Shayna Balch was a guest blogger for the Phoenix Business Journal on April 21, 2015

It’s no secret that the startup community is booming in Arizona. Recently named by Forbes magazine as one of the best cities to start a business, the Valley of the Sun is opening its doors to entrepreneurs from all industries. As with any new company, the “to-do” list for business owners can be extensive, including the hiring, managing and termination of all staff members. Before you open the doors for business, be mindful of the following HR challenges that could potentially wreak havoc on your newfound venture.

1. Not having the right policies in place

Having the idea of “I’ll worry about it later” can lead to major setbacks when it comes to hiring and managing employees. Prior to bringing on any staff members, make sure that you are working with a well-versed HR professional to establish, in writing, complete job descriptions, attendance policies, vacation policies and any other policies that speak to what is expected of all employees, via a company handbook.

2. Not keeping proper records and paperwork

In order to stay out of the hot seat with the EEOC, DOL and NLRB, maintaining proper employee documentation is key. Prior to the employees’ first day, confirm that they have thoroughly reviewed the employee handbook and signed documentation stating that they understand all company policies and procedures. Federal and state forms, such as I-9, W-4 and E-Verify, as well as a formal job application and insurance benefits information, should all be provided and recorded properly. Finally, should there be any changes to an employee’s status or should he or she exhibit problems with performance, work with your management team to ensure that each instance is properly documented and kept on file.

3. Not hiring and firing smart

Finding great employees and terminating the bad ones can be a major burden for new business owners. From hiring the wrong people for the job to letting inappropriate behavior run rampant out of fear of potential litigation, employers face a multitude of challenges when it comes to proper employee recruitment and management. Prior to bringing on any new staff members, make sure you have a clear understanding of the employment laws that pertain to your size of business. Knowing what questions to ask during the interview process (and which ones not to ask), rules on background checks, and what types of termination issues could lead to litigation could save you a tremendous amount of time and money in the long run.

4. Having a “too small to matter” mentality

All companies, regardless of size, need to follow a variety of employment laws at the federal and state level. Not adhering to wage and hour laws, improper employee classification, inappropriate enforcement of sexual harassment/discrimination laws, and ADA accommodation issues tend to be the Achilles’ heel for most employers. Whether you have 1 employee or 100, work with your legal team to establish that you are following all labor and employment laws that apply to your size of business.

Many employers think they understand employment laws like the Fair Labor Standards Act, 29 U.S.C. §201, et seq. (FLSA), only to find out – after costly litigation – that they were just plain wrong.  In this article, I will highlight 10 of the most common mistakes that private, non-governmental employers (with a non-unionized work force) make when attempting in good faith to comply with employment laws.

1. Paying an employee a salary and assuming the employee need not be paid overtime

 The FLSA is a federal law which establishes minimum wage, overtime pay, recordkeeping and child labor standards affecting full-time and part-time workers in the private sector and in federal, state, and local governments. The FLSA applies to employers through either “enterprise coverage” (businesses with at least two employees that have an annual dollar volume of sales or business done of at least $500,000) or “individual coverage” (businesses whose workers are regularly involved in commerce between the states or “interstate commerce”).

Many employers assume that employees who are paid a salary – as opposed to an hourly rate of pay – do not have to be paid overtime under the FLSA. Whether an employee should be paid overtime for working more than 40 hours a week does not depend on whether the employee is paid a salary.  Better put, simply paying an employee a salary does not excuse the payment of overtime.  If an employee is not exempt as that term is defined under the FLSA, then the employer is required to keep track of the employee’s hours worked and pay overtime at time and one-half the employee’s regular rate of pay if the employee works over 40 hours in a week.

Any employee who is not an executive, a manager or who does not exercise high level decision-making is probably not exempt. The determination of whether an employee is exempt or non-exempt is a factual inquiry that depends on the employee’s job duties, not the employee’s title. For example, if an employee has the title of “manager” but does not actually supervise two or more people and does exactly the same work that the hourly employees do, that so-called manager may very well be a non-exempt employee.

While a non-exempt employee can still be paid a salary, timekeeping and payment of overtime for working over 40 hours in a week is nonetheless required.

2. Not having an employee handbook

Most state and federal anti-discrimination laws apply to employers with over 15 employees. In fact, some local anti-discrimination ordinances cover employers with as few as five (5) employees.  Employers who are covered by these laws need to make sure to have policies in place to prohibit sexual and other harassment, discrimination and retaliation.  These policies must also include procedures for making and investigating complaints of harassment, discrimination and like.  While no law requires employers have an employee handbook, the handbook can be a useful tool for an employer to memorialize and enforce its personnel policies and procedures and can help an employer prove compliance with the law.

3. Having an employee handbook and not following policies

Even worse than not having an employee handbook is having a handbook but not following the policies! For example, if an employer has a policy that requires the reporting of sexual harassment to a manager, but the manager does not know or understand the employer’s duty to investigate the complaint in a confidential manner, the policy is useless.  In that event, the employee who fails to complain to the employer before pursuing legal action will be excused from failing to comply with the employer’s policy.

Employers are well-advised to inform managers about the company’s employment policies, train managers to ensure compliance and accurately and uniformly enforce such policies throughout the work place.

4. Having all employees sign non-compete agreements

Some employers require all employees sign non-compete agreements.  The problem with this approach is that competition cannot be prohibited unless the employer has a “legitimate business interest” to protect through the non-compete agreement.  If an employee has access to customer lists or other proprietary and confidential information belonging to the employer which the employer keeps secret and out of the hands of its competitors (as opposed to information that is readily available in the public domain), then a non-compete agreement will be seen as reasonably necessary to protect the employer’s legitimate business interests.  However, requiring employees who do not have access to this kind of information sign the same non-compete agreement may diminish the ability to enforce the agreement against those employees who can and should be prohibited from competing.

5. Giving a terminated employee a written letter of termination, two weeks notice and severance pay

Terminating an employee is difficult for both the employer and the employee. Employers who are apologetic about the termination decision often feel they owe certain things to the outgoing employee – like a written termination letter, two weeks notice (or payment in lieu of notice) and severance.

Employers are not required to explain to an employee the reasons for termination, either orally or in writing, except as required under state law or in the rare, “mass layoff” situation where the Worker’s Adjustment and Retraining Notification (WARN) act 29 U.S.C. §2101, et seq., requires notice prior to a lay-off.  Additionally, employers are not required to give two-weeks notice of termination. In most cases, a terminated employee is toxic to the work environment and should be escorted from the work site immediately after the termination meeting or exit interview. Finally, employers are not required to provide terminated employees with severance pay. Severance pay is a matter of agreement between an employer and an employee, which usually goes hand-in-hand with an employee’s general release of claims against the employer.

Note that most employees who are terminated will still be able to collect unemployment compensation unless the reason for the termination precludes collection under state law.

6. Thinking annual reviews, salary increases and bonuses are required

Unless the employer has specifically agreed to provide performance and compensation reviews or to give periodic salary increases and bonuses, the law does not require any of these things. Under federal law, payment of a minimum wage (currently $7.25 per hour under federal law and higher in many states) is all that is required.

7. Paying employees higher hourly rates for certain shifts and paying employees for not coming to work

 Employers may think that requiring hourly employees to work on nights, weekends and holidays warrants payment of a higher hourly rate or even “double time” pay.   Absent an agreement or state law to the contrary, the FLSA does not require higher rates of pay for employees who work night shifts, on holidays or weekends. Keep in mind, however, any non-exempt employee who works over 40 hours a week must be paid overtime at time and one-half the employee’s regular rate of pay.

Bona fide meal periods (typically lasting at least 30 minutes) or other breaks where an employee is completely relieved of all work duties, are not considered work time and are not compensable.

Similarly, many employers think hourly employees must be given two breaks a day, must be paid when the office is closed for a legal holiday, are entitled to paid time off for a vacation and must be paid when they cannot work due to illness (sick days). While some states may require that employees be paid when they do not come to work, federal law does not require payment for time not actually worked. Thus, time taken for breaks, meal periods, vacations, sick days and holidays need not be paid unless the employer has specifically agreed to do so. One limited exception to the “no required breaks” rule applies to nursing mothers, and the FLSA also requires that employers provide space for nursing mothers to express breast milk for one year after the child’s birth.

Note that, even though break-time is generally not required under the FLSA, if an employer does allow breaks of 5 to 20 minutes, they must be counted as hours worked (and thus paid time). This includes short periods away from work to smoke, go to the restroom, make a personal telephone call, get coffee, etc.

8. Thinking that an employee’s schedule cannot be changed without notice and that employees can only be scheduled for a certain number of hours per week

After the weekly schedule is set, changes may be required. Employers have the ability to adjust schedules to meet the needs of the business even if that means disrupting the employee’s previously-set schedule. The FLSA does not cover the scheduling of employees (except for employees under the age of 16 who are limited in the number of hours they can work per day and per week). Thus, neither notice to the employee nor the employee’s consent is required when changing an employee’s work hours.

Moreover, there is no minimum or maximum number of hours for which an employee can be scheduled, and the FLSA does not define what constitutes full-time or part-time employment. Employers make this determination, but regardless of whether an employee is full-time or part-time, the FLSA will still apply if the employer is a covered entity.

9. Believing you cannot be individually liable for violating the law because your business is a corporation

 Corporations are wonderful legal fictions which exist for variety of reasons, not the least of which is to shield its owners from individual liability for corporate wrongdoings. While there are certainly exceptions to this rule, the corporate form generally will prohibit individual liability for violation of the employment laws. However, the FLSA, unlike most other employment laws, specifically defines employers as as “any person acting directly or indirectly in the interest of an employer in relation to an employee.” 29 U.S.C. § 203(d). Therefore, managers and corporate officers with operational control of the business can be individually liable for claims brought under the FLSA.

Additionally, common law torts – like assault, battery and defamation – can be brought against corporate officers, employees and managers in their individual capacity. The corporate form is not a shield from personal liability for these acts.

10. Classifying all staff as independent contractors means you do not have to worry about the employment laws

 Independent contractors need not receive overtime pay, are not protected by the employment laws and are not entitled to unemployment compensation upon termination. Moreover, employers are not required to pay Social Security and Medicare for these workers or take other deductions from payments made to independent contractors.

Tempting as it may be to classify all workers as independent contractors – thus avoiding application of the FLSA, other employment laws and employer tax liability – the government (i.e., the Internal Revenue Service, the Department of Labor and corresponding state agencies) have created a nationwide misclassification initiative designed to crackdown on offending employers.

The problem of misclassification is rampant in certain industries (such as the construction industry), and such industries the main targets in the initiative. However, no employer is above the law, and improperly labelling an employee an independent contractor can expose employers to a host of tax and other liabilities, as well as criminal penalties.

The IRS has developed a list of 20 factors to determine whether the worker is an independent contractor or an employee. At its core, the test focuses on whether sufficient “control” is present to establish an employer-employee relationship or an independent contractor-client relationship. According to the IRS, these factors should be considered guidelines. Not every factor is applicable in every situation, and the degree of importance or “weight” of each factor varies depending on the type of work and individual circumstances. However, all relevant factors are considered by the IRS in probing the relationship; no one factor is decisive.

For more details, go to http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-Self-Employed-or-Employee

Conclusion

Litigation against employers has steadily increased over the years as employees have become more aware of their rights, and attorneys who regularly sue employers advertise big awards on bus benches and billboards around the country. There is no end in sight, particularly since cases brought under the FLSA are lucrative for employees and quite costly for employers who may end up having to pay back wages, liquidated (double) damages, plus attorneys’ fees to the plaintiff’s counsel and to the employer’s own attorney.

Employers who attempt to manage compliance with employment laws without consulting skilled employment counsel may be at risk. If you have made any of the foregoing mistakes, now is the time to seek counsel before you too are served with a potentially costly lawsuit.

Introduction

The dismissal of employees on the grounds of capability is a very topical and emotive issue and it is an issue which employers are faced with on a day to day basis. Indeed, in the recent climate of austerity and mass redundancies in both the public and private sector, employers have often sought reasons other than redundancy to dismiss employees to avoid a redundancy payment – capability and underperformance are fair reasons for dismissal and thus avoid the need for such payments.

Definition of Capability

Capability refers to an individual’s ability to perform the work expected of them to the required standards. Capability, in relation to an employee, is defined in the Employment Rights (Northern Ireland) Order 1996 (Article 130 (3)(a)) as “his capability assessed by reference to skill, aptitude, health or any other physical or mental quality.”

Hence, capability falls into two categories – an employee’s incompetence and also his inability to do his job as a result of illness.

1. Incompetence or poor performance – this occurs where an employee is simply incapable of delivering work to the required standard. In a recent report by the CIPD, it was noted that poor staff performance is one of an employers’ most common complaints. Indeed, managers have a tendency to avoid dealing with employees and their work standards particularly if an employee is potentially litigious. However, ignoring the issue can demotivate other staff so tackling poor performance firmly is a must. That said, great care must be taken to ensure that the incompetence is not related to a disability which could result in a disability discrimination claim. This issue will be considered later in the presentation.

2. Illness – an employee’s illness can make it impossible for them to perform their duties if they are on long term sickness absence. This illness can be physical or mental. An employer must take great care to ensure that absences are managed effectively – a balance must be struck so that employees with health problems are supported to stay in or return to work.

Steps to Ensure a Fair Capability Dismissal

Capability is one of five potentially fair reasons for dismissal. To avoid potential unfair dismissal claims, an employer must not only get the procedure correct but also be able to show that capability is the actual reason for the dismissal.

When dealing with a capability dismissal, there are two questions a tribunal will expect an employer to be able to answer:

• First, did they honestly believe the employee was incompetent or unsuitable for the job? and
• Second, were the grounds for that belief reasonable?

In answering these questions, employers will need to be able to point to objective evidence. This will first of all help to ensure the fairness of any action taken, in the eyes of the employee, which could make it less likely that the decision will be challenged and viewed as discriminatory. Also, and of equal importance, this evidence will be required to back up the assertions as to lack of capability. A tribunal cannot substitute its own view of the employee’s capability. An employer must show that there was evidence available to him of the employee’s incapability and that, relying on that evidence, it was reasonable to dismiss.

Incompetence/Poor Performance:

Proving incompetence/poor performance is not straightforward. In many cases, employers have appraisal or performance management systems in place that can be used to initiate capability proceedings when an employee is accused of not meeting certain standards. It is imperative that such procedures are followed in order to ensure a dismissal is fair.

An analysis of case law suggests that there are a number of factors which a Tribunal will look for to see if an employee was given time and the correct support to improve before an employee was dismissed for capability on the grounds of poor performance. Specifically, the Tribunal will look at whether an employer:

1. genuinely believed the employee was incapable of doing the job and if there were reasonable grounds for them to believe this;
2. carried out a proper investigation of the employee’s performance;
3. told the employee about the under-performance and gave clear warnings;
4. gave the employee a reasonable chance to improve;
5. offered the employee suitable alternative work, if this was possible.
6. the tribunal will also consider whether the decision to dismiss was within the range of responses of a reasonable employer.

1. Genuine Belief

In determining whether an employee genuinely believed the employee was incapable of doing the job, the tribunal will want to know exactly why an employee was dismissed. An employer doesn’t have to prove that an employee was incapable of doing the job. They just have to show that they genuinely believed the employee couldn’t do it and there were grounds for believing this.

2. Did an employer carry out a reasonable investigation of the employee’s performance?

A tribunal will look at whether an employer looked at why an employee was performing badly and whether there were any reasons that contributed to it. A tribunal will ask:
• what the employer did to investigate an employee’s performance, who they spoke to and what evidence they got;
• whether they could have done anything else to find out why the employee was under-performing; and
• were there any reasons why the employee was under-performing, such as ill health, family problems or stress?

3. Was an employee told about their under-performance?

A tribunal will look at whether an employee was warned about their under-performance and the consequences of failing to improve. A tribunal will want to know whether:
• the employee was told before that their performance needed to improve and what action had been taken against them
• the employee was warned that s/he could be dismissed if their performance didn’t improve
• the employer offered to support the employee with training or mentoring.

4. Was an employee given a reasonable chance to improve?

The tribunal will look at the length of time between an employee first being told there was a problem and the employee’s dismissal to ensure the employee was given enough time to improve.

5. Was the employee offered suitable alternative employment?

A tribunal will look at whether an employer offered an employee suitable alternative employment and whether more could have been done to find the employee other work. If an employee doesn’t have the skills to do the job, it may not be reasonable to offer alternative work. However, it will depend on the circumstances.

6. Was it reasonable to dismiss the employee?

Having considered all of the above, a Tribunal will consider whether the employer:
• genuinely found the employee incapable of doing their job after they did a proper investigation;
• used reliable evidence to support their claim;
• tried steps to help the employee improve, which failed and
• gave the employee enough time to improve.

Ill Health Dismissals

Ill-Health dismissals are also considered capability dismissals. Deciding whether to dismiss on the grounds of ill health is a finely balanced and difficult decision. Generally, in the absence of a catastrophic illness or accident, this will necessitate a process of consultation with the employee; a thorough investigation of the up-to-date medical condition and prognosis; and consideration of other options apart from dismissal.

For the procedure to be fair, the employer needs to have discussions with their employee at regular intervals. They also need to make sure the employee understands at what point dismissal may be an option. This should involve personal contact between the employer and the employee. In addition, the employer should obtain up-to-date medical evidence from the employee’s general practitioner and, if appropriate, their hospital consultant.

Their discussions should also include a look at what steps the employer could take to get the employee back to work including any adjustments that may be necessary; and, where the employee is not in a position to return to their substantive position, perhaps think about alternative jobs.

A review of case law suggests that a tribunal will look for the following when they are trying to decide if it’s reasonable to dismiss an employee because she or he is unable to do their job because of long-term sickness. They will want to know whether an employer:

1. carried out a reasonable investigation about the employee’s condition, and whether it would be likely that the employee could return to work;
2. consulted the employee before they made the decision to dismiss; and
3. made reasonable efforts to explore other options, such as flexible working, adapting the workplace or finding other work for the employee.

As with any dismissal, a tribunal will always ask itself whether the decision to dismiss an employee was within the range of responses that a reasonable employer could be expected to make. In doing so, a tribunal will look at the following:
• How long an employee has worked for the employer;
• How an employee’s absence affects the business and other staff. A tribunal might ask:
1. could other staff do the work or work overtime?
2. could the employer hire a temp or use agency staff?
3. what would it cost the employer to arrange temporary cover?
• How important is it for an employer to have a permanent employee?
• Is an employee likely to get better?
• Was the reason for the absence work-related?

NHS Fife Health Board v Stockman (2014) UKEATS/0048/13/JW

In this recent case, the EAT had to decide whether it was fair to dismiss an employee on grounds of capability without fully investigating all the medical evidence surrounding the case.

Facts

Stockman, a doctor, was convicted of driving while under the influence of alcohol. His registration with the General Medical Council (GMC) was suspended on an interim basis for 18 months. He was signed off as unfit for work while undergoing a course of treatment for alcoholism involving attendance at a centre most of the day and part of the evening. Given Stockman’s suspension from the medical register, the employer said he would have to be dismissed on grounds of capability unless he could be redeployed. No alternative position was available. At an internal appeal hearing against the dismissal, Stockman presented evidence to the effect that:

• he was likely to respond to alcoholism treatment
• his suspension from the GMC was likely to be revoked
• most doctors in his position did recover
• other NHS employers would not dismiss at an early stage of receiving treatment.

The appeal failed, Stockman was dismissed after six weeks on suspension, and claimed unfair dismissal.

Tribunal

An employment tribunal found the dismissal for capability was unfair. The employer argued that it did not need any medical evidence because it would have made no difference – Stockman’s registration as a doctor was suspended so he could not fulfil his contractual duties.

The tribunal noted that the test of reasonableness involved looking at the actions of an employer in the same line of business or profession. The expert medical evidence presented showed that NHS employers would always get an up to date medical report, that a doctor was unlikely to be dismissed while receiving treatment, and the majority succeeded in getting back to work. In addition, an HR specialist, who had been an assistant secretary at the doctors’ professional body, the BMA, for seven years, stated that she had never known of a doctor being dismissed in these circumstances.

The employer appealed, arguing that the tribunal had substituted its own view for the employer’s and had wrongly admitted evidence of the supposed attitude of other health service employers.

EAT

The Employment Appeal Tribunal rejected the appeal, holding that the tribunal was entitled to decide that the employer had applied its policy in such a way as to make its decision to dismiss inevitable, and had acted unfairly in deciding to dismiss Stockman without having considered vital information.

Comment

The practical implications arising from this case are threefold. In circumstances where an employer is questioning employees’ ability to carry out their duties:
• any decisions must be based on the most up to date medical opinion
• where employees provide their own medical evidence, it must be given careful consideration.
• if there is any doubt about the medical evidence, the employer should obtain its own medical report, before taking a decision to dismiss.

Conclusion

Performance management procedures and sickness absence procedures are not difficult to implement but they do require patience and time. Hastily pushing through the procedures, while not adhering to all the steps that the procedure requires, can cost an employer in the long run as they may end up in a long, drawn out litigious unfair dismissal claim. Tribunals expect employers to follow a number of steps and consider a number of questions before dismissing an employee. The benefits of following such steps significantly outweigh the risks. I would encourage all HR practitioners to follow such steps and if, in any doubt, always seek legal advice.

Employee discipline and termination are some of the more difficult aspects of operating a business. Despite this difficulty, it is important to take the time in making these decisions to protect yourself and your business. The particulars of how you handle discipline and termination can vary greatly from one business to the next, but these are some best practices that can be utilized in taking these actions.

 

Progressive Discipline

Most employers utilize a process of progressive discipline. For each succeeding infraction, the employee is given an incrementally greater penalty, and warned that future infractions may result in increased disciplined. A typical process can include a progression from verbal warnings and written warnings, to suspensions or performance improvement plans, and finally to termination. This method introduces a greater element of fairness, and lays an appropriate expectation for the employee in terms of what is to come. However, it is important for your disciplinary policies to include language that will allow you to deviate from this process or to skip steps at your discretion, or you may be locked into minor discipline for serious infractions. The first time your employee is tardy, you may want to give a verbal warning, but the first time your employee brings a weapon to work and threatens a coworker with serious bodily injury, skipping straight to termination would be appropriate.

Establish a Methodology to Investigate Complaints of Employee Misconduct

If an employer receives a complaint of employee misconduct, the employer should establish a methodology to investigate the complaint. The investigation will create a record for you to use when deciding whether discipline is warranted. In investigating complaints, it is not only important to document your steps, but also to follow an organized and consistent process. Take the time to conduct thorough interviews, starting with the complaining employee, moving to third-party witnesses, and ending with the subject employee. You will also want to gather all the relevant evidence (i.e. emails, work schedules, etc.), and use this information to make an informed decision on your course of action. Before making any decision, provide the subject employee with an opportunity to respond, and avoid the urge to pre-judge. Remind all employees who participate with the investigation of your company prohibitions on retaliation, and set the expectation that there will be no adverse employment action or retaliation based solely on someone’s complaint, or any employee’s participation in the investigation. Based on the record created by the investigation, you can decide whether a disciplinary action is warranted.

 

Document, Document, Document

Business professionals should apply this principle across many aspects of their operation, but it is particularly important in the context of discipline and termination. If a former employee challenges the decision to terminate, you will be expected to present a reason for the termination, even if the employment relationship is “at-will,” and you will want to have documentary evidence supporting the disciplinary actions taken. Keep in mind that your decision will be scrutinized by a jury with the benefit of hindsight and actions leading to termination may be taken out of context. This means that at some point, likely quite some time after the precipitating actions have taken place, you may have to explain the reasons for the termination, in detail. Documentation supporting that decision is going to be essential in defending against a claim. In the process of documenting the reasons, behaviors, incidents, and issues supporting your decision, be specific and avoid generalizations such as “bad fit,” “poor listener,” and “personality conflicts.” In addition, once you have painstakingly documented your decisions with supporting evidence, make sure these records are actually kept for the appropriate retention period.

 

Timing

The proximity of the discipline or termination to a protected event, such as the birth of a child, medical leave, or asking for an accommodation, may be sufficient evidence to allow a claim to get to a jury, and greatly increase the cost associated with a claim of wrongful termination. If for any reason you have made the decision to terminate, but need to delay the action, document the timing of the decision carefully. Unless absolutely necessary, avoid terminations during family leave, injured worker status, or any other protected event. Even if you have good cause for discipline or termination, acting on that cause while an employee is in a protected status invites greater scrutiny. Alternatively, do not delay an investigation, disciplinary action, or termination unnecessarily, as the employee could move into a protected class with the passage of time.

 

The Final Meeting

At the termination meeting, effective and decisive communication is essential. This meeting should be short, and to the point, and there ought to be more than one person present from the business so as to provide a corroborating witness in the event of future issues. You should take a minute to consider workplace safety when planning the final meeting and you should include safeguards as necessary. It is very important for the business to ensure that whoever is conducting this final meeting is clearly aware of how significant of a role they play in the process. Statements made at the time of termination will be attributed to the business and may be used as direct evidence of the motive behind the decision. If the supervisor or manager conducting the meeting is not very careful of the message which they communicate, they can create major issues for the business down the road.

 

If there are multiple reasons for the termination decision, provide all of them, and if some of them would independently constitute a sufficient basis for termination, make that specification as well. Be prepared with a clear and calm denial if the employee suggests that the motive for the decision may be improper and avoid giving ambiguous reasons. Failing to provide a clear reason when you have one might indicate to the employee that your decision was improper, or that the employee could still possibly save their job. Have a checklist prepared of any company property that you need returned, and obtain all items possible at the final meeting itself. For any remaining items, have a plan to facilitate the exchange, tell the employee clearly and decisively that the items must be returned, and provide a deadline. While you may withhold discretionary benefits such as severance pay, it is impermissible to withhold earned wages pending return of property. If it becomes necessary, you may need to file a civil suit or involve the police, but do not withhold wages. Employers are not obligated to pay severance, but a severance payment can serve as consideration in exchange for a release of claims against the business. If applicable, you may also remind the employee of their obligations under any nondisclosure, non-solicitation, or non-compete agreements.

 

Final Paychecks

The last aspect to the employee relationship is most often the final paycheck. Employers must abide by strict timelines in providing the employee with their final paycheck, and therefore they should be very clear on the legal requirements in their particular state or country. Wage laws are strict and are always construed to the employee’s benefit. In addition, in the event of a violation, the penalties and attorneys’ fees can be automatic. The final paycheck must include all amounts owed, which can consist of much more than just the time worked: tuition reimbursement, earned but unused vacation or floating holidays (depending upon the employer’s policy), bonus amounts, commissions, and any other reimbursements. When in doubt, it is often safest, and cheapest, to pay it.

 

What to Tell Other Employees

Understandably, the departure of an employee will be of significant concern to the rest of your employees. In determining what communication to give your employees regarding the change, it is important to be wary of possible defamation claims from the departing employee. It is also practical, and important, to consider your corporate culture. Depending upon the particular business and the position held by the departing employee, some businesses will choose to ask the employee whether he or she would like to offer any input on the communication given upon their departure. Often, the cleanest and simplest approach is to tell both the departing employee and the remaining employees that no reasons for the departure will be provided so as to protect the individual’s privacy. This approach may stave off concern, and therefore potential action. In addition, it communicates to the rest of your employees that your business is professional, and will also respect their individual privacy if an issue ever arises for them in the future.

 

Taking the time to set the groundwork for your decisions, following an established process and documenting the relevant issues and events, being mindful of timing, and conducting an effective final meeting will help protect your business, and ultimately create a more fair and predictable environment for your employees as well.

1. INTRODUCTION

California employers with five or more employees must comply with the California Fair Employment and Housing Act which prohibits discrimination on a multitude of protected categories such as race, sex, gender, religion, age, national origin and disability. This article focuses on disability discrimination, and when an employer is required to accommodate a qualified individual with a disability.

The California Fair Employment and Housing Act (FEHA) (Government Code Section 12900 et seq.) prohibits employment discrimination on the basis of physical disability, mental disability and medical conditions. The purpose of FEHA is to provide remedies to eliminate any type of discrimination on this basis. Although there is a federal statute that prohibits discrimination, known as the Americans With Disabilities Act, California’s version gives broader protection to employees.

For example, FEHA applies to employers with five or more employees while the Americans With Disabilities Act applies to employers with 15 or more employees (42 USC Section 12112(a); Government Code Section 12926(d)).

1. WHAT DISABILITIES ARE COVERED?

A person with a disability may be considered a qualified individual if the disability limits a major life activity. Government Code Section 12926.1(c), (d)(2). The protections of FEHA are very broad and one could qualify as a protected individual even based on the employer’s perception that the employee is disabled and thus, the Act would cover an employee who is “erroneously or mistakenly believed” to have or have had a physical or mental condition that limits a major life activity. Government Code Section 12926.1(d)(3); 2 California Code of Regulations Section 11065(d)(5), (6). The question arises as to what types of disabilities would constitute a physical disability, mental disability or medical condition. Under the Act, a medical condition can mean cancer, genetic characteristics, physiological and anatomical conditions and conditions that would limit an individual’s ability to participate in major life activities. Government Code Section 12926(m)(1); 2 California Code of Regulations Section 11065(d)(2)(A), (B). The following are examples of “physical disabilities”:

Chronic or episodic conditions such as HIV/AIDS;

Hepatitis;

Epilepsy;

Seizure disorder;

Diabetes;

Multiple sclerosis; and

Heart disease.

(Government Code Section 12926.1(c); 2 California Code of Regulations Section 11065(d)(2)(C).

This is not an exclusive list and the Courts have found other impairments to constitute “physical disabilities” under the particular facts of the case. As such, each situation must be analyzed on a case-by-case basis. In practical effect, California employers may not ask the employee for a diagnosis to determine whether or not the employee is disabled within the meaning of the Fair Employment and Housing Act because this would invade the employee’s constitutional rights of privacy. The employer, however, may ask the employee for information regarding the employee’s functional limitations.

In addition to having a physiological condition or impairment, an individual is not a qualified individual with a disability unless the condition “limits a major life activity.” This means that the limitation makes the achievement of a major life activity difficult. Government Code Section 12926(m)(1)(B)(ii); 2 California Code of Regulations Section 11065(l)(3). The key issue is that the employee’s impairment “limits” a major life activity when compared to a “normal” or “average” person that does not have the impairment. In addition to the above, the Fair Employment and Housing Act also defines “a physical disability” to also cover individuals that have a record or a history of physical disability or the employer regards the employee with having a physical disability. Government Code Section 12926(m)(4).

III.       MENTAL DISABILITIES

In addition to physical disabilities, FEHA also protects individuals with “mental disabilities.” This term includes any mental or psychological disorder, such as an intellectual disability, organic brain syndrome, emotional or mental illness, or specific learning disabilities. As with physical disabilities, the mental disability must limit a major life activity. Government Code Section 12926(j)(1).

The regulations to the Fair Employment and Housing Act identify the following as mental disabilities:

Emotional or mental illness;

Intellectual or cognitive disability;

Organic brain syndrome;

Specific learning disabilities;

Autism spectrum disorders;

Schizophrenia;

Chronic or episodic conditions such as post-traumatic stress disorder and obsessive compulsive disorder.

2 California Code of Regulations Section 11065(d)(1). As with physical disabilities, FEHA also extends “mental disability” to individuals that have a record or history of a condition that is known to the employer and being regarded as having a mental disability. Government Code Section 12926(j)(3), (5); 2 California Code of Regulations Section 11065(d), (5), (6). Conditions excluded from the definition of disability are “mild” conditions that do not limit a major life activity and this is determined and analyzed on a case-by-case basis. For example, these are conditions with little or no residual effect such as common colds, minor cuts, bruises, abrasions, non-migraine headaches and minor and nonchronic gastrointestinal disorders. 2 California Code of Regulations Section 11065(d)(9)(B). Of particular note, although sexual behavior identity disorders are not disabilities under FEHA, the California employer must allow transsexual and transvestite employees to appear or dress in a manner consistent with their chosen gender identity, whether or not it is their gender identity of birth. Government Code Section 12949.

1. ACCOMMODATING EMPLOYEES WITH DISABILITIES

Once an employee is a qualified individual with a disability and is unable to perform the essential functions of the position, the Act requires the employer to make good faith reasonable efforts to accommodate the employee in order to afford the employee the opportunity to perform the essential functions of the job. This obligation requires employers to reasonably accommodate for the known disabilities unless doing so would produce an undue hardship to the employer’s operations. Government Code Section 12940(m); 2 California Code of Regulations Section 11068. Under this requirement, employers have an affirmative duty to accommodate employees. The issue that always presents itself is how the employer is to have notice that there is a need for an accommodation.

The most obvious is through the employee’s direct supervisor. If the supervisor has knowledge of the employee’s disability, the employer would have an affirmative duty to make reasonable accommodations for the disability. This obligation exists even if the employee did not ask for an accommodation. 2 California Code of Regulations Section 11068(a). This obligation to reasonably accommodate an employee exists even when the employer regards the employee as disabled when in fact the employee is not actually disabled.

1. TYPES OF ACCOMMODATIONS

Once it is determined that an individual is a qualified individual under the Act and is unable to perform the essential functions of the job, the employer has an obligation to accommodate the employee through a variety of accommodations. Selecting the right accommodation is determined on a case-by-case basis depending on the employee’s functional limitations. The Act and its promulgated regulations provide a nonexhaustive list of possible accommodations as follows:

Making facilities rarely accessible to and usable by disabled individuals;

Job restructuring;

Offering part-time or modified work schedules;

Reassigning to a vacant position;

Acquiring or modifying equipment or devices;

Adjusting or modifying examinations, training materials or policies;

Providing qualified readers or interpreters;

Allowing assistive animals on the work site;

Altering when and/or how an essential function is performed;

Modifying supervisory methods;

Providing additional training;

Permitting an employee to work from home;

Providing paid or unpaid leave for treatment or recovery;

Other similar accommodations for individuals with disabilities.

Government Code Section 12926(p); 2 California Code of Regulations Section 11065(p)(2).

1. ASSISTIVE ANIMALS AS AN ACCOMMODATION

Recently, an issue that has surfaced is whether or not employees have the right under the Act to bring assistive animals to work as a form of an accommodation. The regulations to the Act provide for assistance animals in the work place as a reasonable accommodation. 2 California Code of Regulations Section 11065(p)(2)(B). Assistive animals include guide or signal or service dogs or support dogs or animals that provide emotional or other support to the disabled person including those suffering from traumatic brain injuries and mental disabilities such as major depression. 2 California Code of Regulations Section 11065(a)(1).

In order to allow employees to bring assistive animals to the work place as a form of a reasonable accommodation, the employer may require the employee to produce a letter from a health care provider indicating that the employee has a disability and to explain why the assistive animal is needed in the work place. In addition, the employer may require the employee to provide confirmation that the animal is free from offensive odors and displays habits appropriate to the work environment, does not engage in behavior that endangers the health and safety of the disabled individual or others in the work place and is trained to provide assistance for the employee’s disability. 2 California Code of Regulations Sections 11065(a)(2), 11069(e).

VII.     LEAVES OF ABSENCES AS AN ACCOMMODATION

Another difficult form of an accommodation to process is granting an employee a paid or unpaid leave of absence for purposes of treatment and/or recovery. Generally speaking, a finite leave of absence may be considered a reasonable accommodation if, after the exhaustion of the leave, the employee can resume his or her duties. 2 California Code of Regulations Section 11065(c). On the other hand, it is not reasonable to require the employer to hold the position indefinitely for the employee’s medication to be corrected or allowing the employee to fully recover. However, there is no minimum under the leave as to the fixed duration of the leave of absence. As such, employers are cautioned to analyze any request for a leave on a case-by-case basis to determine whether or not the requested duration would impose undue hardship to the employer’s operations. By contrast, even though granting a short term leave of absence may be a form of a reasonable accommodation, if the employee can work with a reasonable accommodation other than a leave of absence, the employer may not require that the employee take a leave of absence. 2 California Code of Regulations Section 11068(c).

VIII.    REASSIGNMENT AS AN ACCOMMODATION

Reassignment to a vacant position may also be a reasonable accommodation even if the position pays less than what the employee is currently earning if the employee can no longer perform the current job duties. Government Code Section 12926(p); 2 California Code of Regulations Section 11065(p)(2)(N). On the other hand, the employer is not mandated under the Act to promote or to create a new position to accommodate a disabled employee. 2 California Code of Regulations Section 11068(d)(4).

1. THE GOOD FAITH INTERACTIVE PROCESS

As part of the accommodation requirements, the employer is required to engage in a “timely, good faith interactive process” in responding to a request for a reasonable accommodation by an employee with a known physical or mental disability or known medical condition. Government Code Section 12940(n); 2 California Code of Regulations Section 11069(a). Under the FEHA regulations, the employer must initiate this process if the employee with a known physical or mental condition asks for reasonable accommodation, the employer becomes aware of the need for the accommodation, the employer becomes aware of the possible need for accommodation because the employee has exhausted their leave of absence under law or under the employer’s leave policy and the employee or employee’s health care provider states that a further accommodation is necessary for recuperation or to allow the employee to perform the essential job functions.

The employee also has obligations in participating in this accommodation process. The employee is responsible to initiate the process by asking for reasonable accommodation. The employee must cooperate in good faith with the employer by providing medical documentation when the disability or need for accommodation is not obvious. 2 California Code of Regulations Section 11069. This interactive process contemplates that both parties, the employer and employee, will talk directly with each other to exchange information about what is necessary to accommodate the employee. However, even though direct communication is the preferred method, it is not absolutely required. 2 California Code of Regulations Section 11069(d)(4). As part of the accommodation process, the employer is required to give consideration to the employee’s preference.

1. CONCLUSION

The California Fair Employment and Housing Act has evolved to require employers to take proactive steps in identifying and initiating the good faith interactive profess. Failure to do so may result in a violation of the Act.

 

The landscape has changed in relation to the calculation of holiday pay in the UK with the November 2014 Employment Appeal Tribunal (“EAT”) decision in Bear Scotland Ltd v Fulton, Hertel (UK) Ltd v Wood and Amec Group Ltd v Law.

The history of the claims

In the UK for many years employers have paid employees with normal working hours their basic pay only in respect of holiday pay and no other payments have been included. However, in the case of Williams v British Airways Plc, the European Court of Justice (‘ECJ’) held that payments ‘intrinsically linked’ to the tasks that an employee carries out under his employment contract must be taken into account in calculating the appropriate rate of holiday pay. The ECJ then held in the case of Lock v British Gas Trading Ltd that commission should be included in holiday pay. Subsequently, various UK Tribunals held at first instance that non-guaranteed overtime (i.e. overtime which the employer does not have to offer but the employee must work if offered) should be included in holiday pay. The employers in these cases appealed to the EAT.

How should holiday pay be calculated in the UK?

It is a matter of principle enshrined in European case law that employees must not suffer a financial disadvantage when they take holiday because, if they do, this will act as a disincentive to taking such holiday. The EAT in the Bear Scotland case held that employees must be paid their ‘normal remuneration’ during the four weeks of annual leave granted by the European Directive (“EU leave”). This is employees’ typical average pay not just their basic pay. It therefore includes commission, non-guaranteed overtime and other payments which are intrinsically linked to the tasks which the employee is required to carry out and which are ‘normally’ paid to the employee.

However, this EAT ruling does not apply to the additional 1.6 weeks of annual leave granted to employees in the UK under the Working Time Regulations 1998 (“WTR”) or any additional contractual leave that employees are entitled to (“additional leave”). Employers in the UK therefore need to decide if they will pay holiday pay including overtime (and other relevant payments) for just EU Leave or for all holiday that the employee is entitled to take. The saving employers will achieve by paying less holiday pay for this additional leave may not be worth the administrative burden of operating two different holiday pay rates. This will depend on how regular overtime is and how many overtime hours an employee typically works.

Grey areas remain

 There are still some grey areas where the EAT did not give a definitive ruling. For instance:-

• The decision did not deal with purely voluntary overtime (i.e. overtime offered by the employer which the employee can refuse to carry out). It remains to be considered at an appellate level whether purely voluntary overtime should be included in the calculation of holiday pay but it is my view that all overtime is likely to be treated in a similar manner irrespective of how it comes about, and so voluntary overtime is also likely to have to be included in the calculation of holiday pay.
• No judgment or guidance was given as to how holiday pay should be calculated, except that it must correspond to the normal remuneration received by an employee during the appropriate reference period.
• The EAT did not specifically rule on the issue of when EU Leave is taken in a holiday year.

What is the correct reference period?

In the UK, in cases where employees do not have normal working hours (or have normal working hours but their pay varies according to the amount of work done or the time of work), average pay is calculated by using the formula set out in the Employment Rights Act 1996 (“ERA”).   The ERA uses a reference period of the last 12 working weeks to calculate pay. It is now not clear if this 12 week period is the appropriate reference period to apply in relation to EU Leave.

To comply with the decisions in Lock and Williams the reference period must be a ‘representative’ period, in other words, it must reflect normal working.   In the absence of further guidance from the ECJ, UK Employment Tribunals will have to approach this question on a case-by-case basis and may choose a different reference period depending on the circumstances. It is arguable that if commission or overtime payments fluctuate widely during the year, a 12 week period may not be representative.

The Advocate General in Lock suggested averaging pay over a reference period of 12 months in relation to commission payments but this was not confirmed by the ECJ. In many businesses there will be peaks and troughs in the levels of overtime worked by employees and therefore averaging overtime over previous weeks or months (as opposed to a 12 month period for example) could result in an obligation to pay sums that are not representative. Employees may also be incentivised to take holiday after periods of high levels of overtime in order to maximise their holiday pay. It is therefore important that an employer uses a reference period that is representative and ensures that the employee receives average remuneration whilst on holiday.

When is EU Leave taken?

Another area of uncertainty relates to EU Leave and when it is taken during the holiday year.   In the Hertel and Amec cases at first instance, the Judge held that it is for the employee to choose which type of leave they are taking at any time (i.e. EU Leave or additional leave). However, the EAT disagreed. It stated that the employer is entitled (within reasonable bounds following the procedure set out in the WTRs) to direct when holiday is taken and the employer therefore has the power to direct when, within the holiday year, EU Leave should be taken. In addition, the WTRs describe the additional 1.6 weeks’ leave granted to UK employees as ‘additional leave’ which, the EAT held, suggests that such leave should be the last taken during the holiday year.

It is therefore arguable that in each holiday year, an employee will take their four weeks of EU Leave first and then later in the holiday year they will take any additional leave to which they are entitled.

Time limit for claims

Claims generally have to be brought within 3 months of the non-payment of holiday pay, which is also a deduction from wages.   The deduction happens on the payment date, not the date of the holiday.

Employers should check whether any claims which may be brought are out of time.   If an employee cannot bring a claim for a recent deduction (i.e. in the previous 3 months) then he or she will not be able to start counting back many months or years.

Backdated holiday pay claims

The UK Government has recently announced that it is intending to limit holiday pay claims to two years before the claim is lodged and make it explicit that the right to paid holiday is not incorporated as a term in all employment contracts. This is intended to limit long term claims for holiday pay both in the UK Employment Tribunal and in the UK civil courts. However, this change will only apply to claims made on or after 1 July 2015. This means that any claims made by employees before then will be subject to the normal limitation rules.

In order for employees to claim unpaid holiday pay going back over a number of years, they will need to prove that there has been a ‘series of deductions’ and bring their claim within three months of the last deduction.

The EAT held that in order for there to be a ‘series of deductions’, there must not be a significant time gap between the deductions. It therefore held that employees cannot make an unlawful deduction from wages claim where, in any case, a period of more than three months has elapsed between the deductions. The EAT ruled that any gap of more than three months has the effect of breaking the series, and therefore limiting the claim to any losses incurred before the series was broken. Unite (the trade union involved in this case) has confirmed that it will not be proceeding with an appeal on behalf of the employees on this point.

It is now the law in the UK, subject to any appeal in a subsequent case, that EU Leave should be paid at a higher rate (including commission, overtime payments etc.) It follows that in the past employers will have made a series of deductions (where the higher rate of holiday pay was not paid) followed by a series of correct holiday payments (i.e. for additional leave where the basic rate was, and still is, appropriate). This period in which holiday pay was paid at the appropriate rate breaks the series of deductions, if it is for a period of more than three months. In practice, it may be the case that there will have been a substantial gap at the end of any given holiday year when employees were taking their additional leave and so no unlawful deductions from wages were made, breaking the ‘series’. Many historic holiday pay claims may therefore be limited to the most recent holiday year.

UK employers should act now

My view is that the basic principle from this EAT case will not be overturned and that employers will be stuck with paying holiday pay for EU Leave to include, for example, overtime.

The prudent employer in my view will therefore begin paying holiday pay that includes overtime and other relevant payments when calculating holiday pay (in respect of EU Leave). The following actions should be considered:

• Employers will need to choose an appropriate reference period in order to calculate the holiday pay due going forward. They will also need to decide whether they are going to pay the increased rate for EU Leave only or for all holiday entitlement.
• Any change needs to be communicated clearly to employees and employers should reserve the right to vary or withdraw any additional payments made now if the law changes in the future.
• Employers should also consider amending the wording of their contracts of employment, staff handbook and relevant policies.
• Employers should carry out an audit to assess their financial exposure in terms of back pay claims (which will involve individual analysis of all employees and their holiday in recent years to determine if they can find a three month gap in deductions). Employers will then need to assess whether they will address historic liabilities or simply change their practice going forward.

Faced with the prospect of increased wage bills and the administrative burden of calculating how much should be paid in respect of each employee’s holiday, many employers may look to limit pay rises, reduce the availability of overtime where feasible or take on agency staff to cover periods of increased demand rather than offer overtime to their permanent employees. Since approximately 5 million people in the UK regularly work paid overtime, this decision could have far-reaching consequences for many years to come.