It may not be true that Shakespeare was referring to labor law when he wrote in Henry VI, “The first thing we do, let’s kill all the lawyers”…but he could have been.
- The U.S. Department of Labor administers and enforces more than 180 federal labor laws
- Every state also has its own set of labor laws, and
- These laws and regulations cover workplace activities for about 150 million workers and more than 10 million workplaces
Needless to say, for the small business owner, labor and employment law is one of those things that fall under the category of “have to do,” as opposed to “get to do.” But do it you must because if you run afoul of these laws, between possible regulatory fines and/or lawsuits, the penalties can be severe:
- A Tennessee motel provided four homeless individuals with rooms in exchange for working at the front desk. Its minimum wage and overtime violations totaled $58,894.
- A Pennsylvania restaurant chain pocketed 15% of customer tips charged on credit cards. Violating the Fair Labor Standards Act, “the employers agreed to pay $935,000 in back wages and…$65,000 in civil penalties to 201 employees for the willful violations.”
The 7 Most Common Labor Law Mistakes
The good news is that labor law is one of those areas of business where a little knowledge can go a long way. Essentially, there are seven areas of which you need to be aware. Familiarize yourself with these and you are good to go.
1. Not Knowing The Major Labor Laws
There are three major labor laws that regulate workplaces in the United States:
1. The Fair Labor Standards Act: The FLSA regulates the federal minimum wage, which is currently $7.25 an hour. That said, state laws often mandate significantly higher wages—California, for example, has a minimum wage of $13 an hour. The FLSA also regulates overtime and child labor laws; again, state laws rule (pun intended!)
2. The Occupational and Safety Health Act: The Occupational Safety and Health Administration (part of the Department of Labor, DOL), governs health and workplace safety laws in businesses large, small, and even micro (OSHA laws apply to any workplace with one or more employees.) Covered employers must display employee rights and federal labor law posters. (These posters are ripe for scams, see below.)
3. The Family and Medical Leave Act: The FMLA applies to employers with 50 or more employees and provides workers with up to 12 weeks of protected, unpaid leave for
- The birth or adoption of a child
- A major illness of the employee or his or her spouse, child, or parent, and
- Emergencies related to active military service
2. Labor Law Poster Scams
You have seen them of course—those federal and state labor law posters in workrooms that outline safety protocols and procedures. These OSHA-mandated posters and posting requirements are required by federal law. They are also free. But even so, many small businesses choose to buy them from a labor law poster service because labor law changes happen so often.
This is where the potential for scams comes in.
Unscrupulous conmen (are there any other types?) prey on the common lack of labor law knowledge by sending out official looking letters and notices, demanding labor law postings, poster updates, and potential fines. "Required posters" are demanded and the letters state things like “Final Notice!” or “Notice of Suspension!” if you do not use their proposed poster service.
You can spot these labor law scams by noticing the minutiae: They contain threats for non-compliance. The notices are said to come from the government but often they do not have return addresses. “Government agents” harass you by phone.
Another variation on this scam that has cropped up recently is the fake audit. According to GovDocs.com, it works this way:
An “auditor” visits an individual location, explaining he or she was sent from a “state agency” to inspect labor law posters. The individual then issues a poster-requirements form with a fake agency name and a list of posters the location needs to buy, along with an order form. To prevent this, educate your location managers on your vendor and what is included in your labor law poster compliance program.
A reputable poster service is professional, offers free updates and shipping, and typically will cover fines if the posters are ever found to be out of compliance.
3. Job Interview Issues
There are certain things that you simply cannot ask about when interviewing people for open positions. These relate to what the law calls “protected classes” i.e., people who have legal protections that employers cannot concern themselves with. These include:
- Marital status, family, or pregnancy (they are none of your business)
- Disabilities (the Americans With Disabilities Act forbids it)
- Age, race, color, or ethnicity
- Gender, sex, or sexual orientation
In some states such as California, New York, Hawaii, and Illinois (among others), it is also illegal to ask about prior criminal history, convictions or arrests.
4. Hiring Illegally
Employers are required to get an I-9 Form from all employees. I-9s, also known as the Employment Eligibility Verification form, asks for documentation proving that the new employee is legally authorized to work in the U.S. You risk labor law problems when you do not get these important forms.
Similarly, child labor issues can arise when you hire people under 18 and/or schedule them for times they are not legally allowed to work. The key to avoiding this is to check with your local state’s labor laws.
5. Employee Misclassification
Especially since the advent of coronavirus, employers have been hiring people as independent contractors as opposed to full or part time employees. The reason is that freelancers are less expensive—businesses do not have to pay or withhold tax or social security, offer health care and other benefits, and so on.
The labor law risk though is when you treat an independent contractor as an employee. They are not. Contractors have the right to work when, where, and how they want; that is why they are called “independent.” The federal government is on to this however and fines for such misclassifications are severe.
Another area ripe for dispute is with regard to classifying employees as exempt or non-exempt. Essentially, managers are exempt from overtime rules and pay. Non-exempt employees (i.e., typically hourly wage employees) are entitled to overtime pay. Needless to say, some bad employers label hourly employees as “management” in the hopes of getting out of paying them overtime.
6. At-Will Employment Mistakes
The basic rule is this: Employees who do not have employment contracts can be fired at any time for any reason. While mostly true, it is not 100% true.
Just as you cannot legally discriminate in hiring, so too can you not discriminate in firing. Even the appearance of doing so will bring on a wrongful termination suit pronto. As such, remember that you cannot fire someone because they are pregnant, or Black, or Jewish, and so on. You can also not fire people in “retaliation,” i.e., when they assert a legal right, such as missing work for armed duty service or jury duty.
Finally, if one of your employees has a contract, or a promise of continued work, they are not at-will and you would need a valid reason—“cause”—to fire them.
7. Not Keeping Up with Local Laws
As you can see, much labor law is driven at the state level. That can be a problem. States have different minimum wages, paid sick leave rules, pregnancy accommodations, and so on. You need to know what your local rules and regulations are. This is one reason why getting a reputable poster service is a good idea.
Stay on Top of Labor Laws
The bottom line is that, while complicated, labor law is the sort of thing that small business owners simply need to stay abreast of. And the good news is that if you do, you won’t feel the need to kill any lawyers!