2. Duties of Employer and Employee to Each Other
31-2
One of the most important legal relationships is that of employer to employee.
An employer must:
Pay an employee the agreed-upon wage, subject to company policy, union contracts, and government mandates, for his or her services.
Learning Outcome 31-1: Describe the duties of an employer and employee to each other.
Page: 524

3. Duties of Employer and Employee to Each Other (cont.)
31-3
An employer must (cont.)
Protect the employee by providing:
A safe and sanitary place to work.
Careful and competent employees with whom to work.
An environment free of discrimination and harassment.
Warn the employee of any danger that exists in connection with the work.
Learning Outcome 31-1: Describe the duties of an employer and employee to each other.
Page: 524

4. Duties of Employer and Employee to Each Other (cont.)
31-4
An employee must:
Obey his or her employer’s lawful orders concerning the employment.
Exercise good faith toward the employer.
Do his or her work carefully and conscientiously.
Learning Outcome 31-1: Describe the duties of an employer and employee to each other.
Page: 524

5. Duties of Employer and Employee to Each Other (cont.)
31-5
The acts of an employee committed while performing duties are considered the acts of the employer.
Respondeat superior: Coming from a legal doctrine, a Latin term meaning “let the master answer.”
The employer is liable to third parties for injuries caused by an employee, whether the acts are willful or negligent, so long as the acts were committed by the employee within the ordinary course of employment.
Learning Outcome 31-1: Describe the duties of an employer and employee to each other.
Page: 524

6. Example: Duties of Employer and Employees to Each Other
31-6
Facts:
Marek employed in shipping department of Margo Stores, Inc.
Otler, a customer, came to department to pick up shipment.
Marek carelessly ran into Otler with a hand truck injuring Otler’s leg.
Both Margo Stores and Marek are liable to Otler for injury.
Note - Injured party usually sues employer because employer generally has financial resources and insurance.
Learning Outcome 31-1: Describe the duties of an employer and employee to each other.
Page: 524

7. Employees vs. Independent Contractors
31-7
Employees vs. Independent Contractors
There is a distinct difference between an employee and an independent contractor.
It is important to recognize the importance of these distinctions because in order to apply the applicable law, a court first needs to determine whether or not the employer-employee relationship exists
Learning Outcome 31-2: Distinguish between employees and independent contractors.
Page: 524

8. Employees vs. Independent Contractors (cont.)
31-8
Employees vs. Independent Contractors (cont.)
In all cases, it is not the worker’s title, or the tax treatment he or she receives, that determines whether or not he or she is an employee, but it is what the individual does on the job that defines the relationship.
Learning Outcome 31-2: Distinguish between employees and independent contractors.
Page: 524

9. Independent Contractors
31-9
Independent Contractors
Independent contractor: A person or firm that performs services for another.
Independent contractors are not under the direct control of the person who engages them.
Examples: Freelance writers, photographers, private-duty nurses, painters, and plumbers.
Learning Outcome 31-2: Distinguish between employees and independent contractors.
Page: 525

10. Independent Contractors (cont.)
31-10
Independent Contractors (cont.)
Independent contractor (cont):
It is important to distinguish between employees and independent contractors:
Employees usually cannot sue their employers for on-the-job injuries.
Independent contractors can sue the person with whom they made the contract.
An employer is responsible for an employee’s torts committed within the scope of employment.
The person who engages an independent contractor is generally not responsible for the independent contractor’s torts.
Learning Outcome 31-2: Distinguish between employees and independent contractors.
Page: 525

11. Internal Revenue Service Test
31-11
Internal Revenue Service Test
The Internal Revenue Service publishes a kind of test that is used to aid individuals in determining whether a worker fits the status of an employee or an independent contractor.
If the IRS discovers that a company has misclassified employees as independent contractors, it may impose substantial penalties on the company.
Learning Outcome 31-2: Distinguish between employees and independent contractors.
Page: 526

12. Internal Revenue Service Test
31-12
Internal Revenue Service Test
This Internal Revenue Service test aids businesses and individuals in distinguishing employees from independent contractors.
Understanding this distinction affects how an individual pays federal income taxes, Social Security taxes, and Medicare taxes.
It also determines whether the individual receives a W-2, a tax form provided to employees, or a 1099, a tax form provided to independent contractors.
Learning Outcome 31-2: Distinguish between employees and independent contractors.
Page: 526

13. Doctrine of Employment at Will
31-13
Doctrine of Employment at Will
Doctrine of employment at will: Just as an employee may choose to terminate his or her employment at any time he or she wishes, so too an employer may terminate an employee’s employment at any time for a good reason, a bad reason, or no reason at all.
This doctrine has been eroded over time by federal, state, and local statutes; by court decisions; and by public policy.
Learning Outcome 31-3: Explain the doctrine of employment at will.
Page: 526

14. Doctrine of Employment at Will (cont.)
31-14
Doctrine of Employment at Will (cont.)
Doctrine of employment at will (cont.)
Early exceptions to the doctrine disallowed an employee from being terminated for:
Jury duty service
Being called to active military duty.
Whistleblowing
Numerous reasons exist today for which it would be illegal to terminate employee.
Learning Outcome 31-3: Explain the doctrine of employment at will.
Page: 526

15. Example: Doctrine of Employment at Will
31-15
Facts:
Smoko worked for Lots and Lots Used Cars.
Zlotuca, the manager, ordered Smoko to illegally roll back car odometer.
Smoko refused, was fired and later sued for lost wages.
Lots and Lots argued Smoko was employed at will.
Smoko will probably prevail in lawsuit.
Learning Outcome 31-3: Explain the doctrine of employment at will.
Page: 526

16. 31-16
Employment Contracts
Employment contract: Specifies that the employer agrees to pay, and the employee agrees to work, for a specified period of time at a specified salary.
These contracts frequently have clauses related to maintaining confidentiality with respect to trade secrets, restrictive covenants, and agreements to arbitrate in the event of a dispute between the parties.
Learning Outcome 31-4: List some typical clauses in an employment contract.
Page: 527

17. Employment Contracts (cont.)
31-17
Employment Contracts (cont.)
U.S. Supreme Court has ruled that arbitration clauses in employment contracts are enforceable provided that the employer pay for arbitration and the employee has:
signed the agreement.
a reasonable time to file a claim.
access to remedies court can provide.
arbitrator with employment law expertise.
right to be represented by an attorney.
Learning Outcome 31-4: List some typical clauses in an employment contract.
Page: 527

18. 31-18
Employee Handbooks
Employee handbooks: Manuals that contain the many policies of the firm.
In some states, the provisions contained in the handbook are considered a kind of contract between the employer and the employee.
In other states, legislatures and courts have made it clear that employee handbooks are not to be construed as contracts.
Learning Outcome 31-5: Identify some typical policies contained in an employee handbook.
Page: 527

19. Employee Handbooks (cont.)
31-19
Employee Handbooks (cont.)
Employee handbooks usually contain:
History of the company
Hiring procedures
Hours of employment
Payment of salaries
Salary increments and promotions
Termination procedures
Benefits
Leaves of absence
Safety and security
Miscellaneous policies
Learning Outcome 31-5: Identify some typical policies contained in an employee handbook.
Page: 527

20. 31-20
Employee References
Often, employers are asked to provide references for employees who are currently working for them or who have worked for them in the past.
Employers need to be extremely careful as to how they respond to these requests.
Learning Outcome 31-6: Explain how employers expose themselves to legal liability when they provide employee references.
Page: 528

21. Employee References (cont.)
31-21
Employee References (cont.)
Often a negative reference can give rise to three kinds of lawsuits brought by current or former employees.
Invasion of privacy
Defamation
Negligent misrepresentation.
Learning Outcome 31-6: Explain how employers expose themselves to legal liability when they provide employee references.
Page: 528

22. 31-22
Invasion of Privacy
Invasion of privacy: Disclosing personal, irrelevant information about former employee, irrespective of whether information true.
Employer can safely disclose information about current or former employee in following areas:
Employee’s prior employment and educational history.
Employee’s character relating to job (teamwork, leadership abilities, etc.).
Employee’s performance capabilities.
Employer’s willingness to rehire employee.
Learning Outcome 31-6: Explain how employers expose themselves to legal liability when they provide employee references.
Page: 528

23. 31-23
Defamation
A current or former employee may sue his or her employer for defamation if employer provides information to third party that is untrue, irrespective of whether or not it relates to employee’s job performance.
Such defamation is considered:
Slander, if spoken.
Libel, if written.
Learning Outcome 31-6: Explain how employers expose themselves to legal liability when they provide employee references.
Page: 529

24. 31-24
Defamation (cont.)
Many states have enacted laws to shield employers from the risk of liability for defamation, provided the previous employer has a good-faith belief that the statements made in the reference are truthful.
Learning Outcome 31-6: Explain how employers expose themselves to legal liability when they provide employee references.
Page: 529

25. Negligent Misrepresentation
31-25
Negligent Misrepresentation
Occasionally, employers attempt to reduce risk of liability in providing references by:
Withholding negative reference information, and
Simply not responding to reference requests.
Learning Outcome 31-6: Explain how employers expose themselves to legal liability when they provide employee references.
Page: 529

26. Negligent Misrepresentation
31-26
Negligent Misrepresentation
However, if a prospective employer hires an employee based on an incomplete reference, and then suffers damages that may have been avoided had the previous employer provided an accurate reference, the prospective employer may sue the previous employer for negligent misrepresentation.
Learning Outcome 31-6: Explain how employers expose themselves to legal liability when they provide employee references.
Page: 529

27. The Fair Labor Standards Act of 1938
31-27
The Fair Labor Standards Act of 1938
The FLSA sets standards for:
The minimum age an employee can be,
The minimum wages an employee can earn, and
The rate at which an employee is paid if he or she works more than a certain number of hours in a given workweek.
Learning Outcome 31-7: Discuss the impact of the Fair Labor Standards Act on the employer-employee relationship.
Page: 530

28. The Fair Labor Standards Act of 1938
31-28
The Fair Labor Standards Act of 1938
Currently, federal minimum wage is $7.25, and overtime pay for employees working more than a 40 hour workweek is 1.5 times regular wages.
Four categories of employees excluded from coverage:
(1) executives;
(2) professional employees;
(3) outside sales associates; and
(4) administrative employees.
Learning Outcome 31-7: Discuss the impact of the Fair Labor Standards Act on the employer-employee relationship.
Page: 530