay 1.4545% of wages in Medicare payroll taxes, with no limit on the wage base. These federal programmes provide benefits for retirees, the disabled, and children of deceased workers. In addition, employers with 50 or more full-time equivalent employees who do not provide health insurance to at least 95% of their full-time employees, and dependents up to the age of 26, are subject to a federal fee payment under the Patient Protection and Affordable Care Act, a federal law which is currently the subject of controversy in the U.S.
Issues arising on termination of the employment relationship
There is no legislation which seeks to protect affected employees when a business transfers to new ownership. As most employees are employed "at will," a transferee is free to offer employment to the employees of the transferor or to change the terms and conditions of employment. If the transfer of an undertaking will result in a plant closure or mass layoff, as defined under the federal WARN Act, employees are entitled to 60 days' notice by the transferor, assuming that the transferor is a covered employer under WARN. There may also be similar state or city laws that are applicable to the transferor, called "mini-WARN acts". Mini-WARN acts may have a different threshold for covered employers and different requirements concerning notice.
If the affected employees are represented by a union, the transferee may be under a duty to bargain with that union and cannot change any terms and conditions of employment without first bargaining with the trade union.
Generally, employees employed on an "at will" basis may be dismissed, with or without good reason, whether or not the employee was at fault, provided it is not for an illegal reason, notably unlawful discrimination.
Unless the employment contract or collective bargaining agreement provides otherwise, there is no legal requirement for employers to follow a formal procedure when dismissing individual employees. However, employees are protected from unfair dismissal in violation of federal, state, and local discrimination or anti-retaliation laws. Employers are prohibited from discriminating against or dismissing employees on the basis of their race, colour, racial origin, religion, pregnancy, or sex, or in retaliation for making complaints of unlawful discrimination.
The concept of a void dismissal does not exist outside the scope of unlawful terminations in violation of federal, state, or local civil rights laws and/or anti-retaliation provisions. However, to the extent that an employee's dismissal violates any federal, state or local law, the employee may be entitled to reinstatement to their former position, effectively rendering the termination void.
Unless it is provided for in an employment contract or collective bargaining agreement, employers are not required to make severance payments on termination.
Published in collaboration with L&E Global: an alliance of employers’ counsel worldwide
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