I. Potpourri of Concerns

Several years ago, the author drafted a prototype employee manual for companies in the printing industry which covered most of the areas affecting employer-related benefits. The handbook focused on such issues as hours of work, company benefits, promotion criteria, and so forth and suggested rules for on-the-job behavior (i.e., reporting absences, authorized use of telephones, handling complaints, etc.). With well-drafted manuals, employers can create custom personnel policies and procedures governing standards of employee conduct, grounds for employee discipline and termination, internal complaint resolution procedures and other policies which are necessary and worth enforcing. This section, which is drawn from that manual, will briefly discuss important strategies and concerns in a variety of areas.

Disclaimers

Employment applications, personnel manuals, and written work rules are likely to be used by the employee in a termination-related lawsuit. Be sure they cannot be interpreted as providing employees with more rights than you intend to give. Look through existing manuals to see what they actually say. Remove anything that may be construed as a promise and substitute words such as, "In principle, we try to" Place disclaimers in handbooks whenever possible.

TIP: Although language may play a large part in defending against an unfair discharge case, some courts are not honoring disclaimers as a matter of public policy. Always consult with a lawyer experienced in labor matters before including disclaimers in your own company manual.

Employee Status

Some companies establish a probationary period ranging from 30 to 120 days to evaluate an employee's performance. If you do so, be careful not to raise an employee's expectations of job security after the probationary period has expired. State that successful completion of a probationary period only guarantees a job at-will, which may still be terminated with or without cause or notice. And, when defining such an interval, instead of calling it a "probationary period," consider use of the term "introductory period," since that does not carry the same implication of permanency after completion.

For part-time workers, employers may not be required to provide any benefits other than those benefits covered under state and federal law (i.e., Social Security, Unemployment Insurance, and Workers' Compensation Insurance) during the probationary period. Speak to a representative at your state's Department of Labor regional office to get the facts.

Working Hours

Some states require coffee breaks, others do not. In addition, certain states require that employees receive a meal period a few hours after beginning work; other states require breakfast periods as well. Thus, check with the Department of Labor in your state for further details.

Must an employee be paid for on-call meal periods? In one case, an arbitrator ruled that since the workers were in a state of constant readiness and could not leave the hospital, they were still on duty, even when taking meals, and such status was primarily for the benefit of the hospital.

TIP: Requests to eat in company facilities as a part of the job may constitute compensable work time. However, although a company may be liable to pay its workers when they are compelled to lunch at their workplace, there is little doubt that your company has the right to determine the timing of all breaks and how many workers must be present at a particular location at all times, if such a rule is established for a legitimate business reason.

Time Card Procedures

Federal law requires that all companies keep an accurate record of an employee's work. Use of automatic time cards is a good way to comply in this area.

Counsel Comment #52: Many companies consider it a serious work rule infraction, leading to dismissal, for a worker to punch in the time of another or falsify time card records. Make it clear in your company handbook that such action will not be tolerated.

Draws And Advances

Sales reps are often advanced money designated as "draw" to be applied against and reimbursed by future commissions. These are designated in rep agreements as "draw against commission" or "advances against commission." When an oral agreement or written contract states that advances will be deducted from commissions to be earned in the future, a sales rep is not generally personally liable to return the unearned draw: in most states courts generally consider advances to be salary unless language in an agreement or the conduct of the parties expressly indicates that such advances were merely intended to be a loan. In most cases, the law considers the company to be in a superior bargaining position and therefore responsible for clearly indicating its right of repayment. Case law and experience reveal that most company lawsuits to recover excess advances are unsuccessful and that ambiguous language in a contract is almost always applied against the company which chose the language and drafted the document. Even leaving the company before the contract term has expired will not necessarily make the sales rep liable to return the excess. However, if he/she breached the agreement, courts may not permit the rep to profit from wrongful acts.

Counsel Comment #53: To increase the chances of enforcing a claim and recovering excess draw, a company should take several steps. First, always indicate on each draw check the words "loan" in the bottom left corner of the check. When the rep endorses and cashes the check, this will document by implication the rep's agreement to accept the money as a loan. Second, prepare a promissory note or loan agreement, letter of indebtedness or financing statement and have the rep sign it each time he receives a draw advance. Finally, include the phrases "loan," "debt," or "charge" in all written con- tracts to make the sales rep liable. When reps sign written agreements which clearly specify that advances are considered a personal indebtedness to be paid from personal funds in the event the draw exceeds commission earnings, the chances of enforcing such agreements increase.

Overtime

Most states in addition to federal law require that overtime pay must be paid when a qualified employee works in excess of 40 hours per week. Special employees involved in government contracting or subcontracting work may also be required to be paid overtime if they work more than eight hours on any given day.

TIP: Companies whose employees do extensive traveling on company business should implement specific programs for the payment of expenses and overtime. Travel status may be defined as commencing from the time of leaving the work station until reaching the geographical location of the work assignment and then returning. Exceptions to overtime, such as where an employee chooses to drive to a location rather than fly, should be discussed. Maximum payments (i.e., up to four hours of compensatory time per day) for layovers on weekends should also be regulated, as well as non-reimbursable situations.

Attendance

Employee manuals should explain that continuous absences or tardiness may result in disciplinary action, including dismissal. <%-3>Most companies specify the telephone number absent employees must call and by what time (e.g., no less than 30 minutes before starting time) to avoid problems.

Counsel Comment #54: Some companies list a detailed schedule of company responses to repeated absences: for example, each person is allowed one unauthorized absence per year without a reprimand; the second absence results in a <MI%-1>reprimand, the third results in a day's suspension without pay, culminating in termination of employment after the fourth absence. T<%-2>his kind of stated policy has both positive and negative features. Uniformly following such a stated policy may reduce charges of disparate treatment of workers (i.e., discrimination). For example, many discrimination charges arise when employees belonging to a minority group claim that their excessive absences result in firing while those of another group do not. On the other hand, a specific schedule can tie a company's hands by not allowing it to terminate a poor worker until the expiration of the stated policy. Thus a brief statement regarding a particular policy is preferred (i.e., "Failure to report an absence, or a series of unreported absences, may result in disciplinary action, up to and including dismissal."). And, if you apply your termination deci- sions fairly and uniformly by firing the most serious offenders first and documenting your decisions in writing, charges of discrim- ination can be reduced and/or defended far more effectively.

Holidays

Some companies have a policy of allowing holiday pay for employees who have worked a minimum number of days (e.g., 30) in order to be eligible. Also, you may wish to state that if a holiday falls within a vacation period, the employee can extend his/her vacation period an additional day, or use that day of vacation at a later date.

Vacation Days

Each company has its own rules governing vacation days. Whatever plan you wish to implement, consider answering the following quest- ions as a starting point:

• Must vacation days be used in the year they are granted, or can they be carried over to the next year? Can a pro-rated share, e.g., one-half of the days, be carried over?
• How long must an employee work in order to be qualified?
• Must vacation days be taken all at once, or can they be staggered? If so, in what amount?
• How much notice must an employee give before taking vacation time?
• Are there times (e.g., during peak seasonal demand) when requests may not be granted?
• If the employee leaves or is terminated, will he/she be paid for all unused vacation time? What if the employee is fired for cause?

Counsel Comment #55: The last point must be considered carefully since some states require companies to pay accrued vacation pay in all circumstances, even resignations or termin- ations for cause, so check with counsel or your state's Depart- ment of Labor when in doubt. Whatever your vacation pay policy, be sure to draft it carefully, include it in your company's handbook and apply it consistently to avoid charges of discrim- ination and breach of contract.

Personal Days

Some companies create a policy whereby no personal days may be carried over to the next year in the event they are unused or paid for if an employee resigns. Or, you may say no employee will be entitled to receive the monetary equivalent of a personal day if it is unused.

Voting

Most states require that employers allow workers up to two hours off from work to vote. If you operate in such a state, you cannot deny an employee the right to vote, even on paid company time.

Bereavement Pay

Some companies do not permit bereavement pay to extend beyond the day of the funeral service. But on this always touchy subject, most companies will not require any kind of proof before making funeral leave payments when a death in an employee's family occurs. Always specify the amount of leave that may be taken and the particular circumstances of entitlement to benefits. For example, a few companies state in handbooks that to be eligible for funeral leave pay, the employee must attend the funeral or funeral service and produce evidence of said death, in the form of a public notice or its equivalent, for a non-family death. They also specify that up to five days with pay will be granted for the death of an immediate family member but only up to one day (or specify) for the death of a mother-in-law, grand- parent, etc.

Should a miscarriage be regarded as a bereavement? One arbitrator ruled that it was not. In arbitrations, grievances involving funeral or bereavement leave policies usually hover over interpretations of the appropriate clauses in the company's collective bargaining pact. Arbitrators usually lean toward strict construction of these clauses.

TIP: Many companies request that the Personnel Department be notified as immediately as possible and state that since funeral leave pay is intended only to compensate an employee for wages lost due to absence to attend a funeral, if the funeral occurs during an employee's vacation or company-paid holiday, no additional compensation will be made.

Counsel Comment #56: Be sure your company publishes accurate information regarding its death benefit policies. For example, is an estranged wife entitled to her husband's death benefits? In one case, a court ruled that she was because the couple had never legally separated or divorced, and the employee continued to maintain the family home during the brief period of voluntary separation before his death.

Jury Duty

Federal and most state laws prohibit companies from disciplining, terminating, or prohibiting employees from attending short-term jury duty. In other states, you may fire a worker who is required to attend a lengthy jury trial (e.g., more than a month) out of business necessity, but always check with counsel first.

TIP: Some companies pay straight-time earnings less jury and witness fees received where permitted by law; you may be able to deduct such payments from regular pay where applica- ble, so check this point with your local Department of Labor for additional details.

Counsel Comment #57: While jury duty is a protectable civic obligation, there is a difference when an employee is called as a witness rather than serving as a juror. Your company should also make the distinction of lost time arising when the employee is involved as the plaintiff or defendant in a civil legal action. Here, you may not wish to compensate the individual for time lost from work and are probably within your rights not to do so. Smart companies also specify rules governing efforts that should be made to try to get back to work when workers are excused from jury duty or witness duty during any half-day or more. Overtime considerations must also be explored (e.g., that time spent on jury duty or as a witness be counted as hours worked) for the purpose of computing overtime and that employees are permitted to work any overtime hours that normally would be scheduled for work if they were not on jury or witness duty.

Military Leave

Some companies pay the difference between a full-time employee's military pay and his/her salary up to a specific number of days. For example, you might state that the difference will be paid for 30 days if the employee has at least six months' service.

Personal Leaves

Unlimited personal absences or excessive absenteeism should not be allowed. A statement in the company handbook should say that employees who continue to be absent after a warning or counseling are subject to involuntary separation. On the other hand, always investigate with care the reasons for a person's absences. For example, some arbitrators and judges have ruled that personal- leave-related absences due to marital troubles, even if excessive, do not justify dismissals in limited situations. (Note: A detailed discus- sion of personal leaves is contained in Chapter 6.)

Disability Leaves

EEOC guidelines suggest that it is illegal to prohibit qualification for disability leave to workers who have not worked an extended period of time (e.g., 12 months) with one company. Thus, your employee manual should probably contain no more than a three-month initial waiting period, which will probably be deemed legal as a matter of reasonable company policy.

Consider requiring all employees with disabilities to submit to examinations by company-designated physicians if the disability is particularly lengthy, or questionable. However, singling out one disability (e.g., pregnancy) for such treatment violates the law. If you insist on ordering a company exam, make the policy standard for all disabled workers and be sure the company physician is trained to avoid asking discriminatory questions before or during the exam.

TIP: According to the recently enacted federal Family and Medical Leave Act, employees returning from disability are sometimes guaranteed job reinstatement. Many states, however, have more "worker friendly" laws, requiring that employees with a non-work disability be permitted to return to work as soon as they are physically able to resume their duties. Since state laws vary so, you should discuss the matter with legal counsel before implementing a policy in this area.

Wage And Salary Laws

Under the federal Equal Pay Act, employers must be careful to avoid pay differentials based on sex for employees performing equal work on equal jobs in the same establishment. Thus, it is critical to review your payroll practices regularly to ensure that wage and salary levels for all positions have been set fairly.

Personal Liability For Debts And Wages

Can an executive inadvertently make himself personally liable for a company debt? Probably not, unless the executive was acting on his own, without corporate authority (such as personally promising to pay an employee's moving expenses without management's approval and which the company cannot afford to pay).

However, officers who are also shareholders in small, closely held corporations should also know that in some states, including Wisconsin and New York, they may be personally liable for unpaid corporate debts owed to employees and others. This even applies to shareholders who are not active in corporate management. For example, Section 630 of the New York Business Corporation Law makes the 10 largest shareholders of a closely held New York corporation personally liable for all debts, wages, salaries and many fringe benefits owed to any of the corporation's laborers, servants or employees. Similar laws may have been enacted in other states as the trend continues for management to be responsible for paying wages and other benefits owed, and not allowing a shareholder or officer to hide behind the corporate veil and avoid personal liability for taxes or related debts in the event the company has limited or no assets.

Transfer And Moving Expenses

Some companies have detailed policies regarding resettlement reim- bursements. If you are interested in exploring or granting such a policy:

• Make sure all resettlement expenses are reasonable and the reimbursement covers expenses directly incurred by reason of the employee's change of residence at the request of the company.
• Be sure that all expenses are itemized by the employee and supported by appropriate invoices.
• Develop a resettlement policy for new employees covering reasonable moving, storage, enroute living and travel expenses of the new employee and immediate family, necessary to relocate at the initial point of assignment, with a cap on all expenses. Any other expenses must be documented in writing prior to extending an offer, approved by the company officer directly involved and submitted for consideration by the company's review board or senior management.

TIP: Deviations from established policy should be kept to an absolute minimum. However, there are occasions where an employee may suffer an unusual financial hardship in connection with a transfer, especially if the employee has been transferred frequently. Should hardship cases arise which justify special consideration, discuss this with senior manage- ment before implementation.

Counsel Comment #58: Pay special attention to situations where a relocated worker is terminated for cause shortly after moving. Is your company responsible to pay his/her relocation expenses? What about situations where a promise is made to pay relocation expenses to induce an employee from another company to jump to your firm but you then change your mind about continuing his/her employment shortly after the relocation occurs? Discuss these problems with counsel before making any final decision regarding the payment of relocation expenses to avoid legal claims of detrimental reliance and estoppel which are sometimes asserted by disgruntled ex-employees.

Bonuses

Many companies fail to understand the law regarding bonuses. Disputes often arise when an employee works a full year counting on a bonus, then doesn't receive it, or receives far less than was expected. But that is not the worst problem. Employers sometimes fire individuals after the bonus has technically been earned (at the end of the year) but before it is distributed (on February 15 of the following year). Lawsuits then ensue over whether the bonus should be paid or whether the person must be working at the time the bonus is paid as a condition of receiving it.

A bonus is an additional sum of money paid to an employee in excess of his regular wage. There are generally two kindsbonuses enforceable by contract and gratuitous bonusesand they differ in several respects. In order to receive a bonus enforceable by contract, the following elements must be present:

1. A specific promise is made by the employer to pay a bonus;
2. The parties use an agreed-upon method to calculate the bonus;
3. The employee performs additional work, labor or services, or promises to refrain from doing something he is not obligated to do (e.g., to continue working and not resign for an additional year).

When all of these factors are present, an employee has a good chance of recovering a specified bonus from an employer if he is not paid. However, the law treats gratuitous bonuses differently. If an employer controls the timing, amount, and whether to pay a bonus at all, or states that the money is paid in appreciation for continuous, efficient, or satisfactory service, the employee probably does not have a valid claim in the event the bonus is not paid.

Counsel Comment #59: For maximum protection:

1. Always treat bonuses as discretionary. Mention in a contract, periodic memos and employee handbooks that the company has the right to pay/not pay bonuses at its sole discretion, including the amount, if any, to be paid. By allowing the company arbitrarily to control and determine the timing, amount, and decision as to whether to pay a bonus at all, you are increasing the chances that such an arrangement will legally be considered a gratuitous bonus, not enforceable by contract.
2. Always condition the payment of bonuses, if any, on the employee's presence on the payroll on the date the bonus is paid.
3. State that pro rata bonuses will not be paid in the event an employee resigns or is fired for any reason prior to the bonus being issued.
4. Put all arrangements regarding bonuses in writing so there are no misunderstandings.
5. To avoid charges of discrimination, follow your bonus policy consistently and do not deviate from your policy for select individuals.
6. Avoid linking the bonus to some verifiable formula if possible. Such an arrangement (for example, bonuses linked to gross profits or sales volume) can create headaches and allow the employee the opportunity to commence a lawsuit seeking a formal accounting to verify the bonus from the company's books and records. Thus, resist basing bonuses on verifiable components because of your company's added vulnerability to a lawsuit in this area.

Wages And Raises

Questions or anxieties by workers over salary may be lessened if they are shown how their situation fits into a larger structure. The personnel director or other appropriate individual may evaluate the existing pay structure and recommend any necessary changes. Factors to consider in changing the pay structure include changes in the cost of living, competitive pay rates in other institutions and changes in job duties and responsibilities.

Sometimes overlooked are discrepancies in pay rates based on gender. The Equal Pay Act of 1963 generally prohibits an employer from maintaining wage differentials based upon sex. The act makes it unlawful for an employer to pay different wages based upon sex to employees performing equal work within any establishment. Equal work encompasses work on jobs the performance of which requires equal skill, effort and responsibility, and which is performed under similar working conditions. For example, one major university was ordered to pay 117 women an award of $1.3 million after a federal court judge ruled that the university paid less money to women on the faculty than to men in comparable posts.

NOTE: Exceptions are permitted where the payment is made pursuant to a seniority system, a merit system which measures earnings by quantity or quality of production, or where the differential is based on any legitimate factor other than sex.

TIP: It is illegal for any company to discriminate against an employee in retaliation for filing a complaint or giving testimony in an Equal Pay Act proceeding, or for instituting any proceeding under or related to the act.

Counsel Comment #60: To avoid problems it is essential that you maintain accurate employee records concerning wages, hours, and other conditions of employment, and to make various reports as required. Since the EEOC has the legal authority to enter, inspect and investigate your company's premises and records and interview employees to determine if violations of the law have occurred, be sure the personnel administrator is familiar with the technical aspects of the Equal Pay Act.

Employees Acting As Headhunters

A few companies have programs that offer cash awards to employees if they recommend an applicant who is hired and retained beyond a minimum period. If so, be aware that nepotism rules may still apply.

Deferred Compensation And Wages Subject To Forfeiture

In most states, an executive, officer or employee is liable to return any compensation received during the period he/she was disloyal to the interests of the company. In some situations, employers may also not be responsible to pay deferred compensation due an employee.

In one Ohio case, the court stated: "Once the employee's condition for payment of services is broken the employer has absolutely no obligation to uphold its end of the bargain, since consideration on the part of the employee does not exist."

TIP: The Ohio tribunal applied the "faithless servant doctrine," which is the law in many other states. As described by the Kansas Supreme Court in another case, the doctrine holds that: "Dishonesty and disloyalty on the part of an employee which permeates his service to his employer will deprive him of his entire agreed compensation, due to the failure of such an employee to give the stipulated consideration for the agreed compensation. Further, as public policy mandates, an employee cannot be compensated for his own deceit or wrongdoing. However, an employee's compensation will be denied only during his period of unfaithfulness."

Counsel Comment #61: Consider not paying any employee money due when you believe the employee acted unfaithfully or improperly. Always check with counsel before doing so because serious ramifications for denying earned wages under state and federal law can ensue if not handled properly.