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Avoiding The Courthouse: A Step-By-Step Program For Complying With Basic Employment Laws

March 2001

Companies that fail to comply with basic employment laws undertake serious legal risks. As of the time this article was written — early 2001 — high profile companies are suffering publicly and in the courts due to their poor employment law practices. For example, Coca-Cola Company is attempting to settle a class action lawsuit for race discrimination. Microsoft Corporation has struggled with a lawsuit brought by temporary and independent contractors who contend they were denied employee benefits. Several other notable corporations, including Taco Bell and Wal-Mart, face class actions brought by employees claiming they should have received overtime pay.

Despite the costs that cases of this sort impose on employers, companies of all sizes and levels of experience continue to fall short in complying with basic state and federal employment laws and regulations.

Given the breadth and complexity of today’s employment laws, the costs of compliance are significant. Keeping abreast of even the most basic legal requirements may seem daunting. Still, however difficult it may be to learn and comply with applicable employment laws, the cost of non-compliance is even greater.

This article provides an overview of the areas of employment law that most commonly give rise to issues in the workplace. By following the 17 “Steps” laid out below considerable progress can be made toward preventing workplace disputes.

STEP 1: Be Aware of the Broad Application of Anti-Discrimination Laws

Both federal and state anti-discrimination laws make it unlawful for employers to make employment decisions based upon any one of an increasingly broad range of prohibited categories, which differ from state-to-state but which typically include race, color, religion, national origin, age, gender, sexual orientation, national origin, disability, and veteran status. The anti-discrimination laws also protect employees from retaliation for having complained about, or having supported another employee’s complaint about, discriminatory treatment.

Contrary to some employers’ beliefs, the anti-discrimination laws do not apply solely to current employees. Rather, such laws prohibit discrimination and retaliation in all phases of the employment process, including interviews, hirings, compensation, benefits, promotions, and terminations. The anti-discrimination laws, therefore, afford protection to both prospective and current employees. In some instances, even former employees enjoy protection.

Employers should also be aware that certain anti-discrimination laws govern conduct outside the traditional employment context. The Massachusetts Equal Rights Act, for example, prohibits most forms of discrimination in the making and enforcement of contracts, including those entered into by independent contractors. Many other states have enacted similar legislation. Employers, therefore, cannot insulate themselves from liability merely by characterizing their employees as independent contractors.

None of this is to suggest that employers are powerless to protect themselves. By training and educating one’s workforce, as well as strictly enforcing internal anti-discrimination and harassment policies, employers can markedly reduce their exposure. This is particularly true in light of recent United States Supreme Court decisions that afford employers some protection from liability – or at least from awards of punitive damages – when they have engaged in meaningful, good faith efforts to discourage discrimination and harassment in the workplace.

STEP 2: Examine Pre-Employment Practices

An employer’s anti-discrimination responsibilities begin even before a single applicant is interviewed. Employers must ensure that their recruiting methods, job descriptions, and pre-hire tests do not violate applicable laws. Such violations may occur when recruiting methods – whether word-of-mouth, newspaper, or on-line – fail to reach certain protected classes, or when a pre-hire test or job description targets non-essential qualifications and tends to exclude members of a protected class. Employers may also subject themselves to liability by making impermissible inquiries during interviews or on employment applications. These include inquiries regarding applicants’ marital status, children, medical conditions, certain criminal records, national origin, and disabilities.

Employers should assess the diversity of the population to whom their recruiting methods are directed, and determine whether any word-of-mouth or referral programs may have a disparate impact on a particular protected class. Effort and care should also be taken when drafting job descriptions and preparing job-related tests. Likewise, personnel involved in interviewing should be educated as to the proper areas of inquiry, and employment applications should be reviewed for legal compliance.

Both the federal Americans with Disabilities Act and the Massachusetts anti-discrimination statute prohibit medical inquiries and tests during the pre-hire stage. As a general rule, medical inquiries and examinations cannot be utilized before an employee is offered employment. At the pre-offer stage, employers are limited to posing questions that are not disability-related and which merely seek to elicit information concerning an employee’s ability to perform specific job-related functions. Once, however, a conditional offer of employment is extended to an employee, the employer may require a medical examination and make disability-related inquiries so long as such examinations and inquiries not only are made of all entering employees in that particular job category but are job-related and justified by business necessity.

STEP 3: Carefully Prepare Written Offers of Employment

An offer of employment has much more significance than merely inviting an individual to join a company. Indeed, mishandling an offer of employment can expose an employer to a host of potential liabilities. Typical mistakes include promises of employment for a specific period of time; promises that employment may be terminated only for poor performance; the failure to make clear that the employee must hold the company’s proprietary and confidential information in confidence; and, in instances where stock options are part of the compensation package, the failure to clearly set forth the prerequisites to an employee’s grant of options.

To best minimize liability, a company should ordinarily extend employment offers in writing. A basic offer letter identifies the employee’s position and start date; defines salary only in terms of the amount to be paid at each pay date (as opposed to referencing an annual salary); and makes clear that the granting of any stock options is subject to the board of directors’ approval. In addition, and perhaps most fundamentally, offers should clearly state that employees are employed at-will, are not granted employment for a specific term or period, and may be terminated at any time, for any or no reason, with or without notice. Finally, having employees sign a copy of their offer letter will go a long way toward avoiding battles over the actual terms and conditions of their employment.

STEP 4: Properly Classify Workers as Employees or Independent Contractors

Despite repeated efforts by employers, classifying workers as independent contractors is not the panacea some may think. Far too many employers classify their workers as independent contractors, even where all the facts and circumstances point to the existence of a genuine employment relationship. This is a dangerous practice – considerably more dangerous than most employers appreciate. The distinction between employees and independent contractors is both critical and real. Employees, but not contractors, are entitled to the benefit of federal and state wage laws, including overtime and minimum wage provisions. Employers typically must withhold taxes from wages paid to employees, but not independent contractors. In addition to withholding employees’ income taxes, employers must withhold social security taxes (often referred to as “FICA” – Federal Insurance Contributions Act) and pay a Federal Unemployment Tax Act tax. Furthermore, only employees are generally eligible for participation in retirement and benefits plans.

The consequences of incorrectly classifying workers are considerable. As Microsoft Corporation can attest, an employer that classifies true employees as independent contractors bears the risk that its workers will sue for benefits and other privileges under company plans that, according to their terms, apply to all employees of the company. Likewise, if governmental taxing authorities conclude that employees have been treated as independent contractors, an employer not only may be assessed all unpaid employment taxes, plus interest and penalties, but will risk disqualification of its benefit plans. Certain responsible persons – the president, treasurer, and any agent responsible for the management of the business – may be individually liable for unpaid employment taxes, as well as for civil and criminal penalties. The employer may also be subject to prosecution for unemployment fraud and violating the workers’ compensation laws.

The determination of whether an individual is an employee or a contractor is highly fact-specific and must take into account all of the circumstances surrounding the person’s work. Governmental taxing authorities generally apply a “right of control” test, which focuses on the degree to which the individual is subject to his or her employer’s control in the performance of his or her services. On the other hand, the agency responsible for enforcing the wage and hour laws – the Department of Labor (“DOL”) – has adopted a definition of “employee” that is even broader than that typically used by the taxing authorities. Specifically, the DOL assesses a possible employment relationship on the basis of a number of factors designed to evaluate the “economic reality” of the relationship.

Finally, employers should be mindful that the law presumes that individuals providing services are employees, and the burden to prove otherwise rests squarely with employers. Given this presumption, it is prudent to exercise great care when deciding to treat a worker as an employee or a contractor. Merely calling someone a contractor doesn’t make it so.

STEP 5: Properly Classify Employees as Exempt or Non-Exempt

The need to classify workers does not end with the distinction between employees and independent contractors. Employers must also determine whether employees will be paid a salary and be exempt from the payment of overtime wages (“exempt employees”) or whether they must be paid hourly and be entitled to overtime pay of one and one-half their hourly rate for weekly work in excess of 40 hours (“non-exempt employees”). Violations of these statutory standards can result in significant civil and, in some particularly egregious cases, criminal penalties. And yet, for all of the risks, employers frequently ignore the applicable standards and erroneously classify almost every employee as exempt.

The most common exemptions under the wage and hour laws are those for so-called white-collar employees. They fall into three basic categories: (1) executive employees; (2) administrative employees; and (3) professional employees.

Executive Employees : An employee generally will qualify as an exempt executive employee if the employee’s primary duty is the management of the business and he or she is paid at least a minimum salary. Depending on the level of the executive employee’s salary, the employee must also be authorized to make hiring and firing decisions, exercise discretionary powers, and supervise at least two employees.

Administrative Employees : An employee will fall within the administrative exemption if his or her primary duties involve office or non-manual work directly related to the company’s management policies or business operations, he or she regularly exercises discretion and independent judgment and he or she is paid a minimum salary. Despite its rather broad definition, the courts and the DOL have interpreted this exemption narrowly. Very few employees actually qualify for this exemption and employers should exercise caution in using it.

Professional Employees : Employees may be treated as exempt professionals if they meet a minimum salary requirement, they exercise discretion and independent judgment in their job, and they have knowledge and training in an advanced field.

Of particular interest to many technology-based employers is an exemption for professionals in computer-related occupations. An employee will generally qualify for this exemption if he or she meets the professional exemption test and the employee’s responsibilities consist of one or more of the following: the application of systems analysis techniques, including consulting with users to determine hardware, software, or system functional specifications; the design, development, documentation, analysis, creation, testing, or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications; the design, development, testing, creation or modification of computer programs related to machine operating systems; or a combination of these techniques, the performance of which requires the same level of skills.

If an employee does not meet the professional exemption test, but satisfies the remaining criteria for a computer professional and is paid in excess of 6.5 times the current minimum wage, then in most cases he or she will still qualify as exempt.

Significantly, this exemption applies only to highly skilled employees who have achieved a level of proficiency in computer systems analysis, programming, and software engineering. Entry-level positions and trainees as well as employees engaged in repairing or providing maintenance of computer hardware and related equipment will not qualify.

Employers who conduct any type of sales activity also need to be aware of a separate, but fairly limited exemption for outside salespersons. An outside salesperson will only be treated as exempt if he or she makes sales or obtains orders or contracts for services and, in so doing, customarily devotes 80% or more of his or her work time away from the employer’s place of business.

Finally, employers should bear in mind that, notwithstanding the generalities set forth above, an analysis of whether an exemption applies to a particular employee is typically complex and highly fact-specific. Despite the fact that employers tend instinctively to categorize the majority of their employees as exempt, the law presumes that employees are non-exempt, notwithstanding their job titles and descriptions.

STEP 6: Pay Employees Properly

Whatever the financial condition of a company, it ignores the basic wage and hour laws at its peril. Generally, employees must be paid at least the hourly minimum wage ($6.75 in Massachusetts as of the date of this article). Non-exempt employees must be paid time and one-half for work in excess of 40 hours. Even if a start-up company is cash-poor at the outset and its employees agree to provide services without pay for a period of time, the company must still pay its employees no less than the minimum wage. Companies faced with this situation can later supplement employees’ income by providing a discretionary bonus when and if financing is later obtained.

Typically, employees must be paid no less than every two weeks under the Massachusetts Payment of Wages statute. To ensure that employees who resign or are terminated do not obtain payment of salary in advance for their services rendered, it is best to pay employees in arrears for their prior two-weeks’ services. In the event an employee does resign, he or she is entitled to payment of salary and unpaid, accrued vacation on the next regular payday. If, however, an employee is terminated, whether for cause or otherwise, the company should pay the employee all remaining salary and unused, accrued vacation on the termination date.

Some employers seek to avoid the wage laws by characterizing unpaid or low paid members of the workforce as “volunteers.” Such characterizations, however, are often erroneous and result in the violation of a variety of employment laws, including the minimum wage law. The law applies an “economic reality” test to assess whether individuals are true volunteers. Among the factors typically considered under this test are the degree to which the individual is dependent on the employer and, perhaps most significantly, whether the individual had any reasonable expectation of compensation now or in the future. In the overwhelming majority of instances, however, the wage and hour laws cannot be so easily avoided.

On a related issue, employers are increasingly faced with disputes concerning the payment of commissions. Such disputes are often avoidable, but in the rush of business or for the sake of informality, employers too often fail adequately to structure or document how, when, and under what circumstances commissions will be paid. Typically overlooked are provisions regarding the recoverability of draw, the separation of employees’ employment, and the trigger point at which commissions become payable. As a practical matter, all employers should carefully draft and regularly update commission agreements that employees should be required to sign.

An employer’s failure to pay wages owed to an employee exposes it to significant liability. The Massachusetts Payment of Wages statute provides for the recovery of treble damages and attorneys’ fees, as well as the imposition of civil and criminal penalties. Such penalties, moreover, may be imposed upon key personnel of a company in violation of the statute.

STEP 7: Post Required Notices of Employment and Wage Laws and Distribute Sexual Harassment Prevention Policy

Many employment statutes require that employers prominently post notices and information concerning employee’s legal rights, such as unemployment compensation and equal employment opportunity notices. These postings must be placed in a conspicuous location – near the water cooler, in the kitchen, or in the copy room. As yet, posting on a company website or intranet generally does not satisfy these requirements.

One of the mandatory postings in Massachusetts is a company’s sexual harassment prevention policy. The law also requires that employers provide a copy of the harassment policy (1) to each employee upon hire, and (2) to all employees annually. Each time an employee receives a copy of this policy, he or she should be required to sign an acknowledgment form that can be maintained in the employee’s personnel file. Furthermore, because the law proscribes other forms of harassment as well, including racial and disability harassment, employers should consider issuing a policy that covers all forms of unlawful harassment, not just that which is gender-related.

STEP 8: Maintain Appropriate Records

A variety of federal and state laws impose obligations on employers to maintain records relating to their employees. Such laws impose specific requirements and timeframes for the retention of, among other things, payroll records, documents reflecting the ages of employees, benefit documents, requests for reasonable accommodations, I-9 forms, and Family and Medical Leave Act notices. Indeed, so broad are the various recordkeeping requirements that the specific requirements are far beyond the purview of this article. Recordkeeping charts and checklists can be made available to employers with specific inquiries.

In Massachusetts, the recordkeeping statute that is perhaps most frequently invoked is the personnel records statute. The statute provides that an employer must retain all records that have an impact upon an employee’s qualifications, promotion, transfer, compensation, and discipline. All medical records should be kept confidential and separate from the employee’s personnel file. An employer with at least twenty employees must retain personnel records for three years following an employee’s separation from the company. Present and former employees are entitled to review their personnel file within five business days of submitting a written request.

STEP 9: Draft and Distribute an Employee Manual

Employee manuals or handbooks are nothing more than a means by which to communicate company policies and procedures. Although the law requires that certain specific policies be disseminated to employees (e.g., a sexual harassment policy), employee manuals are not required by law. Still, many employers find that if company policies are formally disseminated, their employees are better informed and the opportunity for disputes and misunderstandings is significantly reduced.

In the spirit of “no good deed goes unpunished,” though, some employers have come to regret their employee manuals. If the employee manual is not drafted carefully, there is a risk that it will vest employees with certain contractual rights that they would not otherwise have. To avoid this scenario, manuals should expressly state that the employer is free to change its terms at any time, even without notice to employees. It is equally important that the language of the manual does not disrupt the employment at-will relationship by referencing, for example, burdensome progressive discipline policies, criteria for termination, or any other unsolicited promises or representations. Such pitfalls not only make it more difficult for an employer to terminate employees, but also serve as grounds for favorable judicial awards to disgruntled employees.

Typical components of an employee manual include policies relating to equal employment opportunity, disabled or handicapped employees, sexual and other forms of harassment, timekeeping and payroll issues, attendance, e-mail/telephone/computer systems, travel expenses, non-disclosure and anti-solicitation, workplace violence, vacation, holidays, leave time, and medical insurance.

The e-mail, telephone, and computer policy is of particular importance because it makes clear that employees have no reasonable expectation of privacy in these devices. Further, it admonishes employees against using these devices in any manner that violates the law, company policies, or any agreements employees may have with the company (for example, using the devices to convey sexually explicit material or to publicly disclose confidential or proprietary information). The personal computer software policy also helps ensure that employees do not violate employers’ software licenses with third parties.

STEP 10: Understand Leave Laws

As a general rule, employers with 50 or more employees are subject to the federal Family and Medical Leave Act (“FMLA”). To receive protection under the FMLA, an employee must have worked for his or her employer for at least 12 months and for at least 1,250 hours during that 12-month period. Under the FMLA, employers must give employees 12 weeks of unpaid annual leave for (1) the birth of a child and in order to care for such child; (2) the placement of a child with the employee for adoption or foster care; (3) to care for a spouse, child, or parent with a serious health condition; or (4) because of the employee’s own serious health condition. As mentioned, employees who qualify for FMLA leave are not entitled to be paid during their leave, but employers may require such employees to exhaust their vacation and sick leave time during such period.

In Massachusetts, employers and employees who are subject to the FMLA are also subject to the Massachusetts Small Necessities Leave Act (“SNLA”). The SNLA provides employees with an additional 24 hours of leave annually to be used for the following purposes: (1) to participate in school activities directly related to the educational advancement of their children (e.g., parent-teacher conferences); (2) to accompany children to routine medical and dental appointments; and (3) to accompany an elderly relative – a person at least 60 years old and related by blood or marriage – to routine medical, dental or other professional care appointments.

Massachusetts also has statutory protection for female employees taking maternity leave. The Massachusetts Maternity Leave Act provides that all employers with at least six employees must offer female employees who give birth or adopt a child under the age of 18 (or under 23 where the child is mentally or physically impaired) eight weeks of unpaid leave (sixteen weeks in the event of twins). In order to be eligible for such leave, an employee must have completed his or her probationary period or, if no such period exists, completed at least three consecutive months of full-time employment. Due to the gender discrimination laws and a recent Massachusetts Commission Against Discrimination (“MCAD”) advisory suggesting that the Massachusetts Maternity Leave Act might be unconstitutional insofar as it applies only to women, employers may wish to consider offering male employees a similar leave period. Such a choice, however, may be moot if the employer is covered by the FMLA, which applies to men and women equally.

Employers should also keep in mind that under the Massachusetts anti-discrimination law and the federal Americans with Disabilities Act, disabled employees may be entitled to leave time even if other leave statutes such as the FMLA do not apply.

STEP 11: Take Proactive Measures to Avoid Sexual Harassment

As the rash of publicity on the topic would suggest, sexual harassment claims present a very real danger to employers. Recent decisions of the United States Supreme Court have created an affirmative defense for employers facing potential liability for federal sexual harassment claims. Specifically, employers who have been sued under federal sexual harassment law can defend themselves by showing, as an initial matter, that they took reasonable preventive steps to discourage harassment. Such preventive steps include the posting and distribution of a well written harassment policy, together with sexual harassment prevention training.

Unfortunately, this defense has proven somewhat less effective in Massachusetts, where the courts have held employers strictly liable for harassment engaged in by supervisors. Even so, reasonable preventive measures are no less advisable. In Massachusetts, a sexual harassment policy should be modeled on a standard policy issued by the MCAD. At a minimum, such a policy should define sexual harassment, identify to whom complaints of harassment should be brought within the company, and provide information concerning when, where, and how employees may present their claims to the MCAD and Equal Employment Opportunity Commission. The policy must be posted within the workplace and distributed to employees upon hire and annually.

Massachusetts statutory law expressly “encourages” all employers to offer their employees sexual harassment training. Such training programs use the employer’s harassment prevention policy as a springboard to discuss, in far greater detail and by way of examples and discussions, the elements of sexual harassment as well as employees’ rights and obligations under pertinent laws. Because employees with managerial or supervisory roles are vested with obligations to report and prevent harassment in the workplace, they are subject to individual liability for their harassing conduct and may also create vicarious liability for their employer. Consequently, many employers train supervisors and managers separately on their additional responsibilities and potential liabilities.

STEP 12: Explore Accommodation Options with Disabled Employees

As the Americans with Disabilities Act (“ADA”) has been in force for approximately a decade, most employers have at least some awareness of their basic obligations to disabled employees. The subtleties of the ADA, like those of the Massachusetts anti-discrimination statute, are more elusive, however.

Under the anti-discrimination laws, an employer may not discriminate against a disabled employee and, furthermore, must reasonably accommodate the employee’s disability so long as such accommodation does not impose an undue burden and the employee does not represent a direct threat to the health and safety of others. Much time and expense has been spent during the past decade litigating the minutia of this general obligation. The United States Supreme Court, for example, recently decided several cases involving the definition of a disabled employee under the ADA, finding that mitigating factors such as eyeglasses or medication may be considered when determining whether an individual is truly disabled under the law. For most employers, it is probably unwise to focus excessively on such cases. There exists a danger that by relying on such cases an employer will erroneously decide than an employee is not disabled and therefore not entitled to any special protection.

From a practical standpoint, the best practice is to assume that an employee with a physical or psychological condition of any significance comes within the protection of the statute. The focus then turns to issues of reasonable accommodation. The question of what reasonable accommodation should be provided to an employee is an intensely fact-specific inquiry, the result of which will turn on the particular circumstances of each case. The case law and regulations make clear that, whatever the particular disability, it is vital that the employer engage in a dialogue with the disabled employee regarding possible accommodations. In this regard, it is worth keeping in mind that the range of accommodations that the courts have approved is exceedingly broad. Included among the accommodations that have been approved in the past are leaves of absence, working out of one’s home, alteration of work schedules, use of assistants, job restructuring, and reassignment.

Employers must remember that physical impairments are not the only disabilities that entitle employees to protection under the law. The anti-discrimination laws clearly afford protection to those suffering mental impairments as well. Accordingly, the Equal Employment Opportunity Commission has made clear that such conditions as major depression, bipolar disorder, anxiety disorders, and obsessive-compulsive disorder constitute legal disabilities. On the other hand, the law is not so broad as to take in the more common and less severe mental conditions. Thus, for example, an employee who complains of stress or irritability is not entitled to a reasonable accommodation.

STEP 13: Respect Employees’ Privacy

Privacy is among the most hotly contested and rapidly developing topics in employment law. The right to privacy has been recognized in common law and by statute, but its boundaries have yet to be clearly defined. There are, however, certain guidelines that employers should follow.

Except in rare circumstances, employers should avoid making employment decisions based upon the activities of employees outside the workplace, particularly where they have no direct consequences on the employee’s job performance. It was on this basis that at least one court in Massachusetts held that an employer may not terminate two employees for living together while one was still married. Similarly, an employer risks violating the Massachusetts Privacy Act if it makes an employment decision based upon an employee’s failure to respond to highly personal and offensive questions. Certain questions about an applicant’s criminal history – particularly questions about certain misdemeanors – fall into this category and will expose an employer to potential liability.

As is true in many other states, Massachusetts has adopted a statute that prohibits various forms of eavesdropping. The Massachusetts Eavesdropping Act specifically prohibits interceptions, disclosures, and other uses of wire or oral communications, unless the consent of all parties is obtained.

Another privacy issue that frequently arises in the workplace involves drug testing. Generally, it is permissible to conduct drug tests as a condition of employment. For existing employees, however, the law places stricter limits on how, when, and whom an employer may test. The law recognizes the right of an employer to require a drug test when there has been an unexplained accident or where there is reasonable suspicion that an employee is under the influence of drugs. In addition, employers who wish to randomly test their employees must restrict the test to those jobs for which there is a demonstrable need for such testing and must also provide reasonable safeguards to protect employees’ privacy rights when conducting the test.

STEP 14: Protect Your Intellectual Property, Confidential Information, and Good Will

Many employees and independent contractors are privy to confidential and proprietary information of employers, including trade secrets. To protect against the public disclosure of this vital information, it is critical that employers require their employees and contractors to execute a non-disclosure agreement. Further, to ensure that the inventions and deliverables created by the employee or contractor – including patentable information – become the property of the employer, employees and independent contractors should execute an assignment of inventions agreement.

Likewise, in order to minimize instances where key employees leave the employer and go work for a competitor, employers should consider having their employees execute a non-competition agreement in which the employees promise to refrain from working for a competitor of, or engage in competition with, the employer for a specific period of time. In addition, to prevent former employees from raiding their workforce and taking customers, employees may be asked to enter into non-solicitation agreements, agreeing that they will not solicit the business of the employer’s customers and will not cause the employer’s remaining employees to leave the employer. While courts are reluctant to restrain an individual’s ability to earn a living, Massachusetts courts generally will uphold non-competition and non-solicitation agreements to the extent they are reasonable in geographic territory, scope, and time, and so long as the employer has a genuine interest worthy of protection, such as good will, confidential information, or trade secrets. Employers in the high-tech industry should be aware, however, that courts are beginning to more aggressively curtail the scope of such agreements on the grounds that that the industry is so fast-paced that long-term restrictions on employees are unnecessarily onerous.

STEP 15: Make Sure that Your Terminations Are Defensible

Perhaps no other factor has more impact on an employer’s ability to defend termination decisions, whether in court or otherwise, than the manner in which the employer manages employee reviews and disciplinary actions. When giving performance reviews and imposing disciplinary actions, one should adhere to the following guidelines: (1) be honest and candid; resist the well-intentioned temptation to de-emphasize the negative; (2) strive for consistency by applying uniform performance criteria and reviewing all similarly situated employees; (3) ensure that all reviews and disciplinary actions are in keeping with company policies; (4) be fair and accurate (with reviews, ensure that the input of all of the employee’s supervisors is elicited and is consistent with the substance of the review; with disciplinary actions, ensure that an appropriate and – to the extent reasonably possible – confidential investigation has been conducted); (5) document the review or disciplinary action; and (6) have an appropriate witness present during the review or when addressing the infraction and disciplinary action with the employee.

Laying the proper groundwork through reviews and discipline will minimize an employee’s sense of surprise and unfairness if the employer must ultimately terminate the employment relationship. When terminating an employee’s employment, it is important that two appropriate representatives of the employer meet with the employee to inform the employee of the decision. Provided sufficient groundwork has been laid, it generally is acceptable to explain to the employee the reason for termination; however, recall that under the employment at-will doctrine, no reason need be given for the termination, and in certain instances it makes sense to refrain from providing a detailed explanation. An exit interview should also be conducted, during which the employee is provided a final paycheck (including payment of all accrued vacation), documentation on obtaining unemployment benefits, COBRA information (although this can be provided later, if necessary), and a copy of any non-competition, non-solicitation, confidentiality, and inventions agreement the employee has signed. The employee must also return all company property, such as a laptop, cell phone, and keys and identification. Depending on the reasons for the termination and how the employee is receiving the news of termination, it may be appropriate to escort the employee immediately from the premises. However, because such action may appear unduly harsh, it should only be taken in extraordinary circumstances.

The same exit interview procedure should apply in the case of a resignation. Resigning employees, though, need only be paid at the next regular pay period, not upon their date of resignation.

In some instances, particularly where there is some potential exposure to liability, the employer may wish to provide the employee with severance pay and other termination benefits. Under these circumstances, employers should also seek a general release of liability from the employee. Any severance agreements and releases must be memorialized in writing and carefully drafted. In many cases, as where the departing employee is at least 40 years old, specialized provisions must be included to make the release enforceable.

STEP 16: Maintain Workers’ Compensation Insurance and Be Aware of its Interaction with Leave and Disability Laws

All employers in Massachusetts are required to carry workers’ compensation insurance coverage. Workers’ compensation replaces the right of employees to sue for damages for work-related injuries, thus eliminating personal injury litigation by employees against employers. (Note, however, that employees can retain common-law rights to sue in court if the employee gives written notice of such intention at the time of hiring).

In return for the benefit of not being exposed to suit in court, employers assume a statutory responsibility to provide workers’ compensation insurance. Employers can either pay the entire premium or provide the same benefits through self-insurance. Further, employers must provide employees with notice of the employer’s coverage and report injuries to various parties (e.g., the employee, insurer, and the Department of Industrial Accidents) within certain prescribed time periods.

The unemployment compensation laws afford employees certain rights in addition to the right to receive compensation for an injury. Injured employees, for example, are entitled to preference if they apply for reemployment with the employer they worked for when they were injured. Likewise, employers may not discriminate or retaliate against employees who assert their rights under workers’ compensation laws. Employers, furthermore, are prohibited from inquiring on employment applications or during interviews about past workers’ compensation injuries or claims.

Depending on the nature of an employee’s workplace injury, the employee may be considered disabled under the anti-discrimination laws. Under Massachusetts law, an employee who sustains a work-related injury and is capable of performing the essential functions of a job with or without a reasonable accommodation is deemed a qualified disabled person for purposes of the anti-discrimination laws. In such circumstances, the employer must assume the obligation to provide the employee with a reasonable accommodation.

STEP 17: Purchase Unemployment Compensation Insurance

Chapter 151A, the Massachusetts Employment and Training Law, sets forth Massachusetts’ unemployment compensation scheme and applies to all employers with at least one employee. The purpose of unemployment insurance is to provide eligible employees who are involuntarily severed from their jobs for reasons other than gross misconduct with a temporary source of income until they find new employment.

The administrative agency charged with responsibility for its enforcement, the Massachusetts Division of Employment and Training (“DET”), places three general responsibilities on employers: (1) to properly participate in and finance unemployment insurance; (2) to provide employees with required notices; and (3) to participate in determining former employees’ eligibility for benefits.

Other than when making necessary filings and contributions, employers most often interact with the DET when contesting a former employee’s application for unemployment benefits. The employer has only 10 days from the day of mailing of the “Request for Separation and/or Wage Information” to respond to an employee’s application for benefits. Failure to respond in a timely manner may result in several adverse consequences, including the loss of the right to appeal an award of benefits and monetary penalties. Since the number or successful claims and amounts paid by DET is a factor in determining payments to DET, it is in the best interest of employers to dispute invalid claims for unemployment benefits.


The various steps described above only touch upon the full array and complexity of obligations that employers have under the law. More often than not, though, a general understanding of the law, coupled with a healthy dose of common sense, will go a long way toward avoiding unnecessary employment disputes and keeping one’s workforce generally satisfied.