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Employment Law Overview USA


The employment relationship in the United States is subject to markedly less regulation than in other countries. With the exception of some protections on wage and hours and a prohibition on discrimination, the parties to an employment relationship in the United States are generally free to negotiate and set the terms and conditions of their relationship. Moreover, the default position is that private-sector employment relationships are at-will: either the employer or the employee may terminate the employment relationship at any time, for any (non-discriminatory or non-retaliatory) reason with or without notice.

Key Points

  • The laws governing employment relationships in the U.S. come from federal, state and local statutes, agency regulations, and case law.
  • Under United States law, there are no minimum requirements for an employment contract.
  • Except in certain mass dismissals or as provided for in an employment contract or a collective bargaining agreement, U.S. law does not impose a formal “notice period” to terminate an individual employment relationship.
  • Employees employed on an “at-will” basis may be terminated, with or without cause or grounds, provided it is not for an illegal reason, notably discrimination on grounds of a category protected by law or protected “whistleblowing” activity (reporting certain employer activity where the employee reasonably believes that the information he or she provided relates to potential violations of specific laws).
  • Under U.S. labour law, if a majority of the employees in the bargaining unit who cast their vote had voted in favor of union representation, the union obtains the right of “exclusive” representation of all the employees in the bargaining unit (not only the employees who voted in favor of the union).

As a common law and federal nation, with fifty (50) states and countless municipal governments, the United States does not have a single set of codified labour and employment laws applicable to all employers. Rather, the laws governing employment relationships are derived from a variety of sources.

Federal statutes: United States federal laws apply to all employers who engage in interstate commerce and set forth the minimum employment standards and protections governing employment relationships. The federal statutes address such issues as wage and hours, medical leaves of absence, discrimination, trade unions and bargaining with trade unions, mass layoffs and plant closings. In addition, immigration and work permits are regulated by federal law and apply to all employers regardless of the size or the nature of the business.

State statutes: Each state’s laws are enforceable only within its own borders. State laws often provide rights not articulated in federal protections or mirror federal statutes while extending the federally provided protections to individuals not covered or protected or expanding the scope of protections afforded to employees. Further, state laws regulate unemployment insurance benefits and workers’ compensation (for work-related illness and injuries).

Local statutes: Cities and municipalities often enact employment laws that can provide greater protection to employees than those provided by state or federal statutes. For example, although federal law does not prohibit discrimination based on gender identity in the private sector, the laws of numerous state and local governments outlaw such discrimination. (Employees who work for the U.S. federal government are also protected against discrimination on grounds of sexual identity under the Civil Services Reform Act of 1978.)

Federal, state and agency regulations: Rules promulgated by federal, state and local Employment Opportunities Commission (“EEOC”), the Internal Revenue Services, or the Department of Homeland Security set forth procedures for implementing federal, state or local statutes.

Court decisions: Through their decisions, United States courts interpret federal, state, and local statutes and regulations and apply them to facts presented in each particular case. Past decisions of the appellate courts serve as binding precedent on the lower courts.

New Developments

1. Sex Discrimination

In June 2020, the U.S. Supreme held that LGTBQ+ employees are protected from workplace discrimination under Title VII of the Civil Rights Act of 1964, which prohibits discrimination on a number of grounds including sex. Before this decision, discrimination on the basis of sexual orientation or gender identity was a matter of state law, meaning that there were inconsistent standards depending on the state where the employee worked. Now employees throughout the U.S. are protected from such discrimination.

In addition, Illinois and New York are among several states who have recently expanded employment protections against harassment and discrimination.  For example, effective August 2020, the statute of limitations in New York for filing a sexual harassment charge expanded from one year to three years. Similarly, effective September 2021 in Texas, employees now have 300 days to file a sexual harassment complaint with the Texas Workforce Commission (up from 180 days). In Illinois, effective January 2020, several new requirements were implemented for employers including restrictions on the use of nondisclosure agreements in discrimination and harassment cases, and expanded protections for contract workers.

Also of note, the EEOC recently rescinded its position that mandatory arbitration agreements, which cover employment discrimination claims, undermine the enforcement of U.S. anti-discrimination laws. This policy change is consistent with recent U.S. Supreme Court decisions that have endorsed the use of arbitration agreements, including in the employment context.

2. Class Actions

In 2018, the U.S. Supreme Court ruled that class action waivers in employment arbitration agreements do not violate the National Labour Relations Act (NLRA). Epic Systems Corp. v. Lewis, No. 16-285; Ernst & Young LLP et al. v. Morris et al., No. 16-300; National Labour Relations Board v. Murphy Oil USA, Inc., et al., No. 16-307 (May 21, 2018). The Court explained that Section 7 of the NLRA is focused on employees’ rights to unionise and engage in collective bargaining and that Section 7 does not extend to protecting an employee’s right to participate in a class or collective action. Section 7 provides that employees have the right to form, join, or assist unions, and to engage in other concerted activities for their mutual aid and protection. The Court held that class action waivers in employment arbitration agreements are enforceable under the Federal Arbitration Act.

Again, in April 2019, the U.S. Supreme Court weighed in on class action arbitration. Class action arbitration is such a departure from ordinary, bilateral arbitration of individual disputes that courts may compel class action arbitration only where the parties expressly declare their intention to be bound by such actions in their arbitration agreement. Following the Supreme Court’s decision, arbitration agreements must clearly and unmistakably state that the parties agree to resolve class and collective actions through arbitration. Without such a clear agreement, a party cannot be compelled to class arbitration.

On March 3, 2022, U.S. President Joe Biden signed into law the “Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021.” The legislation makes predispute arbitration agreements and class or “joint” action waivers invalid and unenforceable as to claims of sexual assault or sexual harassment. A joint-action waiver is defined as an agreement (whether or not part of an arbitration agreement) that would prohibit or waive the right of a party to the agreement to participate in a joint, class, or collective action in a judicial, arbitral, administrative or other forum. It is expected that litigation will arise over whether the law would bar mandatory arbitration or class and joint waivers with respect to other clauses of action that may be asserted in the same lawsuit (such as claims under the Fair Labor Standards Act or state wage and hour statutes).

The right of plaintiffs to sue for technical violations of the Fair Credit Reporting Act (FCRA) and other federal privacy laws has been the subject of much class action litigation. (Employers may be subject to suit under the FCRA by job applicants alleging the employer violated statutory notice provisions when conducting pre-employment background checks, for example.) In 2021, the U.S. Supreme Court held in TransUnion LLC v. Ramirez, No. 20-297 (June 25, 2021), that it is not enough to allege a statutory violation, without more. Plaintiffs do not have standing to bring these lawsuits unless they can show that they suffered a concrete injury as a result of the alleged violation. The Court ruled that every class member must show standing in order to recover individual damages. The decision may allow employers defending such actions in federal court to show that some or all of the employees alleging these mere technical violations have not suffered any concrete harm and, therefore, their claims should be dismissed. However, the Court declined to address whether plaintiffs must establish standing of the class at the class certification stage of the litigation, or whether the standing requirement could be met at trial.

In recent years, U.S. courts of appeal have issued numerous decisions on important procedural issues related to “collective actions” brought under the Fair Labor Standards Act (FLSA). In Bristol-Myers Squibb Co. v. Superior Court of California, a 2017 decision in a “mass tort” action, the U.S. Supreme Court held that a state court could not exercise specific personal jurisdiction over a nonresident defendant over claims of plaintiffs who reside outside the state. Several federal courts of appeal have since held that this precedent applies to collective actions, and therefore, plaintiffs who reside outside the forum state cannot “opt in” to FLSA collective actions brought against nonresident employers. As a result, plaintiffs seeking to pursue nationwide collective actions must file suit in forums where the employer is headquartered or has its principal place of business. One federal court of appeal has found the Bristol-Myers decision does not apply to collective actions, however, the majority of appellate courts to consider the issue have held that Bristol-Myers applies.

Moreover, two federal circuit courts have invalidated the lenient approach commonly used by federal courts when deciding whether to send out notice to potential “opt in” plaintiffs when a putative FLSA collective action is filed. in 2021, in Swales v. LLM Transport Services, LLC, the U.S. Court of Appeals for the Fifth Circuit rejected the lenient two-stage “conditional certification” standard, in which courts routinely send out notice of the litigation to potential plaintiffs who may wish to join the suit, and only later decide whether the case can proceed collectively. (Under this approach, courts apply a much lower burden for “class” certification than used in most class actions.) In May 2023, the U.S. Court of Appeals for the Sixth Circuit, in Clark v. A&L Home Care and Training Center, LLC, also rejected the two-stage approach. This trend is a positive development for employers seeking to avoid classwide litigation of federal wage and hour claims.

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