Tag Archives: employment law

December 14, 2015

Employee Handbook Versus Procedures Manual: Keeping Policies Consistent

Romero_CBy Cecilia Romero

Should your employee handbook contain every HR policy and procedure used by your organization, or should it only contain policies that employees need to know? Should you maintain a separate procedures manual describing how HR and supervisors enact those policies? Here are the key considerations to help you decide what to include in your handbook versus a procedures manual.

Goals of Your Employee Handbook

Your employee handbook should contain your employment policies and be written with your employees as the intended audience. It is meant to inform employees of what they may expect from the company, and what is expected of them. It does not need to include the “how” or “why” behind the policies but instead, sets forth the essential terms and conditions that govern the employment relationship.

Although there is no legal requirement that you have an employee handbook, a well-written handbook can play an important role in reducing your employment law risks. Specifically, your handbook should:

  • reinforce an employment-at-will relationship between the company and its employees through proper disclaimers and a description of the at-will relationship in your “Acknowledgment of Receipt of Handbook” form signed by each employee
  • show your company’s intended compliance with applicable laws (e.g., equal opportunity employer, pay will be in compliance with the Fair Labor Standards Act, reasonable accommodations will be offered, etc.)
  • offer grounds or support for your employment decisions (e.g., policy indicated that violation of work rules could result in termination, etc.)
  • provide affirmative defenses when faced with an employee charge or lawsuit (e.g., policy informed employees on how to report harassment but charging party failed to report it, pay policy indicated how to report payroll errors, etc.)
  • comply with applicable state and federal laws that mandate notification of employee rights, such as an FMLA policy.

In addition to the legal benefits of an employee handbook, you may use your handbook to inform employees about discretionary benefits (i.e., those that are not mandated by law), such as breaks, vacation, sick time, tuition reimbursement, discounts or other perks. Your policies on these types of benefits should set forth eligibility requirements, accrual amounts, scheduling, call-in or request procedures, etc. Make sure your policies comply with applicable state laws as some states regulate pay issues associated with breaks, vacation time and other employer-provided benefits.

Separate Procedures Manual 

A procedures or operations manual, on the other hand, is intended for use by HR, managers, and/or supervisors, not your employees at large. Typically, a procedures manual will describe how your policies are implemented and enforced. It may include forms, checklists, and sample documents to show administrators and managers how to handle specific workplace policies and situations. For example, it may detail the procedures for sending out an offer letter, how to complete the Form I-9, or how to handle a request for jury duty leave. It also may include references to specific laws, rules or regulations should management or HR need to look those up.

Just as you are not required to have an employee handbook, you are not legally required to have a procedures manual. One advantage to having a more detailed document is that it may serve as a reference tool for frontline supervisors, helping to make sure management is consistent in the way it handles employee matters and policy enforcement. It also can be useful in ensuring procedural continuity so that institutional knowledge is not limited to the memories of a few, select individuals in HR.

Avoid Discrepancies Between Policies And Procedures

A distinct disadvantage of having a separate procedures manual, however, is that it could contain or reveal discrepancies between the “management” policy and the policy communicated to employees in the handbook. You do not want two or more “policies” on the same topic as that can lead to inconsistent treatment of workers — with potentially discriminatory consequences. Discrepancies and inconsistent policies not only confuse administrators and supervisors but they also can result in a “smoking gun” that can be used against you when an employee raises a claim.

Deciding whether to have a separate procedures manual often depends on how much guidance your internal folks need in order to manage their workforce in a consistent, uniform and non-discriminatory manner. If you decide a more detailed document would be useful, take great care to ensure that the separate management document is consistent with the policies in your employee handbook.

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August 11, 2015

Misclassification of Independent Contractors Under Increased Scrutiny

Bennett_DBy A. Dean Bennett 

The Idaho Department of Labor is stepping up efforts to identify companies that misclassify employees as independent contractors. It recently signed a memorandum of understanding with the U.S. Department of Labor to work together to help prevent the misclassification of workers.  In doing so, Idaho joins 23 other states who have signed similar agreements, including Alabama, California, Colorado, Connecticut, Florida, Hawaii, Illinois, Iowa, Kentucky, Louisiana, Maryland, Massachusetts, Minnesota, Missouri, Montana, New Hampshire, New York, Rhode Island, Texas, Utah, Washington, Wisconsin and Wyoming. 

Why Focus on Independent Contractor Status? 

Federal and state labor agencies care whether workers are classified as employees rather than independent contractors because the classification can determine whether the individual is entitled to important workplace benefits and protections. Many employment laws, such as those governing minimum wage and overtime pay, meal and break periods, family and medical leave, workers’ compensation, unemployment compensation, employment taxes and anti-discrimination, apply only to employees, not independent contractors. Consequently, if an employee is misclassified as an independent contractor, he or she misses out on the protections and benefits provided by such laws. 

Another reason cited by David Weil, Administrator of the U.S. Department of Labor Wage and Hour Division, is that employers who follow the law by properly classifying workers as employees often cannot compete on a level playing field with employers who misclassify their workers as independent contractors. Companies who misclassify workers often avoid the added costs of properly paying, insuring and withholding employment taxes for workers who should be treated as employees. According to the DOL, this lower cost of utilizing independent contractors may give non-compliant companies an unfair advantage in the marketplace. For these reasons, remedying misclassifications is at the forefront of the agencies’ enforcement efforts. 

What’s At Stake For You? 

Companies that misclassify employees as independent contractors face substantial liability. Ken Edmunds, Director of the Idaho Department of Labor, suggests that even though businesses often use independent contractors because they think it will save them money, in the end, misclassifications can cost them “a whole lot more,” with the potential for severe monetary fines and even criminal charges. 

The Internal Revenue Service (IRS) and state tax entities will pursue back taxes with interest based on the employer’s failure to withhold income taxes and make FICA contributions. Employers also remain liable for unemployment taxes related to the misclassified workers. In addition to the back taxes, employers may face criminal and civil penalties. 

Employers also face wage claims for unpaid overtime pay that would have been due to the worker if properly treated as an employee. If the misclassified individual was denied leave under the FMLA or participation in a group benefit plan, the employer may face claims under those respective laws. Failure to complete I-9 forms or other employment eligibility requirements may result in additional liability. In short, you may become liable for failing to comply with or offer any benefit or protection that was denied to the individual because of the misclassification. 

What Should You Do? 

If your company uses independent contractors in your workforce, take steps now to audit whether those workers meet the tests for independent contractor status.  Remember, you do not escape liability if the individual asks or agrees to be treated as an independent contractor. You must analyze whether the individual meets the requirements for that classification. 

Although numerous factors go into determining whether a worker is an independent contractor, the Idaho Department of Labor lists two criteria that must be met: 

  1. The worker must be free from the right of direction or control in performing work, both under a contract of service and in fact; and
  2. The worker must be engaged in an independently established trade, occupation, profession or business. 

A fact sheet titled “Independent Contractor or Employee?” provides additional detail to help you determine the proper classification of workers and is available on the Idaho Department of Labor’s website. A similar fact sheet on Employment Relationships Under the Fair Labor Standards Act (FLSA) is available from the U.S. Department of Labor, Wage and Hour Division. 

With both the federal and state labor departments stepping up efforts to audit companies to discover employee misclassifications, taking steps now to avoid the associated liability is warranted. It also will help your organization avoid costly lawsuits filed by independent contractors who missed out on overtime pay and other employee benefits.

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April 16, 2014

EEOC Loses Kaplan Credit Check Appeal

By Brad Cave 

In 2010, the Equal Employment Opportunity Commission (EEOC) sued Kaplan Higher Education Corporation, claiming that Kaplan’s use of credit reports had a disparate impact on black applicants.   The trial court threw out the EEOC’s suit because it used an invalid method for determining the race of Kaplan’s applicants. The EEOC appealed, and lost again.  In a stinging opinion, the Sixth Circuit Court of Appeals agreed with Kaplan and rejected the methodology promoted by the EEOC’s expert witness.  The Sixth Circuit’s opinion dooms the agency’s background check disparate impact lawsuit against Kaplan and slaps the EEOC for suing a private employer “for using the same type of background check that the EEOC itself uses.”  The ruling also illustrates the EEOC’s failure to show that an employer’s use of neutral background checks results in a disparate impact on African-American applicants. EEOC v. Kaplan Higher Educ. Corp., No. 13-3408 (6th Cir. April 9, 2014). 

Credit Checks Aimed At Preventing Employee Abuses 

Kaplan is a for-profit test preparation and higher education provider.  Because some Kaplan students receive financial aid, some Kaplan employees have access to students’ financial information, including information that is subject to the U.S. Department of Education confidentiality regulations.  Years ago, Kaplan discovered that some of its financial-aid officers had stolen aid payments and some executives had engaged in self-dealing by hiring relatives as vendors for the company.  To help stop these abuses, Kaplan began conducting credit checks on applicants for senior-executive positions as well as accounting, financial aid and other positions where employees have access to company or student financial information.  Neither Kaplan nor its credit check vendor provided or linked the applicant’s race with the applicant’s credit report. 

EEOC Alleges Kaplan’s Credit Checks Screen Out More African-Americans 

Consistent with its efforts to target employers who use background check policies to screen applicants, the EEOC sued Kaplan alleging that Kaplan’s use of credit checks resulted in more African-Americans being rejected than whites, creating a disparate impact in violation of Title VII.  To support its claim, the EEOC hired industrial and organizational psychologist Kevin Murphy to analyze Kaplan’s credit check data and offer an expert opinion based on the statistics.  However, because the credit check information did not include the applicant’s race, Murphy and his team needed another method to determine race.  They created a process that the EEOC called “race rating” in which a team of five “race raters” reviewed drivers’ license photos for a portion of the applicants to visually identify their race.  Despite having credit information for 4,670 applicants, Murphy based his “expert” analysis on only 1,090 applicants, of whom 803 had been racially classified using Murphy’s “race rating” process. 

“Homemade Methodology” Rejected by Court 

The Sixth Circuit wholeheartedly rejected Murphy’s “race rating” process, stating that “[t]he EEOC brought this case on the basis of a homemade methodology, crafted by a witness with no particular expertise to craft it, administered by persons with no particular expertise to administer it, tested by no one, and accepted only by the witness himself.”  The Court upheld the exclusion of Murphy’s testimony not only due to his faulty methodology, but also because the group of 1,090 applicants in Murphy’s statistical analysis was not representative of the applicant pool as a whole.  Of Kaplan’s entire pool of 4,670 applicants, only 13.3% of the applicants were rejected on the basis of credit checks, but Murphy’s smaller pool of applicants had a fail rate of 23.8%.  The Court found that Murphy’s unrepresentative sample might not equate to the respective fail rates of black versus white applicants and therefore, was an unreliable method for the EEOC to show disparate impact. 

EEOC’s Own Background Check Policy Contradicts Its Attack on Private Employers For Use of Credit Checks 

Although not central to the exclusion of the EEOC’s expert, the Court put the EEOC’s own background check policy front and center.  Through the discovery process, Kaplan had successfully obtained information on the EEOC’s background check policies and pointed to the agency’s personnel handbook which states “[o]verdue just debts increase temptation to commit illegal or unethical acts as a means of gaining funds to meet financial obligations.”  To address those potential concerns, the EEOC runs credit checks for 84 of the 97 positions within the agency.  The Court highlighted the disconnect between the EEOC attacking Kaplan for a credit check policy that the agency used itself. 

Future EEOC Challenges to Employer Use of Credit Checks 

The Kaplan decision is the latest in a string of EEOC losses in class actions alleging disparate impact based on an employer’s use of a neutral background check process.  The EEOC seems unable to provide evidence to support a finding that African-Americans, Hispanics or other groups are being rejected for employment at higher rates than whites based on background checks.  In addition, the EEOC’s own use of credit checks in hiring will be used against it in any future similar lawsuits. Although it remains to be seen whether the EEOC will back off of its systemic enforcement efforts related to the use of background checks, the trend for employers is positive.

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