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Critical employment law issues for in-house counsel

Sterling Miller

Some of the hardest, “headline-grabbing” litigation that in-house counsel faces involves employees and claims alleging violations of employment law. Regardless of merit, these disputes tend to be public and can negatively affect your company’s brand and reputation — along with negative economic consequences in the event the company pays a settlement or loses in court. In-house counsel, working closely with the HR team, should identify potential problem areas now and take steps to minimize problems down the road. The issues presented cover a wide gamut of policies, contracts, and up-to-date understanding of innovative employment law issues. 

Practical Law can provide in-house counsel with access to such materials, including a toolkit to help prepare an employment law handbook, independent contractor/consultant agreements, and a lot more. Here are eight critical employment law issues for in-house counsel to focus on:

1. Training. Most companies have an online, live (or combination thereof) program to train employees on employment law issues, including sexual harassment, business ethics, and non-discrimination. A yearly review of your training program and materials to make sure they are relevant, effective, and updated to capture new issues is a must.

You will likely need additional training for managers — which can substantially reduce risk in key areas — and such training should be part of any overall review process. In addition to yearly training, new hire orientation is a terrific place to reach employees and discuss important employment policies and issues before they become a problem.

2. Employee classification. The process of properly classifying workers as “Exempt/Non-Exempt” under the Fair Labor Standards Act is crucial. Such classification tells you which employees must be paid overtime and which are exempt. Misclassification of hourly employees as “exempt” can set the company up for severe legal problems and potential big damages with respect to back wages and overtime.

In-house counsel should create easy-to-understand guidelines and processes to determine whether an employee is exempt or not and train all supervisors on the guidelines. A regular audit — in conjunction with HR — of job descriptions and employees earning below a certain threshold (for example, below $80,000) to ensure they are properly classified is a smart move as there is less risk of misclassification of salaried employees at the higher end of the pay scale.

3. Employee agreements. In-house counsel should be responsible for drafting and maintaining employee agreements such as confidentiality, non-compete, non-solicitation, IP ownership, arbitration clauses, and so forth.

The legal department and HR should meet quarterly to discuss the preparation and administration of these agreements, including a process to maintain version control and to discuss changes that may be needed given new circumstances or changes in the law. One issue that has risen to the surface is the ability to require employees to arbitrate disputes. 

  • Sick leave/leave mandates. While the federal government has not yet acted, many states — New York, Colorado, and others — now require paid sick leave. Likewise, in the wake of COVID, there are numerous laws around paid leave for certain workers. Are your policies and procedures current in this area?
  • Minimum wage. Similarly, many states and cities are enacting their own minimum wage requirements. Stay current and stay out of trouble.
  • Drug testing. As marijuana is legalized in more states — 15 for recreational use and growing — drug testing gets trickier. You do not need to let people who are “high” come to work but you must make accommodations to protect registered uses of medical marijuana from discrimination. In-house counsel should be paying close attention to this ever-changing area of the law.

Of course, there are many other HR rules and regulations and employment-related issues to pay attention to.  The key is having a thoughtful process in place to spot issues early and ensure they are dealt with in the employment law handbook.

What else should I be doing?

When it comes to employee handbooks, there are a number of best practices which in-house counsel should adopt going forward:

  • If you operate globally, your employment law handbook will likely differ dramatically depending on the jurisdiction. Similarly, you may have different handbooks or supplements based on a particular state in the U.S. Remember that one size likely does not fit all.
  • Plan on updating your employment law handbook every year. It should not be a once-in-a-while exercise; find your partners on the HR team and set up a regular cadence to meet, discuss, and revise. Quarterly meetings with HR are not too frequent given the rapid pace of change in employment laws and regulations.  If you are a federal contractor, the pace can be even faster and more dramatic.
  • Pay attention to the NLRB and who is in power in Washington. Unfortunately, businesses can get whipsawed depending on whether the NLRB is controlled by Democrats or Republicans. Regardless, it is on the in-house legal team to pay attention and raise issues.
  • Handbooks are essential but keep in mind that your audience did not go to law school. Try to bring things down to the right level and keep the wording plain and straightforward to the extent possible. Policies that are easy to read, clear, and are customized to the business will go a long way to ensuring compliance.
  • Likewise, employment law handbooks are basically useless without a fulsome training program that reaches employees, management, and even the board of directors. Training should include what to do if you see something happen to someone else (versus having it happen to you) and ensure that managers understand their responsibilities to assist and protect their workers when problems arise. Trying to hide it or sweep it under the rug will only make it far worse in the end than if the issues had been dealt with immediately.

1. Employee handbook. Most companies have an employee handbook containing key policies such as Code of Ethics and Business Conduct, Anti-Corruption, Anti-Trust, Insider Trading, Health and Safety, and Trade Compliance. Regular review of the employment law handbook’s policies is important to ensuring the company stays on top of an ever-changing legal landscape.

Additionally, note that without proper wording and disclaimers, an at-will employee handbook can become a binding contract — take steps to ensure this does not happen. Lastly, the NLRB regularly weighs in on what can and cannot be included in employee handbooks to stay complaint with the National Labor Relations Act. Staying abreast of such guidance is part and parcel to a proper handbook management program.

2. Independent contractors. Another area fraught with risk is ensuring that independent contractors do not cross over and accidently become employees. In-house counsel should review all independent contractors each year to ensure they are not being treated like “employees” — for example, a contractor invited to employee meetings, given employee performance reviews, overly close supervision, and direction of the contractor's work — and therefore entitled to employee benefits. 

Train managers with the ability to engage independent contractors around the proper process to hire and manage them. Create a procedure to flag and review any contractors who have been working with the company for a set period of time and ensure the right decision makers are part of any decision to keep a contractor beyond the set period of time. Having expertly-drafted independent contractor/consultant agreements in place is very beneficial as well.

3. Internal investigations policy. Internal investigations can often involve multiple staff groups such as the legal department, compliance office, HR, and internal audit. If so, the lines can become blurred and efforts duplicated, information lost, and bad decisions follow. To fix this, work together to prepare a document that clearly set out the roles and responsibilities of each group depending on the type of issue presented — like sex discrimination complaints versus internal fraud versus business ethics policy violation.

The policy should set out how information will be shared, what follow-ups are required, who is copied on what, and so forth. Such a policy will increase cooperation between the affected groups and save everyone a lot of time and effort as everyone will know who is driving any particular type of investigation and what is expected from each team.

4. Background checks. Given the potential legal exposure for making a “bad” hire, many companies perform criminal background checks on all potential employees and promotion candidates. This is an area where great care is needed as more cities and states have enacted (or are in the process of enacting) laws that change the rules on when employers can ask job applicants questions about things like prior arrests. 

Similarly, the EEOC has set out its expectations with respect to when and how an employer can consider arrest and conviction records. Moreover, there must be appropriate due diligence on any third parties your company engages to conduct background checks, in particular around compliance with the Fair Credit Reporting Act which sets out the general rules for employers in this area.  

5. COVID policies. It is difficult to think of a bigger challenge for in-house counsel than dealing with the aftermath of the COVID pandemic and how to deal with return-to-work policies, vaccination mandates, mask mandates, and how to create a safe workplace in general. In-house counsel must stay closely attuned to every development in this critical area to help the business manage the biggest employer crisis in recent memory.

There is an endless supply of issues and concerns around employment law for in-house counsel. In addition to staying current with the law, one key takeaway is the importance of setting up regular meetings between HR and the legal department to vet issues, review policies and agreements, and stay aligned on how best to proceed when problems arise.

Lastly, spend some time talking with senior company leaders outside of HR and get their views on what employment law issues or problems they are seeing or think need to be addressed. Practical Law can provide you with checklists and briefs of current employment law issues and everyone will benefit from in-house counsel taking a proactive and strategic role in identifying areas of risk in this area — and working to minimize problems down the road.

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