Practical Guide to Employment Law in the United States of America

Fall 2012 Article


U.S. employment law is different from European employment law. The absence of codified rules outlining the steps to establish a stable human resources structure often creates confusion and leaves the employer vulnerable for lawsuits.

It is good to know what to do before interviewing with the candidates and is recommended that the employer has a written contract with each employee. The employer should also adopt and distribute an employee handbook, which contains the main rules of conduct and policies of the employer, for example harassment-free workplace and employment at-will. The employee handbook should be incorporated by reference in the employment agreements, which should also reiterate that employment is at-will. The purpose is to avoid lawsuits in a termination context because the employee may claim that the decision to terminate without cause was arbitrary as the employee did not know that the employment was at-will. In short, the employee handbook is an employer's defense tool against potential suits of the employees.

This brief article outlines in general terms the principal policies that an employer should adopt and address in the employee handbook, along with the questions that must notbe asked during a job interview.

I. The Job Interview

While the employer would like to know as much about the candidate as possible, it is very important not to ask the wrong questions during a job interview because of discriminatory reasons. Title VII of the federal Civil Rights Act of 1964 prohibits discriminatory practices based on race, religion, color, and sexual orientation. Other federal and state laws bar discriminatory practices based on mental or physical disability, age (usually, over forty years old), pregnancy, or veteran status.

Some questions that may seem innocent may cause a problem later on. For instance, it is forbidden to ask the following questions:

  • How old are you?
  • Are you married or divorced?
  • Do you have children?
  • Are you going to have a family soon?
  • Do you own or rent?
  • Are you an American citizen?
  • Where are you from?
  • What do you do for Christmas?

Questions that are pertinent to the job position are allowed.

II. Employment Agreement; Employment At-Will

Once that a candidate is selected and the offer of employment is accepted, an employer should secure written employment agreements with the employees. Depending on the job position, the employment agreement may be in the form of (i) an offer letter, or (ii) a longer document, the employment agreement, which is negotiated from time to time[2]. The offer letter and the employment agreement should incorporate the employee handbook by reference and the employee should agree to comply with its policies. For example, the agreement should indicate that the employment relationship is at-will. Employment at-will means that both the employer and the employee have the right to terminate the employment relationship at any time, for any reason or no reason, and without notice. That assures flexibility, especially in favor of the employer that may end the employment at any time if the employee's performance is no longer satisfactory or the employee is not fit for the job.

Employee Non-Disclosure and Confidentiality Agreement

Many businesses ask employees to sign an "Employee Non-Disclosure and Confidentiality Agreement" at the time of hiring to protect trade secrets and confidential information disclosed to the employees in connection with the employment. With respect to trade secrets, in order to assure full protection, it is advisable adopting a trade secrets policy in the employee handbook that complies with the trade secrets regulations at a federal and state level. The employer should also distribute to its employees a list of the information that constitutes a trade secret within the employer's business. That list should be updated periodically, so that the employees know (i) what information the employer treats as a trade secret in relation to its business and (ii) the applicable procedure to protect it.

III. Employee Handbook

Given the rise of lawsuits filed against employers, the employee handbook is a fundamental defense tool against liability for decisions taken in employment matters[3]. The scope of the employee handbook is to make employees aware of the employer's rules of conduct and policies and how those are applied.

Except in cases where the law requires a specific language, the employee handbook should be written in plain language. Once adopted, the employee handbook should be reviewed annually and updated, if necessary, by way of an addendum, accompanied by an acknowledgment(see infra).

Is the Employee Handbook a Contract?

Employers are often concerned about adopting an employee handbook because they fear it will create a contract with the employees, replacing or voiding the contractual terms already negotiated with each employee. This issue may be addressed by taking a few steps, including the use of plain and broad language. Further, a disclaimer to the effect that the employee handbook is not a contract but only a set of employer's policies can also be included in the handbook.

The Acknowledgment

Once that the employee is provided with a copy of the employee handbook, it is recommended obtaining an acknowledgment of receipt, which confirms that the employee has received a copy of the employee handbook and that he or she is aware of the employer's policies, including the employment at-will, overtime rules, and harassment. While the law does not require an employee to sign an acknowledgment of receipt, it is advisable obtaining one for the reasons mentioned above[4].

Below are the main policies that should be addressed in every employee handbook:

1. Employment At-Will

As mentioned, the employment relationship should be at-will. That means that the employer and the employee have the right to terminate the employment relationship at any time, for any reason or no reason, without notice[5]. Generally, the policy at-will is indicated in the first page of the employee handbook, written in all CAPITAL letters orbold to call the attention of the employee. Having an at-will policy protects the employer because since the employment at-will is addressed in the employee handbook, the employee cannot allege wrongful termination for absence of good cause[6]. The at-will clause should also be mentioned in the offer letter or in the employment agreement, as applicable. Further, the acknowledgment must state that the employee is aware that the employment is at-will.

2. Equal Employment Opportunity; No Discrimination; No Harassment

Employers must comply with the Equal Employment Opportunity that prohibits various practices, including:

  1. Discrimination among employees.

  2. Harassment and sexual harassment. The workplace and the relationship among employees must be harassment-free. Harassment occurs when an employee engages in conduct that is offensive and disrespectful toward the other employees. It is fundamental that the employee handbook states that no form of harassment, including sexual harassment, is tolerated, and that any behavior in violation of this policy may lead directly to termination.

  3. Retaliation. It is prohibited to terminate an employee who has reported the employer to the appropriate federal or state agency for rules violations, for instance, violation of the safety measures in the workplace (OSHA).

The employee handbook must be clear on all prohibited conduct. Also, the reporting, inspection, and resolution procedures must be clear and direct so that the employee cannot allege that he has been wrongfully terminated.

3. Employee Categories

Full-time vs. Part-Time

The employee handbook should distinguish full-time[7] employees from part-time[8]employees.

Exempt vs. Nonexempt

For purposes of overtime, it also is important to distinguish between (i) nonexempt employees or those who are entitled to payment of overtime, and (ii) exempt employees or those who are not entitled to receive overpayment. A few factors help in the classification, including the degree of independence in performing the job duties, decision-making power, education, and salary received[9].

An employee who works more than eight hours per day or more than forty hours per week is entitled to receive payment of overtime[10]. The overtime policy in the employee handbook may require that the overtime be authorized in advance. However, once the employee works more than eight hours a day or forty hours per week, he is entitled to receive overpayment. The employer must require that each nonexempt employee keep track of the hours worked during the week by punching in and out where a clock is available or by signing in and out on a timesheet. In the latter case, straight time is recorded as well as the overtime. Each nonexempt employee must sign and date the timesheet. In so doing, there is a record of worked hours (both straight time and overtime), and the employee cannot sue the employer for overtime worked, but not paid. Without these records, it is impossible for the employer to prove that the employee has never worked overtime.

4. Vacation Time

The law does not require an employer in the United States to offer vacation time to its employees. However, if vacation time is offered, it is recommended having a vacation policy that is in compliance with applicable state law.

It is customary to offer paid time off or PTO that provides the employee with a certain number of days per year, for example ten days, which the employee may use as vacation, physical health, or observance of religious beliefs.

Accrued, but unused PTO days must be paid to the employee at year-end or at the time of termination[11]. If the employee handbook so provides, PTO can be carried over to the following year. In this case, the accrued, but unused days are added to the ten PTO days of the following year[12].

5. Arbitration

It is common to solve employment disputes through arbitration, mainly because arbitration is faster than regular court proceedings and is private (pleadings are not public records as they are not filed in court). Further, the parties tend to trust the objective opinion of an arbitrator than that of a group of people (the jury), comprised of people of different education and beliefs.

In California, and in the majority of the United States, a citizen has a right to be heard by a jury. A citizen waives his right to trial by jury by arbitrating a dispute. Therefore, the arbitration clause must be properly drafted to be enforceable.

Below are few suggestions for drafting an arbitration clause:

  1. The title "Arbitration" must be conspicuous (bold and in CAPITAL letters).

  2. The arbitration clause should be set out separately from the other policies, if possible.

  3. The arbitration clause should indicate the location where the arbitration will take place in the event of a dispute, for instance, San Francisco, California, and the selected organization administering the case, such as the American ArbitrationAssociation.

  4. It is necessary to refer to the applicable rules for employment disputes adopted by the American Arbitration Association[13].

  5. There should be a provision for recovery of reasonable attorney's fees and costs in favor of the prevailing party.

  6. The employee should sign a separate arbitration acknowledgment of receipt, acknowledging that he has received and reviewed the arbitration clause.


All businesses, regardless of the size, should review their employment policies and obtain an insurance coverage called Employment Practices Liability Insurance or "EPLI". This is another important tool in a comprehensive risk-management assessment in employee-related matters, which covers employers against claims threatened by employees.

Covered claims must be reported to the insurance company as they occur within the time specified in the policy. Further, the event leading to the claim must have occurred either on or after a specific date - typically the date when the EPLI policy commenced.

EPLI generally covers[14]:

  1. Harassment;
  2. Discrimination;
  3. Defamation.


Our Firm may assist you in the preparation of an employee handbook and provide employment advice. Questions or requests for additional information may be sent to

This article covers in general terms some aspects of US employment law and is not intended in any way to constitute legal advice.

[1] Daniela Morrison, Esq. (, is licensed to practice law in the State of New York. She practices as Associate Counsel at Valla & Associates, Inc., P.C. (

[2] That is because the compensation varies as well as the bonus structure and the benefits.

[3] Many states, including California, are pro-employee states. In the majority of the cases, courts favor the employee. Having an employee handbook that is clear on the employer's practices helps the employer in defending itself.

[4] The refusal of the employee to sign the acknowledgment should be noted in the acknowledgment, and a witness should be present and sign as well. This way there is proof that the policies have been discussed with the employee.

[5] It is customary to give two-week notice, unless otherwise provided in the employment agreement.

[6] Please note that if the employee is terminated for reasons of harassment or violations of other policies, then the termination is for good cause.

[7] Full-time employees are those who work at least forty hours per week.

[8] The distinction is important because depending on the status some benefits, such as health insurance, are not available to part-time employees.

[9] Factors vary depending on the state. Please check both federal and applicable state law.

[10] Parameters may change from state to state.

[11] This is the rule in California. Accrued, but unused PTO days must be paid at year-end or at termination. In the latter case, the employee is entitled to receive payment for PTO accrued, but not used up to the date of termination. It is recommended to confirm the rules of the applicable state.

[12] It is recommended to check the rules of the applicable state.

[13] Employment Arbitration Rules and Mediation Procedures.

[14] Please note that EPLI does not cover criminal acts or intentional violation of federal and state laws.