Introduction
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 favour 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 favour of the union).
Legal framework
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.
Federal, state and agency regulations: Rules promulgated by federal, state and local Equal Employment Opportunity Commission (“EEOC”), the Internal Revenue Service (“IRS”), or the Department of Homeland Security (“DHS”) 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
- Federal Agency Authority Narrowed
U.S. employment law is enforced in part through federal agencies that enforce workplace statutes—wage and hour laws, discrimination statutes, and other workplace matters. The agencies issue regulations interpreting the statutes and providing guidance to employers on compliance. For decades, federal agencies were empowered to issue regulations and revise those regulations with relaxed oversight by federal courts, which had been instructed to grant deference to those regulations under the U.S. Supreme Court’s 1984 decision in Chevron, U.S.A. Inc. v. Natural Resources Defense Council. However, in a development that is expected to severely curtail the regulatory authority of the federal agencies, the U.S. Supreme Court overturned its Chevron precedent in Loper Bright Enterprises v. Raimondo, a June 28, 2024, decision. Consequently, lower courts in the U.S. must undertake their own independent review of regulations to determine whether the regulation is a proper interpretation of the intent of Congress as reflected in the legislation.
Employers defending litigation arising from alleged violations of an agency regulation have a greater opportunity to challenge the underlying regulation itself. However, the Loper Bright decision may also bring uncertainty in the near term, as courts in different jurisdictions issue potentially conflicting decisions about the lawfulness of these regulations. The U.S. Supreme Court issued several other opinions in its most recent term that have served to rein in the authority of federal agencies.
- Arbitration of Employment Disputes
U.S. employers often enter into mandatory arbitration agreements with employees in order to resolve employment-related disputes privately and without costly litigation (class action litigation especially). The Federal Arbitration Act (FAA) makes clear that arbitration is favoured as a matter of national policy. In its most recent terms, however, the U.S. Supreme Court addressed an exception to the FAA in a manner that has narrowed the scope of U.S. workers covered by the federal statute. The FAA’s “transportation worker” exemption excludes from coverage employment contracts with “seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” The Court interpreted the “other class of workers” clause to exclude from FAA coverage those workers whose job duties are connected to the transport of goods across state lines. That can include, for example, a worker that loads and unloads goods from cargo planes, or drivers that deliver goods from a warehouse to a retail store in another state. The Court has made it clear that the exemption is not defined by the industry in which the worker is employed, but by the duties they perform; thus, an airline employee is not exempt merely because they work in the transportation industry, and a bakery distribution employee may be excluded under the transportation worker exception even though they are not employed by a transportation company.
If an employee is excluded from FAA coverage under the transportation worker exemption, then the operative state arbitration law applies. In many instances, state laws are less favourable to employers seeking to enforce their arbitration contracts with employees.
