Hrmn 408 week 8: considerations for hr professionals

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PLEASE READ CAREFULLY

– Please cite your work in your responses

– Please use APA (7th edition) formatting 

– All questions and each part of the question should be answered in detail (Go into depth)

– Response to questions must demonstrate understanding and application of concepts covered in class, 

– Use in-text citations and at
LEAST 2 resources per discussion from the school materials that I provided to support all answers. –
The use of course materials to support ideas is HIGHLY RECOMMENDED

– Responses MUST be organized (Should be logical and easy to follow)

– Include at least 2 references and include in-text citations.

“USING REFERENCES FROM THE CLASS MATERIALS IS A MUST.
(1.5 pages)

Discussion Topic #1 – HR Professionalism, Competencies, and Code of Ethics
(Use at least 2 references)

 In Week 1, we reviewed the SHRM Code of Ethics provided to HR Professionals. In addition, SHRM has developed a Competency Model and describes the HR professional’s ethical practice as ”
the ability to integrate core values, integrity and accountability throughout all organizational and business practices.”

Share your thoughts on what you are taking from your HRM program and in particular, this HRMN 408 Employment Law course that will has influenced you towards better understanding the ethical and legal considerations that HR professionals much adhere to.  

 
Discussion Topic #2
Reflections on Course Outcomes
(Use at least 2 references)

Since we are at the end of this course, this is the perfect time to reflect upon the achievement of Course Outcomes. As the Syllabus states….

After completing this course, you will be able to:

1. Analyze employment related laws, and ethical considerations  their application, and implications in the workplace 

2. Evaluate rights, obligations, and liabilities in the employment process and relationship.

3. Evaluate compliance with current laws and regulations related to safety and fairness in the workplace.

4. Effectively communicate to internal and external audiences the principles and application of employment laws and ethical considerations in the business environment.

Considering all the learning and work through discussions, reviewing resources, and the assignments, share your thoughts on the following: 

1. How comfortable do you feel that you have mastered these competencies?

2. What has been most useful?

3. What could have been more helpful?

4. How has this course helped you to accomplish your career goals?

5. What other areas of Employment Law and Ethical Considerations would you have like to see included in future courses?

CHAPTER 23

• Tax-Exempt Status

• Political Activity and Lobbying

• Employee Compensation and Withholding

• Executive Compensation

• Benefit Plans

• Unemployment Insurance

• Volunteers

• Religious Organizations

• Tenure

Nonprofit
Organizations

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EBSCO Publishing : eBook Clinical Collection (EBSCOhost) – printed on 11/29/2022 5:05 PM via UNIVERSITY OF MARYLAND GLOBAL CAMPUS
AN: 1697333 ; Charles Fleischer.; The SHRM Essential Guide to Employment Law : A Handbook for HR Professionals, Managers, Businesses, and Organizations
Account: s4264928.main.eds

Book: The SHRM Essential Guide to Employment Law : A Handbook for HR Professionals, Managers, Businesses, and Organizations
Author: Charles Fleischer Date: 2017

Link: https://eds-s-ebscohost-com.ezproxy.umgc.edu/eds/ebookviewer/ebook?sid=06b3498d-2a5f-4e56-b272-e3384fd9dde5%
40redis&ppid=pp_329&vid=0&format=EB

The SHRM Essential Guide to Employment Law408

A typical business corporation is formed by shareholders who invest
their capital in the business with the expectation of earning a profit
in the form of dividends or on the later sale of their stock. Share-
holders hold ultimate power over the corporation by electing direc-
tors and by deciding issues that are fundamental to the corporation’s
existence, such as whether to change the company’s capital structure
or to merge with another company. The directors, in turn, manage
the company by setting broad policies and appointing and oversee-
ing corporate officers.

A nonprofit organization, on the other hand, is not formed to
make a profit. Typically, it is a corporation organized under spe-
cial provisions of state law that prohibit issuance of shares and the
payment of dividends. Nonprofit organizations therefore have no
shareholders, and they do not distribute earnings to owners. (Non-
profit organizations may have members who elect directors or trust-
ees, but the members do not own the organization. In fact, nobody
owns a nonprofit.)

Although not organized to make a profit, nonprofit organiza-
tions are not required to operate at a loss. The point here is that
any surplus of revenues over expenses must be retained or applied
to nonprofit purposes and cannot be distributed to individual
members.

TAX-EXEMPT STATUS
The term nonprofit is often used synonymously with tax-exempt.
The two concepts, though related, are distinct. Nonprofit refers
to the organization’s purposes as expressed in its articles of incor-
poration and as governed by state law. Tax-exempt, on the other
hand, means that the organization’s net earnings are not subject
to income tax. All tax-exempt organizations must be nonprofit,
but just because an organization is nonprofit does not necessarily
mean it qualifies for a tax exemption. Of course, the reason why
an entity organizes as a nonprofit is usually to obtain tax-exempt
status.

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Nonprofit Organizations 409

Section 501(c) of the Internal Revenue Code contains a long list
of organizations that qualify for tax-exempt status, including the
following:

• corporations organized and operated exclusively for religious,
charitable, scientific, testing-for-public-safety, literary, or educa-
tional purposes, or for the prevention of cruelty to children or
animals, no part of the net earnings of which inures to the ben-
efit of any private shareholder or individual—so-called 501(c)(3)
organizations

• civic leagues organized and operated exclusively for the promo-
tion of social welfare

• labor, agricultural, or horticultural organizations
• business leagues, chambers of commerce, real estate boards, and
boards of trade

• recreational clubs

To achieve tax-exempt status, a nonprofit organization must
submit an application to the Internal Revenue Service (IRS). If the
IRS is satisfied that the organization is organized and is being oper-
ated for one of the exempt purposes listed in the Internal Revenue
Code, it issues a determination letter to that effect. Exemption from
state income taxes can usually be obtained on the basis of the IRS
determination letter.

Another distinction that is often blurred has to do with the
deductibility of contributions. While a tax-exempt organization pays
no income tax, it does not necessarily follow that contributions to
that organization qualify for a charitable deduction. Deductibility of
contributions to §501(c)(3) organizations are governed by §170 of
the Internal Revenue Code. Payments to other types of nonprofit
organizations, such as business leagues, may qualify as trade or busi-
ness expenses under §162 of the Internal Revenue Code.

Although tax-exempt nonprofits receive special treatment for
some purposes, with few exceptions federal and state employ-
ment laws apply to nonprofits to the same extent as they apply to

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The SHRM Essential Guide to Employment Law410

for-profit businesses. For example, nonprofits must withhold taxes
from employee salaries, they must provide workers’ compensation,
they cannot discriminate (except in limited circumstances involving
religious organizations), and they must provide safe workplaces.

This chapter discusses the exceptions applicable to nonprofit
organizations.

POLITICAL ACTIVITY AND LOBBYING
Section 501(c)(3) organizations are absolutely prohibited from
directly or indirectly participating in, or intervening in, any politi-
cal campaign on behalf of (or in opposition to) any candidate for
elective public office. Contributions to political campaign funds or
public statements of position (oral or written) made on behalf of the
organization in favor of or in opposition to any candidate for public
office clearly violate the prohibition against political campaign activ-
ity. A violation of this prohibition may result in denial or revocation
of tax-exempt status and the imposition of excise taxes.

Under the so-called Johnson Amendment to the Internal Reve-
nue Code, 501(c)(3) organizations are prohibited from endorsing
or opposing candidates for public office. In May 2017, President
Trump issued Executive Order 13798 directing the secretary of the
U.S. Department of the Treasury to “ensure, to the extent permit-
ted by law, that the Department of the Treasury does not take any
adverse action against any individual, house of worship, or other
religious organization on the basis that such individual or organi-
zation speaks or has spoken about moral or political issues from a
religious perspective.” It is not clear what effect this order will have
on the IRS’s enforcement policies.

Similarly, no substantial part of the activities of a 501(c)(3) orga-
nization may be attempting to influence legislation (commonly
known as lobbying). Legislation includes action by Congress, any
state legislature, any local council, or similar governing body, with
respect to acts, bills, resolutions, or similar items (such as legislative
confirmation of appointive office), or by the public in referendum,

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Nonprofit Organizations 411

ballot initiative, constitutional amendment, or similar procedures.
It does not include attempting to influence executive, judicial, or
administrative bodies.

Employees of 501(c)(3) organizations need to be familiar with
the rules against involvement in political campaigns and lobbying on
behalf of their organizations.

EMPLOYEE COMPENSATION AND WITHHOLDING
The Internal Revenue Code allows for-profit corporations to
deduct from gross income a reasonable allowance for salaries or
other compensation for personal services actually rendered. As a
result of this provision, every dollar a for-profit business corpo-
ration pays out in salaries or employee benefits, so long as the
amounts are reasonable, reduces the corporation’s federal and state
tax liability by almost 50 cents, depending on the state. In effect,
the government may pay almost half of a business corporation’s
employment-related costs.

Because of its tax-exempt status, the same is not true for a nonprof-
it organization. Salaries and benefits are borne 100 percent by the
organization itself and reduce the amounts available for its nonprofit
purposes on a dollar-for-dollar basis. The employees themselves pay
tax on their incomes just like employees of for-profit companies,
although special rules apply to clergy.

Ministers and members of religious orders are considered
self-employed for Social Security purposes with respect to their
ministerial duties. This means that the church or other ecclesiasti-
cal organization they work for does not withhold FICA from their
compensation or make matching FICA contributions. (FICA is
discussed in Chapter 7.) In addition, ministers and members of
religious orders who have taken a vow of poverty are automatically
exempt from FICA tax on self-employment income. Even if they
have not taken a vow of poverty, they may obtain an exemption if
they are opposed to Social Security on conscientious or religious
grounds.

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The SHRM Essential Guide to Employment Law412

Ministers who are provided a parsonage or a payment specifically
designated as a rental allowance do not need to include those items
in gross income for income tax purposes.

EXECUTIVE COMPENSATION
Organizations such as charitable, religious, or educational organi-
zations that are exempt under §501(c)(3) of the Internal Revenue
Code must be operated exclusively for the charitable, religious, or
educational purposes for which they were organized. If they abuse
their exempt status by engaging in nonexempt activities, the IRS has
the power to revoke their tax exemption.

Revocation is a drastic remedy. It would often mean the end of
the organization. So historically, minor abuses either went unpun-
ished, or they got punished in a disproportionately severe way.
Now the IRS has a less deadly weapon—an excise tax to punish
abusers.

A 1996 amendment to the tax code, coupled with more recent
IRS regulations, prohibit disqualified persons from receiving excess
benefits from a tax-exempt organization. A disqualified person
includes any person who is in a position to exercise substantial
influence over the affairs of the organization. This would cover
high-level employees, board members, and officers. Family mem-
bers of those persons are also covered. An excess benefit is any
economic benefit provided to a disqualified person in excess of
the consideration received by the organization. For example, the
board of a charitable organization cannot vote itself exorbitant
directors’ fees, nor can senior managers pull down salaries far
above the norm for comparable positions.

A disqualified person who receives an excess benefit is subject
to an initial 25 percent excise tax on the amount of the excess.
The management of the organization is also subject to a 10 per-
cent tax. If the excess benefit transaction is not promptly cor-
rected, then the disqualified person is subject to an additional 200
percent excise tax.

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Nonprofit Organizations 413

BENEFIT PLANS
With limited exceptions, the same array of benefit plans that are
available to for-profit companies are also available to tax-exempt
organizations. (Deferred compensation plans and other types of
employee benefit plans are discussed in Chapters 8 and 9.) Tax-ex-
empt organizations may even have a profit-sharing plan, although
they do not have profits in the normal sense.

403(b) Plans
Organizations that are exempt under §501(c)(3) of the Internal
Revenue Code—such as educational organizations, churches, public
and private schools—may adopt a special type of pension plan avail-
able only to them, called a tax-sheltered annuity or 403(b) annuity.
Although called annuity plans, the funding vehicle for these plans
is not limited to annuity contracts issued by insurance companies.
Other vehicles, such as bank custodial accounts, are also available.

Before 1958, employees of tax-exempt organizations could divert
any or all of their compensation to an annuity on a tax-sheltered basis.
In 1958, Congress imposed a ceiling on the amounts that could be
diverted. Subsequent amendments to the Internal Revenue Code have
made tax-sheltered annuities conform in many respects to other types
of pension plans. Nevertheless, tax-sheltered annuities retain some
attractive features. One feature is their portability. When the fund-
ing vehicle is an individual annuity contract owned by the employee,
the employee can leave one tax-exempt organization, go to work for
another, and simply have his or her new employer make contributions
to his existing plan.

Church Plans
A church plan is a plan established and maintained for employees
of a tax-exempt church or a convention or association of church-
es. Unless a church plan voluntarily elects to be subject to the
Employee Retirement Income Security Act (ERISA), it is exempt
from most of ERISA’s requirements, including requirements relat-

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The SHRM Essential Guide to Employment Law414

ing to coverage, vesting, benefit accrual, and funding. (ERISA is
discussed in Chapter 9.)

QUICK TIP
While being exempt from ERISA is generally considered beneficial from the employ-

er’s viewpoint, one downside is that ERISA’s preemption provision does not apply. This

makes nonelecting church plans subject to state laws, rather than uniform federal law.

As a result, church plans and their sponsors can be sued in state court, can be subjected

to jury trials, and can have compensatory and punitive damages awarded against them

if permitted under state law.

In a 2017 decision, the U.S. Supreme Court ruled that a plan main-
tained by a “principal-purpose organization,” that is, by a church-as-
sociated organization whose chief purpose or function is to fund or
administer a benefit plan for the employees of either a church or a
church-affiliated nonprofit, qualifies as a “church plan,” and thus is
exempt from the requirements of ERISA, regardless of whether a
church originally established the plan.

Since nonelecting church plans are generally exempt from ERISA,
they do not have to provide health insurance continuation benefits
under the amendment to ERISA known as COBRA. (COBRA is cov-
ered in Chapter 10.)

UNEMPLOYMENT INSURANCE
Some states allow tax-exempt organizations described in §501(c)(3)
of the Internal Revenue Code the option of either contributing state
unemployment tax just like other employers or reimbursing the state
dollar for dollar for actual claims charged to their accounts. Electing
to reimburse may improve a charity’s current cash flow, but it could
prove expensive if several employees are terminated at the same time.

VOLUNTEERS
The Fair Labor Standards Act (FLSA) allows individuals to vol-
unteer their services, without pay, to state or local government

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Nonprofit Organizations 415

agencies and to nonprofit food banks for humanitarian purposes.
U.S. Department of Labor guidance goes further, recognizing that
individuals may volunteer their time, freely and without anticipa-
tion of compensation, for religious, charitable, civic, or humanitar-
ian purposes to nonprofit organizations. (See Chapter 5 for a more
detailed discussion of volunteers and unpaid interns.)

RELIGIOUS ORGANIZATIONS
The First Amendment to the Constitution provides that Congress
“shall make no law respecting an establishment of religion, or pro-
hibiting the free exercise thereof.” Countless federal statutes have
the potential for interfering with religious practices, but either they
contain express exemptions, or they have been held inapplicable or
unconstitutional when applied to religious organizations.

Ministerial Exception
One such federal statute is Title VII of the federal Civil Rights Act,
which prohibits discrimination in employment based on race, color,
religion, sex, or national origin. (Title VII is discussed in Chapter
14.) Under a literal reading of Title VII, a Catholic church, for exam-
ple, could be forced to ordain female priests, contrary to Catholic
doctrine. But most federal courts that have considered the question
recognize a ministerial exception that prevents such a controversial
result.

A case in the D.C. Circuit Court of Appeals, for example, involved
a nun who held a doctorate in canon law from Catholic University
and was an associate professor in that school’s canon law depart-
ment. When the nun’s application for tenure was rejected, she sued
claiming sex discrimination. The court characterized the case as “a
collision between two interests of the highest order: the Govern-
ment’s interest in eradicating discrimination and the constitutional
right of a church to manage its own affairs free from governmental
interference.” The court resolved these colliding interests by dis-
missing the suit under the ministerial exception, saying that religious

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The SHRM Essential Guide to Employment Law416

institutions are exempt from civil suits in connection with the selec-
tion and employment of clergy.

The ministerial exception is not limited just to members of the
clergy. It also covers lay employees of religious institutions whose
primary duties consist of teaching, spreading the faith, church gov-
ernance, supervision of a religious order, or participation in reli-
gious ritual and worship.

Discrimination Based on Religion
Even for employees who are not covered by the ministerial exception,
religious organizations may discriminate on religious grounds. Title
VII, by its express terms, does not apply to religious organizations
with respect to the employment of individuals of a particular religion
to perform work connected with the organization’s activities.

Federal labor law offers another good example of potential
interference with First Amendment rights to religious freedom. By
statute, an employee in a union shop who is a member of a bona
fide religion that forbids union membership or union financial
support may pay his or her dues to charity instead of to the union.
And a 1979 Supreme Court decision in NLRB v. Catholic Bishop
of Chicago held that teachers in parochial schools are exempt from
National Labor Relations Board (NLRB) jurisdiction. (In an April
2017 decision involving Xavier University, the NLRB did assert
jurisdiction over nonteaching employees of religious institutions—
in that case, housekeepers—who were not involved in fulfilling the
university’s religious mission.)

TENURE
From the Latin tenere (to hold), the word tenure is usually asso-
ciated with job security for faculty members at academic institu-
tions. Basically, by granting tenure to a member of its faculty, the
employer institution agrees that the faculty member is no longer
an employee at will and can be discharged only for specified rea-
sons and after following specified procedures. In simple terms, a

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Nonprofit Organizations 417

tenure arrangement is a contract of employment. (Employment
at will and employment contracts are discussed in Chapter 1.)

ALERT!
Faculty members at public institutions are government employees and therefore enjoy

certain due process rights not applicable in the private sector. (See the due process

discussion in Chapter 4.)

Tenure is sometimes a controversial subject. Those in support
argue that it is essential to protect teachers from arbitrary decisions,
to promote institutional self-governance, and to preserve academic
freedom. Critics contend that tenure encourages neglect of teaching
responsibilities, removes any checks on the growth of irresponsi-
ble opinions, and generally fosters laziness and lack of productivity:
tenure lets professors “think (or idle) in ill-paid peace, accountable
to nobody,” claimed one pundit. Regardless, in adopting a tenure
policy, the employing institution retains ultimate control over how
and when tenure is granted and how and when a tenured teacher
can be removed.

Nearly all colleges and universities have a tenure system, according
to the U.S. Department of Education. The specifics of the system
are usually contained in the institution’s bylaws or other governing
documents or in a faculty handbook. Typically, the system provides
for tenure-track professors to be considered for tenure after a pro-
bationary period lasting a specified number of years. (Nontenure
tracks exist for part-timers, temporary appointees, and in some cases
even regular, full-time teachers.) The system identifies the criteria to
be considered in granting tenure, which normally includes an evalu-
ation by faculty colleagues.

QUICK TIP
Except for religious schools, academic institutions are no different from other employers

when it comes to discrimination. The granting or withholding of tenure based on race,

gender, age, or other prohibited grounds violates federal and local equal employment laws.

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The SHRM Essential Guide to Employment Law418

Once a professor is granted tenure, the employing institution is
restricted in its ability to terminate him or her. Termination usually
requires cause, based on such factors as neglect of duty, incompe-
tence, or professional or personal misconduct. (See Chapter 4 for
a discussion of for-cause terminations.) Termination is also typical-
ly permitted if the institution abolishes the professor’s program or
department, or if the institution faces serious financial problems.

Since tenure policies amount to employment contracts, an insti-
tution that fails to follow its policies can be sued for breach of con-
tract. Courts are generally reluctant to inject themselves directly in
the academic process by requiring, for example, that an institution
grant tenure or rehire a professor who was wrongfully terminated.
But courts will award money damages when tenure policies have not
been followed.

CASE STUDY:
DAMAGES AWARDED FOR VIOLATION OF TENURE POLICY
George Washington University in Washington, D.C., had a tenure
policy that required it to give a year’s advance notice to any tenure-
track professor who would not be receiving tenure at the expiration of
his or her probationary period. The policy went on to say that any faculty
member who is not so notified will acquire tenure at the end of the term.

When the university violated its own policy by terminating a
particular professor without giving him the requisite notice, the
professor sued, asking the court to order that he be granted tenure. The
court refused to order tenure, reasoning that it would not serve the
university’s academic interests to have a body of professors whose tenure
resulted from administrative neglect or oversight. The court did,
however, require payment of money damages equal to one year’s salary.

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3/16/2020 Code of Ethics

https://www.shrm.org/about-shrm/pages/code-of-ethics.aspx 1/4

Code of Ethics
11/16/07/As Amended 11/21/14

CODE PROVISIONS

**************************************************

PROFESSIONAL RESPONSIBILITY

Core Principle

As HR professionals, we are responsible for adding value to the organizations we serve and contributing to the ethical success of those

organizations. We accept professional responsibility for our individual decisions and actions. We are also advocates for the profession by

engaging in activities that enhance its credibility and value.

Intent

To build respect, credibility and strategic importance for the HR profession within our organizations, the business community, and

the communities in which we work.

To assist the organizations we serve in achieving their objectives and goals.

To inform and educate current and future practitioners, the organizations we serve, and the general public about principles and

practices that help the profession.

To positively in�uence workplace and recruitment practices.

To encourage professional decision-making and responsibility.

To encourage social responsibility.

Guidelines

�. Adhere to the highest standards of ethical and professional behavior.

�. Measure the e�ectiveness of HR in contributing to or achieving organizational goals.

�. Comply with the law.

�. Work consistent with the values of the profession.

�. Strive to achieve the highest levels of service, performance and social responsibility.

�. Advocate for the appropriate use and appreciation of human beings as employees.

�. Advocate openly and within the established forums for debate in order to in�uence decision-making and results.

PROFESSIONAL DEVELOPMENT

Core Principle

Fe
ed

ba
ck

3/16/2020 Code of Ethics

https://www.shrm.org/about-shrm/pages/code-of-ethics.aspx 2/4

As professionals we must strive to meet the highest standards of competence and commit to strengthen our competencies on a continuous

basis.

Intent

To expand our knowledge of human resource management to further our understanding of how our organizations function.

To advance our understanding of how organizations work (“the business of the business”).

Guidelines

�. Pursue formal academic opportunities.

�. Commit to continuous learning, skills development and application of new knowledge related to both human resource

management and the organizations we serve.

�. Contribute to the body of knowledge, the evolution of the profession and the growth of individuals through teaching, research and

dissemination of knowledge.

�. Pursue certi�cation where available, or comparable measures of competencies and knowledge.

ETHICAL LEADERSHIP

Core Principle

HR professionals are expected to exhibit individual leadership as a role model for maintaining the highest standards of ethical conduct.

Intent

To set the standard and be an example for others.

To earn individual respect and increase our credibility with those we serve.

Guidelines

�. Be ethical; act ethically in every professional interaction.

�. Question pending individual and group actions when necessary to ensure that decisions are ethical and are implemented in an

ethical manner.

�. Seek expert guidance if ever in doubt about the ethical propriety of a situation.

�. Through teaching and mentoring, champion the development of others as ethical leaders in the profession and in organizations.

FAIRNESS AND JUSTICE

Core Principle

As human resource professionals, we are ethically responsible for promoting and fostering fairness and justice for all employees and their

organizations.

Intent

To create and sustain an environment that encourages all individuals and the organization to reach their fullest potential in a positive and

productive manner.

Guidelines

�. Respect the uniqueness and intrinsic worth of every individual.

Fe
ed

ba
ck

3/16/2020 Code of Ethics

https://www.shrm.org/about-shrm/pages/code-of-ethics.aspx 3/4

�. Treat people with dignity, respect and compassion to foster a trusting work environment free of harassment, intimidation, and

unlawful discrimination.

�. Ensure that everyone has the opportunity to develop their skills and new competencies.

�. Assure an environment of inclusiveness and a commitment to diversity in the organizations we serve.

�. Develop, administer and advocate policies and procedures that foster fair, consistent and equitable treatment for all.

�. Regardless of personal interests, support decisions made by our organizations that are both ethical and legal.

�. Act in a responsible manner and practice sound management in the country(ies) in which the organizations we serve operate.

CONFLICTS OF INTEREST

Core Principle

As HR professionals, we must maintain a high level of trust with our stakeholders. We must protect the interests of our stakeholders as well

as our professional integrity and should not engage in activities that create actual, apparent, or potential con�icts of interest.

Intent

To avoid activities that are in con�ict or may appear to be in con�ict with any of the provisions of this Code of Ethical and Professional

Standards in Human Resource Management or with one’s responsibilities and duties as a member of the human resource profession and/or

as an employee of any organization.

Guidelines

�. Adhere to and advocate the use of published policies on con�icts of interest within your organization.

�. Refrain from using your position for personal, material or �nancial gain or the appearance of such.

�. Refrain from giving or seeking preferential treatment in the human resources processes.

�. Prioritize your obligations to identify con�icts of interest or the appearance thereof; when con�icts arise, disclose them to relevant

stakeholders.

USE OF INFORMATION

Core Principle

HR professionals consider and protect the rights of individuals, especially in the acquisition and dissemination of information while ensuring

truthful communications and facilitating informed decision-making.

Intent

To build trust among all organization constituents by maximizing the open exchange of information, while eliminating anxieties about

inappropriate and/or inaccurate acquisition and sharing of information

Guidelines

�. Acquire and disseminate information through ethical and responsible means.

�. Ensure only appropriate information is used in decisions a�ecting the employment relationship.

�. Investigate the accuracy and source of information before allowing it to be used in employment related decisions.

�. Maintain current and accurate HR information.

�. Safeguard restricted or con�dential information.

�. Take appropriate steps to ensure the accuracy and completeness of all communicated information about HR policies and practices.

�. Take appropriate steps to ensure the accuracy and completeness of all communicated information used in HR-related training.

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Unions and
Labor Relations

• NLRA Coverage

• Concerted Activities

• Representation Elections and Card Check

• Duty to Bargain

• Other Unfair Labor Practices

• Union Security and the Right to Work

• Strikes and Lockouts

CHAPTER 24

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.

EBSCO Publishing : eBook Clinical Collection (EBSCOhost) – printed on 11/29/2022 4:50 PM via UNIVERSITY OF MARYLAND GLOBAL CAMPUS
AN: 1697333 ; Charles Fleischer.; The SHRM Essential Guide to Employment Law : A Handbook for HR Professionals, Managers, Businesses, and Organizations
Account: s4264928.main.eds

Book: The SHRM Essential Guide to Employment Law : A Handbook for HR Professionals, Managers, Businesses, and Organizations
Author: Charles Fleischer Date: 2017

Link: https://eds-s-ebscohost-com.ezproxy.umgc.edu/eds/ebookviewer/ebook?sid=06b3498d-2a5f-4e56-b272-e3384fd9dde5%
40redis&ppid=pp_329&vid=0&format=EB

The SHRM Essential Guide to Employment Law420

An in-depth exposition on labor relations law would go well beyond
the scope of this book. Employers need experienced labor law
counsel when faced with union organizing activity, when engaged
in collective bargaining, or when responding to a strike threat.
What follows is a discussion of the basic principles arising under the
National Labor Relations Act (NLRA).

According to the NLRA, inequality of bargaining power between
employees and employers prevents the stabilization of competitive
wage rates and working conditions. To remedy this inequality, the
NLRA does the following:

• protects concerted activities by employees
• provides a mechanism for union representation elections
• promotes collective bargaining between employers and unions
• prohibits unfair labor practices by employers and unions

The principal enforcer of the NLRA is the National Labor Rela-
tions Board (NLRB). The board has primary jurisdiction over labor
disputes and union elections. And when it is not clear whether an
activity is governed by the NLRA, the board itself—not state or fed-
eral courts—gets to decide in the first instance whether the NLRA
applies.

Despite having primary jurisdiction, however, the board often
defers to arbitration procedures in a collective bargaining agreement
(CBA) for resolving grievances, even when the grievance involves an
unfair labor practice.

NLRA COVERAGE
The NLRA, and hence the NLRB’s enforcement power, extends to
any employer whose activities affect interstate commerce—virtually
any employer. However, the board has chosen not to exercise its
jurisdiction over employers in a variety of industries that fall below
specified revenue levels.

In general, the NLRB does not exercise jurisdiction over nonretail
establishments whose gross cash flow across state lines is less than

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Unions and Labor Relations 421

$50,000. As to retail establishments, at least $500,000 in revenue is
required for the board to exercise its jurisdiction. Separate revenue
tests also apply to office buildings, hotels and motels, private col-
leges and universities, symphony orchestras, and certain health care
institutions, among others.

The NLRB does not have jurisdiction over federal, state, and local
governments; wholly-owned government corporations; employers
that employ agricultural laborers or that are engaged in farming
operations; and employers subject to the federal Railway Labor Act,
such as interstate railroads and airlines.

The NLRA protects employee rights. But typical of federal labor
laws, the term employee is defined in an unhelpful, circular way. (See
Chapter 14, discussing the term for federal nondiscrimination law
purposes.) The NLRA does, however, exclude from the definition
various specific groups, including independent contractors and
supervisors.

Independent Contractors
Historically, the NLRB drew the employee/independent contractor
distinction based on whether the employer exercised, or had the
right to exercise, control over the means and manner by which the
worker did his or her job—the common-law test. More recently, the
board adopted a new test for independent contractors, which the
D.C. Circuit Court of Appeals has approved.

The case involved Corporate Express Delivery Systems of Okla-
homa City. Corporate Express engaged two types of drivers to
deliver its packages—those who drove company vehicles and those
who operated their own vehicles. The employer considered the first
type as employees, but it treated owner-operators as independent
contractors. When several of the owner-operators began holding
meetings to discuss forming a union, the company spied on them,
threatened to close its Oklahoma City branch, and fired three of the
union organizers. The company’s actions would clearly be illegal
under federal labor law if the owner-operators were employees for

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The SHRM Essential Guide to Employment Law422

labor law purposes, but if they were only independent contractors,
there would be no violation.

In concluding that the owner-operators should be classified as
employees, the NLRB and the Court of Appeals considered wheth-
er the workers had a significant entrepreneurial opportunity for
gain or loss. Stated another way: who takes the economic risk con-
nected with the worker’s job—the company or the worker? If the
risk is with the company, then the worker should be classified as an
employee, but if the worker bears the risk, then he or she is an inde-
pendent contractor. Applying this new test to Corporate Express’s
owner-operators, the court observed that the company prohibited
them from employing others to do the company’s work and that it
also prohibited them from using their vehicles to deliver packages
for other companies. This, said the court, made them employees,
not entrepreneurs.

Supervisors
The NLRA defines supervisor generally “as any individual having
authority … to hire, transfer, suspend, lay off, recall, promote, dis-
charge, assign, reward, or discipline other employees, or responsibly
to direct them, or to adjust their grievances, or effectively to recom-
mend such action.” By statute, supervisors have no right to organize
or to require employers to bargain with them, although employers
may, if they wish, agree to treat supervisors as employees for bar-
gaining purposes. Absent employer consent, however, the inclusion
of supervisors in a bargaining unit is not permitted, and employers
cannot be forced to bargain with such a unit.

Professionals
In contrast to the exclusion of supervisors from NLRA protection,
professional employees are entitled to unionize. However, profes-
sionals cannot be forced into a bargaining unit with nonprofession-
als unless a majority of the professionals approve the arrangement.
While professionals necessarily exercise independent judgment in

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Unions and Labor Relations 423

the course of supervising others, they still do not qualify as supervi-
sors if their supervisory duties are merely routine or clerical and not
independent.

Employees of Religious Institutions
Teachers, including lay teachers, at religious institutions are exempt
from the NLRB’s jurisdiction, according to the 1979 Supreme
Court case NLRB v. Catholic Bishop of Chicago. In an April 2017
decision, however, the board gave a narrow reading to Catholic
Bishop, holding that nonteaching employees at religious institutions
are subject to the board’s jurisdiction “unless their actual duties
and responsibilities require them to perform a specific role in fulfill-
ing the religious mission of the institution.” The board’s decision
involved housekeepers who worked for Xavier University, a private
Catholic university in Illinois.

CONCERTED ACTIVITIES
Employers are prohibited from interfering with employees’ concert-
ed activities—efforts to better wages, hours, and working condi-
tions. This includes, among other things, the employees’ right to
self-organize by forming or joining a union.

Soliciting
Union organizing efforts have engendered bitter disputes and a
multitude of reported cases. One recurring issue is the extent to
which employees and outside organizers may solicit at the work-
place and may distribute pro-union literature. As the Supreme
Court has said, the right to unionize necessarily encompasses
the right to communicate effectively with one another regarding
self-organization at the jobsite. Employee rights at the jobsite are
not unlimited, however, since those rights can conflict with the
employer’s own property rights and managerial interests. In short,
some balance must be struck between the competing interests of
employers and employees.

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The SHRM Essential Guide to Employment Law424

In general, an employer may ban solicitation by employees of
other employees during working time, and it may ban distribution
by employees during working hours and in working areas. Con-
versely, an employer generally may not restrict employee solicitation
during nonworking time, and it may not ban employee distribution
during nonworking time and in nonworking areas, such as employ-
ee lounges and parking lots. The only exception is if the employer
can show special circumstances that would make a ban necessary to
maintain production or discipline.

Outside Organizers
When it comes to outside organizers, the employer has greater
rights. So long as the employer acts in a nondiscriminatory fashion,
it may impose a blanket ban on solicitation and distribution by non-
employees on employer property, unless the union can demonstrate
that employees are not otherwise accessible to union organizers.

QUICK TIP
Restrictions on soliciting and distribution—even those that are consistent with the rules

stated here—should have a reasonable business justification other than anti-union

animus. Employers that base restrictions on safety concerns can usually expect to have

them upheld.

Selective (discriminatory) enforcement of nonsolicitation and
nondistribution rules can be an unfair labor practice. By way of
example, a company completely bans employee use of the company’s
bulletin board—a lawful rule under the NLRA if the employer is not
unionized or if the rule is the result of good-faith bargaining. But
then the company allows employees to post personal notices, such as
items for sale, church raffle notices, and cartoons. Under these cir-
cumstances, the company’s attempt to enforce its ban against pro-
union material will amount to an unfair labor practice.

In another example, a nurse at a Florida hospital programmed her
computer to display a screen saver saying, “Look for the U,” mean-

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Unions and Labor Relations 425

ing “Look for the Union.” When she was disciplined for doing so,
she filed an unfair labor practice charge. Finding that a wide variety
of other personal screen saver messages were allowed, such as “Go
Buccaneers” and “Have a nice day,” the NLRB upheld the nurse’s
charge.

As a final example, the NLRB ruled in December 2014 that if a
company grants its employees access to the company’s email system,
it generally must allow them to use the system for union organiz-
ing purposes during nonworking hours. The case, Purple Commu-
nications, Inc., overruled an earlier board decision on the subject of
email access.

Nonunion Shops
Although the right to engage in concerted activities covers self-or-
ganization, it also protects employees who are not unionized, and
it protects activities that have little to do with the formation of a
union. Examples of protected concerted activity, whether in a union
or nonunion context, include the following:

• Discussing wages and working conditions. Since the right of employ-
ees to self-organize and bargain collectively necessarily encom-
passes the right to communicate with one another, an employer
cannot adopt a rule prohibiting employees from discussing wages
or other working conditions among themselves.

• Discussing employee sexual harassment complaints. The NLRB has
ruled that a blanket company confidentiality requirement prohib-
iting discussion of a pending sexual harassment investigation is an
unfair labor practice.

• Inquiring about benefits. Employees can be persistent in pursuing
benefits claims as long as their conduct is not so flagrant or egre-
gious as to interfere with company business practices.

• Complaining about working conditions. An employee cannot
be disciplined for complaining to management about matters
of common concern to all employees. Although the employee
may initially be acting alone, his or her actions will be consid-

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The SHRM Essential Guide to Employment Law426

ered concerted so long as they are intended to initiate or induce
group action. The intent to initiate or induce group action will
be assumed if, for example, the complaint is voiced at a group
meeting called to discuss working conditions.

• Wearing pro-union buttons and insignia. Wearing buttons and
insignia is protected activity unless there are special considerations
relating to employee efficiency and plant discipline.

ALERT!
In addition to NLRA protections, state law may also bar certain work rules, such as a

prohibition on employees discussing their wages with each other.

Handbook Provisions
Certain employee handbook rules, though seemingly lawful and
reasonable on their face, have been attacked by the NLRB as tend-
ing to inhibit employees from engaging in protected activity. Rules
that the NLRB finds overly broad, in nonunion as well as union
shops, include the following:

• at-will employment provisions that state the at-will relationship
cannot be changed

• confidentiality rules that prohibit employees from discussing
company and employment matters outside the workplace or dis-
cussing internal company investigations

• conduct rules that require employees to act respectfully toward
the company, its management, and fellow employees and avoid
insulting or abusive comments

• rules prohibiting media contact
• rules against any use of company logos, copyrights, or trademarks
• rules against taking photographs or making videos or recordings
on company property

• rules against walking off the job
• a rule against disclosure of employee handbooks to third parties
• conflict-of-interest provisions, such as “employees may not engage
in any action that is not in the company’s best interest”

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Unions and Labor Relations 427

According to the NLRB, employees would reasonably construe
these rules as prohibiting concerted activity, which is protected by
the NLRA. How the board will fare in attempting to enforce its
views in court remains to be seen. In any event, employers might
find it helpful to include a disclaimer in their handbooks like that in
Figure 24.1. (See also the disclaimer in Figure 19.2.)

FIGURE 24.1: DISCLAIMER

Nothing in this handbook is intended to interfere with or restrain any employee’s rights
under the federal labor laws, including the right to engage in concerted activities for the
purpose of collective bargaining or other mutual aid and protection and the right to discuss
with others the terms and conditions of employment.

QUICK TIP
Concerted activity by union members or groups of employees to better wages and work-

ing conditions is exempt from anti-trust laws, even though the activity may amount to a

restraint of trade.

REPRESENTATION ELECTIONS AND CARD CHECK
The NLRB has adopted detailed rules for initiating and conduct-
ing representation elections. The process usually starts with a union
organizer obtaining signatures on union cards authorizing a par-
ticular labor organization to represent the employees. When a sub-
stantial number of employees (at least 30 percent) have signed such
cards, the labor organization then files a petition with the board
requesting recognition as the exclusive bargaining representative.
The cards themselves also get filed with the board to demonstrate
that there is in fact substantial union support. The board, through
one of its field offices, then conducts an investigation to determine
the following:

• whether the employer’s operations affect commerce within the
meaning of the NLRA

• the appropriateness of the bargaining unit

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The SHRM Essential Guide to Employment Law428

• whether the election would further the policies of the NLRA and
reflect the free choice of employees in the bargaining unit

• whether there is a sufficient probability, based on the evidence
of representation, that the employees have selected the union to
represent them

If the NLRB is satisfied on these points, it orders a representa-
tion election to take place by secret ballot and supervises the actual
conduct of the election. If a majority of employees in the bargaining
unit vote in favor of the union, the union is then certified as the
bargaining representative of all employees in the unit.

Ordinarily, the NLRB uses a simple formula to determine who
is eligible to vote in a representation election: workers are eligible
if they are employed on the date of the election itself and if they
also were employed during the payroll period preceding the board’s
order that the election take place. However, in determining who has
sufficient continuity and regularity of employment to be included
in the bargaining unit, the NLRB sometimes has to tailor its usual
formula to fit varying employment situations.

The NLRB also determines the appropriateness of the bargaining
unit. As an example, the board has included temporary employees
along with the employer’s permanent employees in a unit for bar-
gaining purposes. There are limits, however, on how far the board
can go. As noted above, supervisors cannot be included without the
employer’s consent. Nor can the board fashion a multiemployer unit
without the consent of the affected employers. The board is also
prohibited from designating a unit that includes both professionals
and nonprofessionals unless a majority of the professionals vote for
inclusion.

QUICK TIP
A rule adopted by the NLRB in late 2014, dubbed the quickie election rule, expedites the

representation election process and, according to some, makes it difficult for manage-

ment to mount an opposition to an organizing campaign.

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Unions and Labor Relations 429

An employer is free, if it wishes, to recognize the union without
an election if more than 50 percent of the employees in the bargain-
ing unit have signed cards indicating they want to be represented by
the union. Alternatively, the employer can insist on an NLRB-su-
pervised election. An employer is prohibited by law from recogniz-
ing a union without an election when fewer than 50 percent of the
employees have signed authorization cards.

Laboratory Conditions
The elections themselves must be conducted in laboratory condi-
tions, free from threats, coercion, promises, or other misconduct
that might reasonably tend to interfere with the voters’ free choice.
An election can be set aside even if the misconduct does not arise to
the level of an unfair labor practice.

Management need not, of course, muzzle itself during an orga-
nizing campaign. Management is free, for example, to express the
company’s views, arguments, and opinions about unionization. But
management cannot threaten employees with retaliation for voting
pro-union, make promises conditioned on rejection of the union,
interrogate employees about their organizing activity, or conduct
surveillance to determine who is supporting the union.

Union conduct, too, can destroy laboratory conditions and war-
rant setting aside an election. When union organizers at a clay mine
in North Carolina made threats that employees could be “squeezed
out of” their jobs if they did not support the union and told anti-
union employees, “You won’t be able to work here when the union
comes in,” the 4th Circuit Court of Appeals ruled that the resultant
pro-union vote was invalid.

CASE STUDIES:
ABUSIVE LANGUAGE
A company that refurbishes rail cars for the Bay Area Rapid Transit
System in California had an employee handbook rule that classified
use of abusive or threatening language on company premises as serious

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The SHRM Essential Guide to Employment Law430

misconduct warranting suspension for a first offense and possible
termination for subsequent offenses. Since the company was not
unionized, the International Association of Machinists and Aerospace
Workers (part of the AFL-CIO) began organizing efforts in 1998. In
December of that year an election was held, which the union lost. The
union then filed unfair labor practice charges citing, among other
things, the company’s abusive and threatening language rule. The
union argued that vulgar expletives and racial epithets are part and
parcel of a vigorous exchange that often accompanies labor relations.
The NLRB agreed and voided the election.

The D.C. Circuit Court of Appeals reversed, strongly criticizing
the NLRB in the process. The court ruled that unions were perfectly
capable of acting civilly while conducting organizing campaigns. The
court also pointed out that an employer may be exposed to claims if
it fails to maintain a minimal level of civility in the workplace and
allows racial, gender, or similar forms of harassment.

More recently, however, the U.S. Court of Appeals for the 2nd Circuit
(headquartered in New York City) ruled that the employer, a catering
service known as Pier Sixty, committed an unfair labor practice by
discharging an employee for a vulgar Facebook post. The post, directed
at the employee’s supervisor, said, “Bob is such a NASTY M*****
F***** don’t know how to talk to people! ! ! ! ! ! F*** his mother and
his entire f***ing family! ! ! ! What a LOSER! ! ! ! Vote YES for the
UNION! ! ! ! ! ! !”

Card Check Representation
Legislation generally known as the Employee Free Choice Act
(EFCA) is introduced from time to time in Congress to allow card
check representation, skipping the election process entirely and
requiring a union to be recognized based just on cards signed by
more than 50 percent of employees. Proponents of such legislation
claim it would reduce an employer’s opportunity to mount drawn-
out legal challenges or otherwise interfere in the organizing process.
Opponents say it would eliminate the secret ballot aspect of union

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Unions and Labor Relations 431

elections and allow organizers to coerce and intimidate employees
into signing authorization cards.

The most recent legislation was H.R. 5000, introduced in April
2016. In September 2016 the bill was referred to the Subcommittee
on Health, Employment, Labor, and Pensions of the House Com-
mittee on Education and the Workforce. As of this writing, no fur-
ther action has been take.

DUTY TO BARGAIN
Federal labor law makes it an unfair labor practice for a unionized
employer to refuse to bargain collectively with its unions. The term
bargain collectively is defined by the NLRA as “the performance
of the mutual obligation of the employer and the representative of
the employees to meet at reasonable times and confer in good faith
with respect to wages, hours, and other terms and conditions of
employment.”

Closely connected with an employer’s duty to bargain is its duty
to provide the union with all requested information relevant to
the union’s duties as representative of union members. The courts
apply a broad definition of relevant in this context, so that there
need only be a probability that the information will be useful to
the union.

Normally, an employer’s duty to bargain with a union does not
arise until after the NLRB has conducted a union representation
election, the union has been successful, and the board has certified
the election results. This has been called the preferred and most sat-
isfactory method for a union to obtain representative status. But the
duty to bargain can apply to a union that has lost a representation
election. Suppose an employer, motivated by anti-union animus, so
poisons the atmosphere with unfair labor practices that a would-be
union loses the election. Traditionally, the board orders a new elec-
tion. But if the employer’s actions make it impossible to conduct a
fair and reliable new election, the board may simply treat the union
as the employees’ legitimate representative.

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The SHRM Essential Guide to Employment Law432

Project Labor Agreements
Special provisions of the NLRA apply to employers in the building
and construction industry. An employer in that industry is allowed
to enter into a project labor agreement (PLA) with a union, even
though the union has not yet been established as the representative
of a majority of the employees to be covered by the PLA. Typically,
a PLA requires all contractors and subcontractors who will work on
a project to agree in advance to a master CBA under which wages,
hours, and other conditions of employment are standardized for
all employees at the project. The PLA requirement is incorporated
into bid specifications, so any company that is awarded a contract is
bound to join in the PLA.

Mandatory vs. Permissive Bargaining
Bargaining over some subjects is mandatory, because those subjects
involve wages, hours, and other terms and conditions of employment.
Other subjects are permissive, in that employers and unions are free
to bargain over them if they wish, but neither side can insist, to the
point of impasse, on inclusion of a mere permissive subject in a CBA.

What are the mandatory subjects over which employers must
bargain if requested to do so by their unions? According to the
Supreme Court, they are subjects that are directly germane to the
working environment. However, a company has a right to run its
business without interference. So a company need not bargain over
managerial decisions that lie at the core of entrepreneurial control,
such as decisions concerning the commitment of investment capital
and the basic scope and direction of the enterprise.

In addition to wages, hours, and benefits, examples of mandatory
bargaining subjects include the following:

• company decisions that directly affect job security, such as a deci-
sion to contract out work previously done by union employees
(but decisions that only indirectly affect job security, such as a
decision to discontinue a particular product line, are not subject
to mandatory bargaining)

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Unions and Labor Relations 433

• changes in working conditions
• union security clauses, when such clauses are not forbidden under
state right-to-work laws (discussed later in this chapter)

• seniority rights
• management rights clauses reserving, for example, the company’s
right to sell its business free of liabilities under the CBA, to dis-
continue operations, to determine the number of hours per day
and per week that operations should be carried on, and to sus-
pend, discharge, or otherwise discipline employees

• prices and availability of services at in-plant cafeterias and vending
machines

• hiring practices
• tardiness policies
• use of a company bulletin board
• drug and alcohol testing
• installation of security cameras to deter employee theft

This last item is drawn from a case before the D.C. Circuit Court
of Appeals affirming a decision by the NLRB. The case involved
a company’s practice over many years of installing hidden surveil-
lance cameras to investigate specific cases of employee theft or other
wrongdoing. Faced with unauthorized use of a manager’s telephone
for long-distance calls, the company placed a camera in the manag-
er’s file cabinet. The camera caught an employee (who happened to
be a union member) using the phone, and the company promptly
fired him.

The union filed a grievance over the firing and, at a subsequent
hearing, discovered for the first time the company’s practice of using
hidden surveillance cameras. The union then asked the company for
detailed information about the cameras, indicating that it wanted to
bargain with the company over the practice. The company refused
to provide the information, and it refused to bargain.

The board ruled that the company was wrong on both counts. It
said use of surveillance cameras is a subject of mandatory bargain-

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The SHRM Essential Guide to Employment Law434

ing, just like physical examinations, drug and alcohol testing, and
other investigatory tools and methods used by employers to dis-
cover employee misconduct. Further, the company was required to
provide pertinent information to the union—or at least bargain over
what information would be provided. While the company may have
a legitimate concern over keeping confidential such information as
the location of the cameras, the company still had a duty to seek an
accommodation that would meet the needs of both the union and
the company.

Conflicts with Other Laws
Sometimes an employer’s duty to bargain conflicts with, or appears
to conflict with, other legal duties imposed on the employer. Take,
for example, an employee with a disability who requests reassignment
to a vacant position as an accommodation for his or her disability.
(The duty of reasonable accommodation under the Americans with
Disabilities Act, or ADA, is discussed in Chapter 17.) While ADA
principles might well require the reassignment, doing so may at the
same time violate established seniority practices. In that circum-
stance, the Supreme Court has ruled that in the run of cases senior-
ity trumps ADA requirements. Of course, if the employer’s seniority
practice is one in name only, then the employer will have a difficult
time defending its refusal to accommodate based on seniority.

In another Supreme Court case, a truck driver for a mining com-
pany twice tested positive for marijuana. The mining company
attempted to terminate the employee, but the union filed a griev-
ance and insisted on arbitration. The arbitrator ruled that, in light
of certain mitigating circumstances, there was no just cause for ter-
mination (just cause being the standard prescribed by the CBA) and
ordered the employee reinstated. The mining company then went
to court, arguing that, notwithstanding its CBA and the arbitrator’s
order, public policy justified refusal to reinstate the employee. This
was especially so, said the mining company, because the employee
was engaged in safety-sensitive tasks requiring random drug test-

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Unions and Labor Relations 435

ing under U.S. Department of Transportation regulations. The
Supreme Court rejected the company’s argument and upheld the
reinstatement order, finding no overriding public policy that would
justify refusal to comply with the order.

Or take the case of a union employee who was accused of sexual
harassment. The employee in the case had a long history of offen-
sive, sexually charged conduct directed at female co-workers. Finally,
the employer’s equal employment opportunity officer recommend-
ed that the employee be fired, but that recommendation had to be
approved by the employer’s labor relations manager, who was on
vacation. By the time the labor relations manager returned, more
than 30 days had expired. Since the employer’s CBA required that
discipline be imposed within 30 days of the misconduct, no fur-
ther action was then taken. Eventually, after additional incidents, the
employee was fired. In the meantime, however, the victims of his
conduct filed sex discrimination charges.

The employer defended against the discrimination charges by
claiming that under its CBA it could not fire the employee without
following the procedures specified in the agreement. The 7th Cir-
cuit Court of Appeals ruled, however, that a collective bargaining
agreement is not imposed on an employer. Rather, it is an agreement
every provision of which has been consented to by the employer. In
this case, for example, the employer could have negotiated for spe-
cial rules applicable to harassment, but it did not. Since the employer
cannot by agreement limit its obligations under federal nondiscrim-
ination laws, the employer alone must bear the consequences of its
labor-relations decisions.

This decision illustrates an important point. Just because a subject
of negotiation falls in the mandatory category, employers should still
remember that their only duty is to bargain on the subject in good
faith. The duty to bargain does not mean that the employer is obli-
gated to agree with the union’s position.

The employer’s duty to bargain ends if a majority of employees
in the bargaining unit no longer support the union. For the first

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The SHRM Essential Guide to Employment Law436

three years while a CBA is in place, a conclusive presumption exists
that the union enjoys majority support. However, after three years
or when a CBA expires, the presumption of majority support is no
longer conclusive. The employer may then attempt to rebut the pre-
sumption by showing that, in fact, the union no longer represents a
majority of workers.

OTHER UNFAIR LABOR PRACTICES
Unfair labor practices come in many varieties. A number of them
have been discussed above, such as refusal to bargain, selective
enforcement of nonsolicitation rules, and adoption of workplace
policies that interfere with concerted activities. The NLRA itself
lists the following as employer unfair labor practices:

• interfering with, restraining, or coercing employees in the
exercise of the rights guaranteed by the NLRA

• dominating or interfering with the formation or administra-
tion of a labor organization or contributing financial or other
support to it

• discriminating in regard to hiring or tenure of employment or
any term or condition of employment to encourage or discour-
age membership in any labor organization

• discharging or otherwise discriminating against an employee
because he or she has filed charges or given testimony under
the NLRA

• refusing to bargain collectively with the employees’ representative

A few of these ULPs merit further discussion.
Company-dominated employee committee. Historically, a favorite

way for employers to keep out, or at least keep control of, unions
was to form an organization for its employees that appeared to,
but in reality did not, give employees a voice in their conditions
of employment. By making it illegal for an employer to dominate
or interfere with a labor organization (defined as any organiza-
tion of employees that exists to deal with the employer concern-

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Unions and Labor Relations 437

ing grievances, wages, hours, or working conditions), the law
effectively stops this practice.

Not all employee committees are illegal, however, as an
NLRB decision shows. A nonunion manufacturer in Texas uses
a management system under which it delegates substantial oper-
ational authority to its employees. It accomplishes this through
numerous committees in which employees and management
participate. These committees make decisions by consensus on
a wide variety of workplace issues such as production, quality,
training, attendance, safety, maintenance, and even discipline
short of suspension or discharge. Although senior management
retains ultimate authority, it routinely approves all committee
recommendations.

The board ruled that these committees are not labor orga-
nizations because they do not exist to deal with management.
Instead, the committees themselves perform management func-
tions, exercising authority that, in the traditional plant setting,
would be considered supervisory. So when a committee inter-
acts with company officials, the interaction is really between two
management bodies. In effect, these committees do not deal with
management—they are management.

Discrimination against salts. In an attempt to unionize a non-
union shop, a union may salt the shop by sending union orga-
nizers as applicants for job openings. When an employer refuses
to hire, or even consider, such applicants and the employer is
motivated, at least in part, by anti-union animus, the employer
commits an unfair labor practice. (Some say that the purpose of
salting is not in fact to organize a union but to precipitate an
unfair labor practice.) The 7th Circuit Court of Appeals has even
held that a salt can lie on his or her job application, so long as the
lie concerns his or her status as a salt and not his or her qualifi-
cations for the job. In the 7th Circuit case, for example, the salt
said he was “laid off” from his previous job, at $11 an hour, when
applying for an $8.50 an hour job. Had he told the truth—that

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The SHRM Essential Guide to Employment Law438

he in fact took a voluntary leave of absence—the new employer
might well have guessed his status as a salt.

Collusion with union. In a case before the 4th Circuit Court of
Appeals, an employee of a Rochester, N.Y., freight company ran
for union office against an incumbent Teamsters official. Despite
a hard-fought campaign, the employee failed to defeat the incum-
bent. During later renegotiations of the labor contract between the
Teamsters and the freight company, the union offered to concede
on a point important to the company if the company would fire
the employee. The company eventually did so. The court ordered
reinstatement, saying that the NLRA prohibits the discharge of an
employee for engaging in protected activity such as running for a
union election. The court went on to say that unions themselves
cannot cause an employee to be fired for engaging in protected
activity, nor can unions act in a manner contrary to the interests of
their members, as the Teamsters did here by putting the personal
gain of incumbent union officers ahead of the interests of union
members.

UNION SECURITY AND THE RIGHT TO WORK
Union security clauses are designed to protect union membership,
or at least union revenue. A union security clause in a collective
bargaining agreement might require that the employer be a closed
shop—one in which the employer must hire only current union
members, typically from a union hiring hall. Under a union shop
arrangement, all eligible employees must join the union on being
hired and must maintain membership as a condition of continued
employment. And in an agency shop, employees do not need to
be union members, but they must pay the same union dues that
members pay.

Federal labor law permits union security clauses in collective
bargaining agreements. However, since 1947 when the NLRA
was amended by the Taft-Hartley Act, federal labor law has also
permitted individual states to enact right-to-work laws making

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Unions and Labor Relations 439

union security clauses illegal in those states. At this writing, 28
states have done exactly that:

• Alabama
• Arizona
• Arkansas
• Florida
• Georgia
• Idaho
• Indiana
• Iowa
• Kansas
• Kentucky

• Louisiana
• Michigan
• Mississippi
• Missouri
• Nebraska
• Nevada
• North Carolina
• North Dakota
• Oklahoma
• South Carolina

• South Dakota
• Tennessee
• Texas
• Utah
• Virginia
• West Virginia
• Wisconsin
• Wyoming

Suppose an employee in a union or agency shop holds religious
or moral convictions against union participation. Federal law pro-
vides a limited escape clause. It says that any employee who is a
member of a bona fide religion that has historically held conscien-
tious objections to joining or financially supporting labor organi-
zations may, instead of paying union dues, pay an equal amount to
a designated charity.

STRIKES AND LOCKOUTS
The NLRA says that except as otherwise expressly stated in the act,
nothing in the act may be construed so as either to interfere with or
impede or diminish in any way the right to strike. The courts have
characterized the right to strike as a legitimate economic tool that
implements and supports the principles of the collective bargaining
system and that labor unions may use as they see fit.

The right to strike includes the right to picket. In general, pick-
eting must relate to a primary dispute (a labor dispute between the
picketing workers and the employer being picketed). Secondary
pickets, like secondary strikes, are not protected by the NLRA. The
right to strike also includes the right to refuse to cross a picket line
in connection with a primary dispute. The right to strike does not

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The SHRM Essential Guide to Employment Law440

include slowdowns, unannounced walkouts, sit-down strikes, vio-
lence or threats of violence, or defamation of the employer’s goods.

While the NLRA preserves the right to strike, it does not guaranty
unions the right to choose the timing of a strike. Once the employ-
er has exhausted its duty to bargain in good faith and reached an
impasse, it is free to use the economic weapons at its disposal, just as
the workers are free to strike. As the Supreme Court said in 1965,
an employer’s use of a lockout in support of a legitimate bargaining
position is not in any way inconsistent with the right to bargain col-
lectively or with the right to strike.

When workers are out on strike, they remain employees, since the
NLRA’s definition of employee includes “any individual whose work
has ceased as a consequence of, or in connection with, any current
labor dispute or because of any unfair labor practice, and who has
not obtained any other regular and substantially equivalent employ-
ment.” This means that an employer cannot retaliate against strikers
for their union activity.

An employer’s right to hire permanent replacements for striking
workers depends on the nature of the strike. If the strike is eco-
nomically motivated (to improve wages, hours, or other terms and
conditions of employment), the employer may hire permanent
replacements. However, if the strike is to protest an unfair labor
practice, the strikers are entitled to reinstatement with back pay
upon making an unconditional offer to return to work.

ALERT!
An employer cannot hire foreign workers on H-1B visas as replacements for economic

strikers, since the employer must certify in its H-1B application that there is no strike in

progress involving the job to be filled. Similarly, a TN visa may be denied if the secretary

of labor certifies that issuance of the visa may adversely affect settlement of a labor dis-

pute. (See Chapter 21 for more on work-related visas.)

Even for economic strikes, the employer faces certain limitations.
For example, it cannot pick and choose who will be replaced based

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Unions and Labor Relations 441

on the extent of involvement in union activities. The employer also
cannot offer super seniority to replacements. In one case the employ-
er did just that, arguing that it needed to offer super seniority as an
inducement to the replacement workers. The Supreme Court held
that doing so was an unfair labor practice because it discriminated
between strikers and nonstrikers.

QUICK TIP
A worker who is out on strike is generally ineligible for unemployment insurance bene-

fits. However, a nonstriking, unemployed worker will not become ineligible for benefits

by turning down a job offer that would involve replacing a striking worker.

An employee’s good-faith refusal to work under abnormally dan-
gerous conditions is not a strike under the NLRA. So unlike workers
who are on strike for economic reasons, employees who are absent
for safety reasons cannot be permanently replaced.

Limitations on the Right to Strike
Although the NLRA preserves workers’ right to strike, the right is
subject to a number of limitations, discussed below.

Duty to bargain. Perhaps the most import exception to the right
to strike arises from the union’s duty to bargain in good faith over
mandatory subjects of bargaining. Until the employer and the
union have bargained to impasse, the union may not strike, and the
employer may not lock out.

No-strike clause. Employees can bargain away their right to strike
by agreeing to a no-strike clause in their collective bargaining
agreement.

Secondary strikes. The NLRA expressly prohibits labor unions
from engaging in strikes or boycotts for the purpose of forcing a
different employer to recognize or bargain with a labor union.

Taft-Hartley injunctions. When a strike or lockout affects an
entire industry (or a substantial part of an entire industry) and, if
permitted to occur or continue, would imperil the national health

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The SHRM Essential Guide to Employment Law442

or safety, the president of the United States may appoint a board of
inquiry to investigate the issues in dispute and make a report to the
president. With the board of inquiry’s report in hand, the president
may direct the attorney general to go to court and request an 80-day
injunction against the strike or lockout.

Health care institutions. The NLRA requires labor organizations
whose employees work at health care institutions to give at least 10
days’ previous notice, both to the institution itself and to the Federal
Mediation and Conciliation Service, of its intent to strike, picket,
or engage in some other concerted refusal to work. If the service
believes a strike would substantially interrupt the delivery of health
care in the locality concerned, the service may appoint a board of
inquiry. Pending the board’s report and for 15 days thereafter, the
pre-impasse status quo must be maintained.

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The Hiring Process

• Job Descriptions

• Advertising the Opening

• Applications

• Interviews

• Background Checks and Consumer Reports

• Pre-Employment Testing

• Employment Offers

• Medical Exams

• New-Employee Procedures

• Fraud and Misrepresentation in Hiring

• Interference with Contractual Relations

• Negligent Employment

CHAPTER 2

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The SHRM Essential Guide to Employment Law24

Employers and employees have numerous interactions during the
employment relationship. While any of these interactions can give
rise to liability, those involving hiring (discussed here), evaluating
(discussed in Chapter 3), and terminating (see Chapter 4) stand
out as particularly critical.

The hiring process has one purpose: to exchange enough infor-
mation so that the parties can make an informed decision about
whether to enter into an employment relationship. Good hiring
practice involves the collection of appropriate information untaint-
ed by information that should not be the basis for a hiring decision.
The hiring procedure usually involves the steps discussed below.

JOB DESCRIPTIONS
To focus on job qualifications, the employer should first prepare a
clear, written description of the job being offered. The description
should include at least the following:

• essential functions of the job—the critical functions that go to
the heart of the job and that the person holding the job must,
unquestionably, be able to do

• less critical functions that the employee may be called on to
perform from time to time or that could be done by others if
necessary

• special skills required, such as ability to operate complex
equipment

• special education, licenses, or certificates required
• title or position of the person to whom the employee reports
• number and classification of persons who report to the employee
• whether the employee is exempt or nonexempt under the Fair
Labor Standards Act

• date the description was prepared or most recently revised

The job description should not include any employee charac-
teristics that the employer is prohibited from considering, such as
age, gender, and race.

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The Hiring Process 25

The job description should be prepared before the job is
advertised and before any candidates are considered. That way,
the employer will have a much easier time defending its deci-
sion to reject a candidate on grounds that he or she could not
perform the essential functions of the job despite reasonable
accommodation.

ADVERTISING THE OPENING
Any want ads the employer runs or notices it posts should describe
the job being offered, not the person the employer thinks it is
looking for. Expressions such as recent graduate, energetic person,
or digital native could provide evidence of age discrimination if
the position is filled by a younger candidate after an older candi-
date has been turned down. Expressions that indicate a gender
preference, such as waitress, should also be avoided. (Discrimina-
tion is discussed in detail in Chapters 14 through 17.)

Use of only a single method for recruiting unduly restricts the
candidate pool and discourages workplace diversity. Word-of-
mouth recruiting, for example, has been attacked by the Equal
Employment Opportunity Commission (EEOC) as potential-
ly discriminatory: if your current workforce consists mostly of
white, middle-age males, word-of-mouth recruiting is likely to
produce candidates who are mostly white, middle-aged males.

Internet Recruiting
Advertising job openings via the Internet is a convenient, relative-
ly inexpensive way to attract resumes—and that is the problem.
An employer can be overwhelmed with the number of responses
and lack sufficient staff time to screen them effectively. Screen-
ing software, while effective, may inadvertently discriminate if
the wrong keywords are used to do the screening. Employers
that limit their recruitment to this medium should also be alert
to possible disability discrimination claims if their website lacks
accessibility.

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The SHRM Essential Guide to Employment Law26

QUICK TIP
Some employers report that electronic applications, particularly those with attachments

purporting to be resumes or supporting documents, contain ransomware or other

destructive code.

APPLICATIONS
A written application form should be developed for initial screening
purposes. The application form should obviously not ask for infor-
mation that the employer is prohibited from considering as part of
the hiring process.

Some seemingly innocuous inquiries can also cause trouble. For
example, the applicant should not be asked to attach a photograph.
Age or birthdate questions should be saved until after the appli-
cant has been hired (although for child labor purposes, the employer
should ask whether the applicant is at least 18). Similarly, immigra-
tion status questions should be saved for later, and the application
should be limited to the question, “Are you legally eligible to work
in the United States?” Even a question about whom to contact in an
emergency should be avoided in the initial application, since it could
reveal marital status or family information.

In the past, application forms routinely asked about a candidate’s
criminal history. The EEOC has weighed in on this practice, assert-
ing that basing employment decisions on such information could
discriminate against groups that, statistically, suffer higher convic-
tion rates than the general population.

According to the EEOC, arrest records alone should never be
considered, because an arrest does not establish guilt. And instead
of a blanket policy excluding every applicant who has a conviction
record, the employer should consider, on a case-by-case basis, the
following:

• the nature and gravity of the criminal offense
• the time that has passed since the offense and/or completion of
sentence

• the nature of the job

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The Hiring Process 27

In short, the employer must be able to show that its criminal his-
tory policy accurately distinguishes between applicants who pose an
unacceptable risk and those who do not.

Complicating the issue, states and even counties and cities have
begun adopting ban-the-box rules that prohibit or restrict employ-
ers from asking about a candidate’s criminal history. In one local
jurisdiction, for example, employers can ask about criminal history,
but only after the initial interview. These social policies may be well
intended, but to the extent they limit an employer’s ability to obtain
information relevant to the hiring decision, they could expose the
employer, fellow employees, and the public generally to avoidable
risks.

Further complicating matters, a few jurisdictions have adopted
or are considering the adoption of laws prohibiting employers from
asking about compensation history (on the theory that this perpet-
uates pay disparities suffered by women and minorities) and from
discriminating against persons who are currently unemployed.

QUICK TIP
When hiring a former U.S. government employee, it is important to know whether the

employee is restricted in the type of work he or she may engage in. Either by law or by

executive order, many former government employees are prohibited for specific time

periods, and in some cases forever, from working on matters that would create a conflict

of interest or the appearance of a conflict.

INTERVIEWS
Interviews should be conducted by experienced personnel using
a standard written interview form. The interview form should be
limited to questions or topics directly relevant to job performance,
and the interviewer should stick to the form, noting the applicant’s
responses. By having and following a standard written form, the
employer can more easily show that it did not inquire about any
prohibited matters and that no particular applicant was singled out
for special questioning.

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The SHRM Essential Guide to Employment Law28

It is difficult to get a feel for an applicant’s personality and com-
munications skills if all that is asked are yes-or-no questions, so inter-
viewers naturally like to ask open-ended questions, such as “Why do
you want to work here?” or “Tell me what you like and don’t like
about your current job.” There are risks to open-ended questions,
however, particularly when they are not strictly job-related, because
they may elicit personal information that can later form the basis of
a discrimination claim.

Another common pitfall in the hiring process is family status.
Suppose an interviewer asks, “Do you have any family responsibili-
ties that could keep you from getting to the office?” The applicant
responds, “I’m a single parent and my son has special needs, but
I have day care arrangements that work pretty well.” Later, when
checking with the applicant’s previous employer, the interviewer
learns of a tardiness problem. If the applicant is rejected, the employ-
er is open to charges of violating the Americans with Disabilities Act
(ADA) or other nondiscrimination laws.

An employer may not ask, “Are you disabled?” or “Do you have
any medical conditions that could interfere with your performance?”
However, an employer may inquire, “Can you do this job?”—pro-
vided the question is asked of every applicant and not just those who
may appear to have disabilities.

BACKGROUND CHECKS AND CONSUMER REPORTS
Once you have a short list of candidates, or have tentatively chosen
a single candidate, it is time for background checking. This could
include, as appropriate, calls to references and previous employers,
ordering a consumer or credit report (see below), ordering a crimi-
nal convictions check (if warranted by the nature of the job and per-
mitted by state law), and obtaining a copy of the candidate’s driving
record. It may even include a drug test. Background checking will
not include a lie detector test, and until you have actually made a
conditional offer to the candidate, it will not include a medical exam.
(Chapter 17 discusses medical examinations.)

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The Hiring Process 29

Federal law regulates the use by employers of credit and investi-
gative reports prepared by consumer reporting agencies. The feder-
al Fair Credit Reporting Act (FCRA) defines a consumer reporting
agency (CRA) as a person or entity that, for a fee, assembles or
evaluates credit information or other information on consumers
(defined to include employees and candidates for employment) for
the purpose of regularly furnishing consumer reports to third par-
ties (such as employers). Even an online search engine that assem-
bles personal data from public sources may qualify as a CRA.

In general, employers may obtain consumer reports from CRAs,
including investigative reports, to assess character and general
reputation for purposes of evaluating, promoting, reassigning, or
retaining an applicant or employee. The law places limits on how
far back the credit reporting agency may search for various types of
information, but those limits do not apply when highly compen-
sated positions are being filled.

When requesting a consumer report, the employer must dis-
close to the applicant or employee in writing that it is request-
ing such a report and must obtain the applicant’s or employee’s
written authorization to obtain the report. The disclosure and
authorization must be a separate, stand-alone document and not
be embedded in the employment application or some other form.
The applicant may in turn make a written request to be informed
of the full nature and scope of the report being requested, and the
employer must then furnish that information.

If the employer intends to make an adverse employment deci-
sion based wholly or partly on the consumer report, the employer
must first inform the applicant of this intention. In addition, the
employer must supply the applicant or employee with the name
and address of the CRA that made the report, a copy of the report,
and a statement explaining the applicant’s rights under federal
law to challenge the accuracy of the report. The federal Consum-
er Financial Protection Bureau, which enforces the FCRA, has
developed a form statement of employee rights under federal law

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The SHRM Essential Guide to Employment Law30

that satisfies the employer’s FCRA obligations, available on the
bureau’s website.

CASE STUDY:
EXTRANEOUS TEXT IN FCRA DISCLOSURES
An employer obtained a consumer report on its applicants, using a
disclosure form that also contained a waiver of liability in connection
with the use and dissemination of any information contained in the
consumer report. In a 2017 case, the U.S. Court of Appeals for the 9th
Circuit (headquartered in San Francisco) held that inclusion of the
liability waiver violated the FCRA requirement that the disclosure be
a stand-alone document. The court also held that, since the stand-alone
requirement is so clear, the employer’s conduct amounted to a willful
violation of the law.

Pursuant to a 2003 amendment to the FCRA known as the Fair
and Accurate Credit Transactions Act (FACT Act), the Federal
Trade Commission (FTC) adopted regulations governing the dis-
posal of consumer information. The FTC’s Disposal Rule requires
employers and others that have such information to properly dis-
pose of it when no longer needed by taking reasonable measures to
protect against unauthorized access or use. Examples of reasonable
measures include burning, pulverizing, or shredding papers contain-
ing consumer information and implementing and enforcing policies
for erasure of electronic media containing consumer information.

ALERT!
Some states flatly prohibit employers, with limited exceptions, from obtaining an appli-

cant’s or employee’s credit information for employment purposes, even though the

employer has fully complied with the FCRA. Other states permit the obtaining of credit

information, but they regulate the process.

Should employers search social media as part of a background
investigation? There are dangers in doing so, since so much personal

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The Hiring Process 31

information—such as family status, recreational activities, and reli-
gious affiliations—is posted online. One solution is to have someone
who is not the decision-maker screen social media content, delete
irrelevant personal information, and report only job-relevant data
to the decision-maker. (Social media policies are discussed in more
detail in Chapter 18.) Employers that decide to include a social
media search in their background investigations should develop a
standard list of media to search, so that all applicants are treated
similarly.

Some states prohibit employers from requesting applicants or cur-
rent employees to provide social media passwords. And of course,
it is illegal for an employer to hack another’s social media account.

PRE-EMPLOYMENT TESTING
Title VII of the federal Civil Rights Act makes it unlawful for an
employer, when selecting candidates for employment, to adjust
the scores of, use different cutoff scores for, or otherwise alter
the results of employment-related tests on the basis of race, color,
religion, sex, or national origin. Even short of such blatant dis-
crimination as using different cutoff scores, tests that have the
unintended effect of excluding certain groups could result in
disparate impact discrimination. For enforcement purposes, the
EEOC has adopted a four-fifths rule—if a particular test (or any
other selection procedure, for that matter) results in a selection
rate for any race, sex, or ethnic group that is less than four-fifths
(80 percent) of the rate for the group with the highest selec-
tion rate, the procedure will generally be regarded as evidence of
adverse discriminatory impact.

Tests also need to be validated—that is, shown by statistical or
other evidence to be good predictors of job performance. The
EEOC has adopted detailed regulations on validation requirements,
which go beyond the scope of this book. The regulations also require
employers to keep records on the impact of their testing procedures,
classified by gender, race, and ethnic group.

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The SHRM Essential Guide to Employment Law32

EMPLOYMENT OFFERS
When you have finally identified a single candidate, the next step
is to make an offer. A written offer is recommended to avoid any
misunderstandings and reduce the possibility of disputes down the
road. For at-will employees, the offer will usually be in the form of a
simple letter. Figure 2.1 is an example of a written offer.

FIGURE 2.1: AT-WILL OFFER LETTER

Dear [candidate name]:

We are pleased to offer you the full-time exempt position of [job title] at a starting salary
of $[amount] per year, beginning [date]. This offer is subject to your furnishing sufficient
evidence that you are eligible to work in the United States [and to completion of a
background check, drug test, and medical exam at the company’s expense].

Vacation and sick leave policies, benefit plans, and other company policies and procedures
are explained in our employee handbook, a copy of which will be provided on your start
date. You are expected to read and be familiar with the employee handbook and to sign a
receipt for the handbook. [As part of the hiring process you will be required to sign [company
name]’s standard forms of Noncompetition Agreement and Arbitration Agreement, copies of
which have previously been provided to you.]

This letter is not intended to be a contract of employment or a promise of employment for
a specific period of time. You will be an at-will employee of [company name], meaning that
either you or [company name] can terminate the employment relationship at any time for any
reason, with or without cause, and meaning that [company name] can change the terms and
conditions of your employment at any time.

If you accept this offer, please sign and return the enclosed copy of this letter no later than
[date].

You should report to [employee name] at [time] on your first day of work to complete the
hiring process.

All previous discussions and negotiations are merged in and superseded by this letter.

Very truly yours,
[company name]

By ______________________________________________________________________
[employee name], [title]

I accept this offer of employment:

Signature: ________________________________________ Date: _________________

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The Hiring Process 33

MEDICAL EXAMS
Medical exams (but not tests for illegal drugs) are governed by the
ADA, discussed in Chapter 17. Before actually offering employ-
ment, an employer may never require an applicant to undergo a
medical exam. When the employer actually offers employment, the
offer may be conditioned on the results of a medical exam if the
following apply:

• all entering employees in the job category are subject to
examination

• the exam requirement can be shown to be job-related and consis-
tent with business necessity

• the resulting medical information is separately maintained and
treated as confidential

• the results are not used to discriminate against persons with
disabilities

If the offer is subject to any conditions in addition to the medical
exam, the medical exam will violate the ADA.

NEW-EMPLOYEE PROCEDURES
The employer should take the following steps when the employee
actually starts work:

• Obtain evidence of the employee’s eligibility to work in the U.S.
and complete Form I-9 (discussed in Chapter 21).

• Check the employee’s work eligibility status using E-Verify (if the
employer participates in the E-Verify system).

• Have the employee complete Internal Revenue Service Form W-4
and the appropriate state counterpart (see Chapter 7).

• Obtain any additional personal information not given on the
application, such as birthdate and emergency contact.

• Collect information as to the employee’s race, sex, and national
origin if required to file an EEO-1 report (see Chapter 14).

• Give the employee copies of the employee handbook and other
applicable work rules and policies, and obtain signed receipts.

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The SHRM Essential Guide to Employment Law34

• Give the employee a copy of his or her job description and obtain
a signed receipt.

• Have the employee sign an arbitration agreement, if appropriate
(see Chapter 1).

• Have the employee sign a confidentiality, noncompete, and non-
solicitation agreement, if appropriate (discussed in Chapter 19).

• Have the employee enroll in any benefit plans for which he or
she is then eligible.

• Notify the appropriate state agency of the new hire within 20
days after the employee begins employment.

National Directory of New Hires Database
Federal law requires each state to establish a National Directory of
New Hires database that is then shared with other states to track
persons who have child-support obligations. The information is
also used to detect fraud or abuse in welfare and unemployment
programs. The states, in turn, have passed laws to establish the
directory and to require in-state employers to report new hires
within 20 days after hiring. The one-page form can be mailed
or faxed. Forms can be obtained, and in some cases completed,
online.

Multistate employers (employers with employees in more than
one state) have two reporting options: they may report each newly
hired employee to the state where the employee is working, fol-
lowing the new-hire reporting regulations of that particular state,
or they may select one state where they have employees work-
ing and report all new hires electronically to that state. Employ-
ers must choose between the two options; they cannot use both.
Employers that choose the second option must register with the
U.S. Department of Health and Human Services (HHS) as a mul-
tistate employer.

More information on new-hire reporting and forms for regis-
tering as a multistate employer are available online at the Office of
Child Support Enforcement of the HHS.

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The Hiring Process 35

Probationary Periods
Many employers consider the first 90 or 180 days of employment
as a probationary period, during which a new employee is under
close scrutiny and can be summarily discharged if not performing
to expectation. Such a policy may make sense in a union setting,
in which employees enjoy job protections after expiration of the
probationary period, but the policy makes little sense in an at-will
employment situation. If an employee is at will, what is his or her
status after successfully completing probation? It is still at will, as
far as the employer is concerned, but the employee might reason-
ably expect that he or she can now be fired only for cause. In a true
at-will situation, everyone is always on probation!

FRAUD AND MISREPRESENTATION IN HIRING

Resume Fraud
Prospective employees sometimes lie on their job applications.
When the position being applied for involves risk to the public,
the employer should take reasonable steps to verify the infor-
mation. Even when no obvious risk is involved, the employer
may wish to verify education or past experience that bears on the
applicant’s qualifications for the job.

While ferreting out these lies is becoming increasingly burden-
some, employers can take steps to ensure they obtain an accurate
picture of the candidate:

• Check each reference.
• Ask each reference to furnish the name of another person who
knows the candidate and check with that person as well.

• Require the candidate to complete a standard written employ-
ment application and check the application against the resume
for inconsistencies.

• If the candidate claims knowledge or experience in a particular
technical field, have one of the company’s technicians partici-
pate in interviewing the candidate.

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The SHRM Essential Guide to Employment Law36

• Require candidates to present original documentation in support of
resume claims (for example, degrees, certifications, drivers’ licenses).

• Obtain official transcripts directly from schools the candidate
attended.

• Obtain driving records from state motor vehicle authorities.
• Search the Internet for publicly available information (but see the
discussion above and in Chapter 18 about social media).

• Contract with companies to obtain background investigations,
criminal conviction checks, and credit checks (but be sure to
comply with FCRA requirements, discussed above).

• Hire candidates provided by employment agencies that prescreen
their referrals.

Suppose a falsified resume slips past the employer and is not dis-
covered until months or years down the road. What rights and rem-
edies does the employer then have?

At-will employees may, of course, be discharged for any reason
(except an illegal reason) or for no reason. As for those employees
with employment contracts, if the resume contains a false statement
about a material matter (that is, about a matter that a reasonable
person would find significant), and the employer actually relied on
the statement in offering employment, then the employment contract
is the product of the employee’s fraud. The employer may avoid the
contract and discharge the employee so long as the employer acts
promptly after discovering the fraud. However, if the false statement is
an obvious typographical error (say, inversion of two digits in the date
for previous employment), it is trivial, or it is so inherently improba-
ble that the employer could not reasonably have relied on it, then the
contract of employment remains enforceable.

QUICK TIP
For both contract and at-will positions, it is a good idea to include in the employment

application a certification by the applicant that the application is truthful and that all

supporting items such as transcripts and reference letters are genuine and unaltered.

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The Hiring Process 37

Employer Misrepresentations
Suppose an employer makes an offer of at-will employment and, in
the process, makes certain statements to the prospective employee
about, for example, the nature of the job or working conditions.
The applicant relies on those statements, accepts the job, turns
down other offers, and begins work. Then, for the first time, the
employee learns that the employer’s prehiring statements were
untrue and that actual job conditions are much less favorable than
as represented.

It could be argued that the employee has no basis to complain
about the employer’s false prehiring statements, since in an at-will
relationship the employer has the absolute right to change work-
ing conditions at any time and to fire an employee whenever the
employer feels like doing so. However, several courts have ruled
that an at-will employee who, in reliance on an employer’s false
statements, resigns from another job, turns down other offers, or
incurs relocation expenses, can sue the employer for fraud, deceit,
and negligent misrepresentation.

CASE STUDY:
EMPLOYER LIABLE FOR MISREPRESENTATION
When an applicant for a physical therapist position at a hospital was
interviewed, the hospital’s CEO represented that the hospital’s contract
with an outside therapy provider would be ending and that the
hospital would be bringing physical therapy services in-house. However,
the CEO lacked authority to make those changes on his own. He also
lacked authority to hire without approval by certain other officials.
Nevertheless, the CEO made a firm offer to the therapist.

The therapist accepted the offer and turned down another opportunity.
Only then did he learn that the offer had not been authorized and that,
in fact, the offered position was not available. In the therapist’s suit
against the hospital for negligent misrepresentation, the hospital argued
that, since the offer was only for at-will employment, the hospital could
have gone through with the hiring, then fired the therapist the next

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The SHRM Essential Guide to Employment Law38

day. The court answered that argument by saying that while the at-will
nature of the offer would affect the amount of damages that could be
awarded, that factor had no bearing on whether the therapist could
bring suit for negligent misrepresentation in the first place.

Employers can protect themselves from negligent misrepresenta-
tion suits brought by disappointed applicants by doing the following:

• describing the job accurately and furnishing a written job descrip-
tion that is complete and up-to-date, without overselling the
position

• giving accurate estimates of job features that are likely to be of
interest or concern to an employee, such as overtime require-
ments and travel

• allowing the applicant an opportunity to review the employee
handbook and all documents the applicant will be required to
sign upon hiring, such as arbitration and noncompete agreements

• describing the hiring process, including who makes the decision
to offer a job and what further approvals, if any, are necessary

• stating clearly and explicitly that the offer is conditioned on
approval by the company’s board of directors or by some other
official, if that is the case

• disclosing other relevant facts, such as that the company is about
to move its facilities, is considering a possible bankruptcy, or is
facing the loss of an important contract that could significantly
affect the applicant’s job

• giving the applicant a firm date by which the company will make
a decision and, if the company has not made a decision by that
deadline, contacting the applicant, informing him or her that the
decision is still pending, and asking whether the applicant wishes
to continue being considered

• informing the applicant promptly once a decision is made
• if the applicant is being rejected, sending a note confirming
the rejection, thanking the applicant for his or her interest, and
making clear that the applicant is no longer under consideration

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The Hiring Process 39

INTERFERENCE WITH CONTRACTUAL RELATIONS
One of the questions every applicant should be asked, both in the
application and during the interview, is whether the applicant is
bound by any restrictive covenants (such as a confidentiality, nonso-
licitation, or noncompete agreement) from previous employment. If
the applicant says yes, a copy of the document should be obtained
and reviewed by employment counsel to determine whether the
applicant can be hired at all and, if so, whether his or her job duties
need to be restricted. If the applicant says no, the applicant should
be required to certify that fact in writing.

An employer that hires a candidate with knowledge that the
employment violates a restrictive covenant with a previous employer
is exposed to possible suit by the previous employer for interference
with contractual relations.

NEGLIGENT EMPLOYMENT
Chapter 1 discusses an employer’s vicarious liability under the doc-
trine of respondeat superior—an employer will generally be held
liable for torts committed by its employees in the course and scope
of employment. But even if the employee’s negligent or willful con-
duct is outside the course and scope of employment, the employer
might still be liable for injury or damages to third parties under the
doctrine of negligent employment.

Take, for example, an apartment building owner who hires a
resident manager and provides him with a passkey to all the units.
The manager later uses the passkey to enter units whose tenants
are on vacation and steal jewelry and electronics. Many courts
would conclude that such criminal activity is outside the course
and scope of the manager’s employment and that therefore the
building owner is not vicariously liable for the thefts. But if it
turns out that the manager had several recent convictions for
theft, which the building owner could easily have discovered but
did not, the building owner may be directly liable under the doc-
trine of negligent hiring.

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The SHRM Essential Guide to Employment Law40

The negligent hiring doctrine is based on the notion that the
employer has a duty to use reasonable care to select employees com-
petent and fit for the work assigned to them and to refrain from
retaining the services of an unfit employee. Particularly in positions in
which an employee is expected to come into contact with the public,
the employer must make some reasonable inquiry before hiring or
retaining the employee to ascertain his or her fitness. (Chapter 18
discusses criminal records checks in more detail.)

ALERT!
The negligent employment doctrine is not limited to hiring. An employer that learns

about the dangerous propensities of an existing employee but who takes no action to

protect the public can be sued for negligent retention.

Ban-the-box rules, discrimination concerns, and possible inva-
sions of privacy all work to restrict an employer’s ability to make
inquiries about criminal history or perform criminal records checks.
On the other hand, the doctrine of negligent employment holds an
employer liable for its employee’s criminal conduct if the employee’s
propensity for misconduct could reasonably have been discovered.
So what should an employer do in the face of this dilemma? Unfor-
tunately, there is no easy answer.

Obviously, the employer must comply with any state and local
restrictions. To the extent those restrictions allow inquiries or a
records check, the employer should do so only if a criminal history
would be relevant to the position being filled, such as involving con-
tact with the public or access to company finances. And if a criminal
history is discovered, the employer should disregard crimes that are
old or otherwise irrelevant to the position being filled.

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Foreign Workers

• Form I-9 Requirements

• E-Verify

• Work Visas Generally

• High-Tech H-1B Visas

• H-2B Visas

• TN Visas under NAFTA

• Workplace Protections

• Remedies Available to Undocumented Workers

CHAPTER 21

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Book: The SHRM Essential Guide to Employment Law : A Handbook for HR Professionals, Managers, Businesses, and Organizations
Author: Charles Fleischer Date: 2017

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The SHRM Essential Guide to Employment Law382

Foreign workers have long played a significant role in our workforce.
Some claim that foreigners take positions from U.S. citizens. Others
argue that they fill jobs U.S. workers either do not want or are not
trained to do. Both perceptions are reflected in current law. On the
one hand, employers face criminal penalties for knowingly hiring an
undocumented alien. On the other hand, visa policies make it easier
for high-tech employees such as computer programmers to work in
the U.S.

With terrorism now firmly planted in our collective conscious-
ness, rules and restrictions affecting foreign workers are bound to
play an increasing role in the workplace.

FORM I-9 REQUIREMENTS
It is illegal to knowingly hire, recruit, refer for a fee, or continue to
employee persons who are not eligible to work in the United States.
The knowingly qualification is not satisfied by staying ignorant. For
these purposes, a don’t-ask-don’t-tell policy will not work.

Employers must check documents to establish the eligibility of
every new employee (including U.S. citizens) to work in the U.S. It
does not matter whether the employer knows to a moral certainty
that the new employee is a U.S. citizen—the Form I-9 requirements
must still be satisfied.

Form I-9 and accompanying instructions are available online from
the U.S. Citizenship and Immigration Services (USCIS) of the U.S.
Department of Homeland Security (DHS). USCIS also publishes a
helpful guide, Handbook for Employers, Publication M-274 for com-
pleting the form and complying with Form I-9 requirements.

Among other things, Form I-9 requires the employer to attest
that it has reviewed documentation—original documentation, not
photocopies—provided by the employee to establish his or her eli-
gibility and that the documentation appears genuine. The employee
must also attest to his or her eligibility to work here.

A variety of documents can establish eligibility to work. How-
ever, in most cases it is up to the employee to choose which doc-

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Foreign Workers 383

uments (among those listed on Form I-9) to show the employer;
the employer cannot specify the documents it wishes to see. If the
exhibited document or documents appear to be genuine, eligibility
to work is established. Form I-9 should then be completed and kept
on file for at least one year after the employee leaves, but not less
than three years after the employment began.

QUICK TIP
It is good practice, though not required, to make a photocopy of any documents exhibited

by the employee to establish his or her eligibility to work. Note, however, that attaching a

photocopy of an exhibited document is not a substitute for filling out Form I-9 completely.

The verification process must be completed within three working
days after the employee begins work. (For employees who are hired
for three days or less, the entire verification process must be com-
pleted on the first day of employment.) For employees whose initial
eligibility to work here is only temporary, the employer must either
reverify eligibility or terminate the employee upon expiration of the
initial eligibility period.

In addition to criminal exposure, employers that fail to comply
with Form I-9 requirements face civil liability. Several courts have
ruled that an employer that uses undocumented workers can be sued
by competitors under the federal Racketeer Influenced and Corrupt
Organizations Act (RICO). U.S. government contractors are also
subject to debarment.

The U.S. Department of Justice’s Civil Rights Division has ruled
that Forms I-9 can be used for employment eligibility verification
only. The ruling was in response to an inquiry whether an employer
could furnish copies of its Forms I-9 to an outside payroll service for
payroll processing.

ALERT!
Firing the employee or taking other adverse action against him or her solely on the basis

of a name or Social Security number (SSN) mismatch could be discriminatory.

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The SHRM Essential Guide to Employment Law384

QUICK TIP
The Social Security Administration (SSA) has several procedures available electroni-

cally for employers to verify SSNs. Employers must register with the SSA to use the

procedures.

E-VERIFY
Congress created E-Verify as part of the Illegal Immigration Reform
and Immigrant Responsibility Act. Operated by the DHS and the
SSA, E-Verify is an Internet-based system for electronically verifying
eligibility to work in the U.S. According to the DHS, E-Verify is
fast, free, and easy to use, and it is the best way employers can ensure
a legal workforce. (Some have questioned the accuracy of the data-
bases that the system uses to check eligibility.) E-Verify is not a sub-
stitute for any other procedures required by law, such as completing
and maintaining Forms I-9 for every employee.

Employers wishing to use E-Verify must first register at the DHS’s
website. The registration process includes agreeing to a lengthy
memorandum of understanding (MOU) that, among other things,
requires the employer to use E-Verify for all employees. The MOU
contains procedures employers must follow when they receive a ten-
tative nonconfirmation—the equivalent of a no-match letter (dis-
cussed below).

A number of states have passed laws requiring private employers
in their states to use E-Verify. Arizona was among the first. In 2011
the U.S. Supreme Court upheld Arizona’s law, ruling that it is not
preempted by or otherwise inconsistent with federal law.

ALERT!
Most U.S. government contractors are required to use E-Verify and to require their sub-

contractors to use the system as well. (See Chapter 22 for details.)

No-Match Letters
The employee’s name and SSN shown on the Form W-2 (discussed
in Chapter 7) must match the SSA’s records. When they do not, the

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Foreign Workers 385

SSA issues a no-match letter. Receipt of a no-match letter does not
necessarily mean that the employee is in the country illegally or that
he or she has falsified Internal Revenue Service (IRS) Form W-4
when hired. The mismatch could be the result of an employer error
in recording the employee’s SSN on the W-2, an employee name
change through marriage or divorce, or an error on the employee’s
W-4. Of course, it could also be the result of the employee’s using
someone else’s number or just making one up.

In 2007, U.S. Immigration and Customs Enforcement (ICE)
issued regulations on how to respond to an SSA no-match letter
and promised a safe harbor for employers that followed the regula-
tions. In the face of litigation over their validity, ICE rescinded the
regulations. The SSA also halted sending no-match letters. The SSA
later resumed the practice, but now, when it sends a no-match letter,
it also sends the employer an accompanying letter (available on the
SSA’s website) advising employers how to deal with the situation.

WORK VISAS GENERALLY
The immigration laws authorize a number of categories of nonim-
migrant (temporary) work visas, including the following:

• B-1, for foreigners here on business for the benefit of, and on the
payroll of, their foreign employers

• H-1B, for foreign professionals
• H-2B, for foreign skilled and unskilled workers
• L, for intracompany transferees
• O, for foreign nationals with extraordinary ability in the sciences,
arts, education, business, or athletics

• TN, for professionals who are citizens of Canada or Mexico

In addition to the above, there are a few other specialized categories,
such as for students and trainees, persons participating in exchange
programs, nurses, and seasonal workers in short supply. The H-1B,
H-2B, and TN categories, discussed below, are the most significant
for U.S. employers.

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The SHRM Essential Guide to Employment Law386

Immediate family members of persons here on work visas qualify
for derivative visas. However, a family member may not perform any
work while here on a derivative visa.

HIGH-TECH H-1B VISAS
An H-1B visa allows a foreign specialty worker (a person whose
profession requires at least a bachelor’s degree or equivalent) to
be employed in the U.S. for an initial three years, renewable for an
additional three years. If the particular field of work also requires
a license, then the worker must hold such a license as well. At
the end of the renewal period, the worker must cease work and
spend at least one year outside the U.S. before he or she is eligible
for a new H-1B visa. H-1B visas are sometimes called high-tech
visas because they have enabled many computer programmers and
other high-tech workers to come here.

Obtaining an H-1B visa involves several steps, but they can usu-
ally be accomplished within a few months. The downside is that,
while Congress has raised the number of H-1B visas that can be
granted each fiscal year, the quota is still reached long before the
end of the year.

The employer, not the foreigner seeking to come here, is respon-
sible for initiating the process and paying associated costs and fees.
Employers can be fined for requiring reimbursement from the
foreign worker. To initiate the process, the employer must obtain
from its local employment office a prevailing wage determination
for the position to be filled. The employer then electronically files a
Labor Condition Application (LCA), Form 9035E, with the U.S.
Department of Labor (DOL) using the department’s iCERT elec-
tronic system.

When the LCA has been approved, the employer then files a
petition with the U.S. Citizenship and Immigration Services
(USCIS) requesting issuance of an H-1B visa. If the petition is
approved, the visa itself is issued to the alien by the appropriate
U.S. consulate.

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Foreign Workers 387

In addition to paying at least the prevailing wage to the foreign
worker under an H-1B visa, the employer must also offer the same
range of benefits as is available to its comparable U.S. employees.
Even if the worker becomes unproductive (“benched”) for some
reason, he or she must still be paid. The employer must also pay for
the worker’s return trip home after the visa has expired.

H-1B visas are issued for employment in a specific position. If a
foreign worker wants to change positions or employers once here,
a new H-1B visa must be applied for. The foreign worker is not eli-
gible for employment in the new position or by the new employer
until the visa is issued.

Additional requirements apply to employers that are H-1B depen-
dent, that is, employers whose workforce include H-1B individuals
in amounts larger than specified numerical or percentage thresholds.

H-2B VISAS
H-2B visas are somewhat similar to H-1B visas, except that they
apply to a far larger pool of prospective workers: the unskilled and
those whose skills fall below the professional level covered in the
H-1B category. For that reason, the employer must satisfy the sec-
retary of labor that it has been unable to find a sufficient number of
U.S. workers who are able, willing, and qualified to fill the positions
for which it seeks to import foreign workers.

H-2B visas are generally issued for one year and are renewable in
one-year increments for a total of three years.

TN VISAS UNDER NAFTA
In addition to opening our northern and southern borders to trade,
the North American Free Trade Agreement (NAFTA) made it easier
for Canadians and Mexicans to come to the U.S. to engage in busi-
ness at a professional level. A professional for NAFTA purposes is
similar to an H-1B specialty worker—basically a person whose job
requires at least a bachelor’s degree. Depending on the particular
profession, experience may substitute for a degree. And in a few

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The SHRM Essential Guide to Employment Law388

cases, both a degree and experience are required. More information
about TN visas and the professionals who quality is available on the
website of the U.S. Department of State (DOS).

The procedure for Canadian nationals is simple. An employer
desiring to hire a Canadian national writes a letter to the Canadian
citizen, describing the job, agreeing to employ the worker, setting
out the terms of the arrangement (for example, salary), and the dates
the employment is to begin and end. The worker then appears at
a U.S. port of entry and presents the letter, along with evidence of
the foreign worker’s professional qualifications, proof of Canadian
citizenship, and a $50 fee. Although Canadian citizens do not need
Canadian passports, they must be able to prove that they are Cana-
dian citizens. The worker is usually admitted to the U.S. on the spot.

Mexican nationals must obtain a TN visa to enter the U.S.
According to the DOS, an interview at an embassy consular section
is required for most visa applicants as part of the visa application
process. Interviews are generally by appointment only. As part of the
visa interview, an ink-free, digital fingerprint scan can generally be
expected. The waiting time for an interview appointment for most
applicants is a few weeks or less, but for some embassy consular
sections, it can be considerably longer. Mexicans must also submit
specific documentation in support of their TN visa application.

Entry under a TN visa may be denied when the secretary of labor
certifies that entry may adversely affect the settlement of any labor
dispute or the employment of any person who is involved in such
dispute. In other words, an employer cannot import Canadian or
Mexican professionals as strike breakers.

Persons in the U.S. under TN status may stay no longer than
three years. While the USCIS can grant repeated three-year exten-
sions, TN status is not for permanent residence.

WORKPLACE PROTECTIONS
With passage of the law prohibiting employment of undocumented
workers, Congress had concern that employers would discriminate

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Foreign Workers 389

against persons who are in fact eligible to work but who look or
sound foreign. So at the same time, Congress made it illegal for
employers having four or more employees to discriminate based on
citizenship status or national origin. (Remember that although Title
VII addresses national origin, it only applies to employers having 15
or more employees; Title VII does not address citizenship status at
all.) Under that law, it is generally illegal for an employer to adopt a
U.S.-citizens-only policy.

Employers do not have an affirmative duty to sponsor foreign
workers, and they may refuse to sponsor a foreigner seeking employ-
ment here, whatever the reason for the refusal. And while it is not
illegal in theory for an employer to prefer a U.S. citizen over an
eligible alien if the two are equally qualified, there may be a practical
risk in rejecting a candidate based solely on his or her citizenship.

In addition to protecting foreign workers from discrimination on
the basis of citizenship, U.S. laws generally cover foreign workers
and workers employed in the U.S. by foreign employers to the same
extent as U.S. citizens working here for U.S. companies. For exam-
ple, Title VII, the Americans with Disabilities Act (ADA), the Age
Discrimination in Employment Act (ADEA), wage and hour laws,
and union nondiscrimination laws generally apply with full force to
all persons working within the U.S., without regard to the worker’s
citizenship or the employer’s foreign or domestic status.

There are several exceptions, however, discussed below.

FCN Treaties
One exception is based on treaties the U.S. has with many foreign
countries. Friendship, commerce, and navigation (FCN) treaties
permit foreign companies doing business in the U.S. to engage, at
their choice, high-level personnel essential to the functioning of the
enterprise. These treaty provisions have been held to permit for-
eign companies to discriminate in favor of their own nationals, even
though doing so would otherwise constitute race or national origin
discrimination.

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The SHRM Essential Guide to Employment Law390

Foreign Sovereign Immunities Act
Another exception is based on the Foreign Sovereign Immunities
Act (FSIA). Under the FSIA, foreign states are immune from the
jurisdiction of courts in the U.S. so long as they are engaged in
governmental-type activities (as opposed to commercial activities).

CASE STUDY:
EMPLOYER PROTECTED UNDER FSIA
Saudi Arabia hired a Virginia security firm to work with the Saudi
military in providing protection for the Saudi royal family at a
family residence in California. A female employee of the security
firm quit after the security firm refused to assign her to a command
post position for which she was fully qualified. The security firm
based its refusal on instructions of the Saudi military that such
an assignment would be unacceptable under Islamic law, since the
female officer would have to spend long periods working with her
Saudi male counterparts.

The female officer filed suit against her former employer claiming
sex discrimination. The 4th Circuit Court of Appeals ruled that
providing security for members of the royal family is quintessentially
an act peculiar to sovereigns and was therefore the type of government
activity that fell within the FSIA’s immunity protection. The court
went on to hold that the security firm, even though it was a U.S.
company, was entitled to derivative immunity when following the
instructions of the foreign sovereign not to assign its female officer to
the command post.

English Language Ability
Many employers require their employees—particularly those who
must deal with the public—to be able to speak English. Even though
such a policy might inadvertently exclude certain immigrant groups,
it is usually a justifiable requirement. Employers cannot discriminate
against those with accented English so long as the employee can
communicate effectively.

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Foreign Workers 391

Some employers go further and prohibit their bilingual employ-
ees from even using a language other than English while at work.
It is difficult to see how that policy could be justified.

REMEDIES AVAILABLE TO UNDOCUMENTED WORKERS
Suppose an employer discriminates against an undocumented worker
by refusing to promote him or her solely on the basis of national-
ity, or suppose an employer violates the Fair Labor Standards Act
(FLSA) by refusing to pay overtime, or the employer violates federal
labor law by firing him or her for protected union activity. May the
undocumented worker go to court? And if so, what remedies does
he or she have?

A pair of Supreme Court cases provides some guidance.
In 1984, in a case called Sure-Tan, Inc. v. NLRB, the court ruled

that an employer committed an unfair labor practice by reporting
his illegal aliens to the immigration authorities in retaliation for
the employees’ pro-union votes. The court said if undocumented
alien employees were excluded from participation in union activi-
ties and from protections against employer intimidation, a subclass
of workers would be created without a comparable stake in the
collective goals of their legally resident co-workers, thereby erod-
ing the unity of all employees and impeding effective collective
bargaining.

In 2002, the Supreme Court decided Hoffman Plastic Com-
pounds, Inc. v. NLRB, which involved the question whether an
illegal alien who was fired for union activity could be awarded back
pay as a remedy for the employer’s unfair labor practice. (Remem-
ber that back pay is pay the employee would have earned between
the date he or she was fired and the date the court rules.) By a slim,
5-4 majority, the court pointed out that Congress made combat-
ing the employment of illegal aliens central to the immigration
laws. Under those laws it is impossible for an undocumented alien
to obtain employment in the United States without some party
directly contravening explicit congressional policies. Awarding

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The SHRM Essential Guide to Employment Law392

back pay in a case such as this, said the court, not only trivializes
the immigration laws, but it also condones and encourages future
violations.

The employer in Hoffman, although avoiding liability for a back-
pay award, was still subject to a cease and desist order and an order
to post a notice setting forth employee rights under the federal labor
law. Such orders are enforceable by contempt proceedings should
the employer fail to comply.

Sure-Tan and Hoffman dealt with unfair labor practices in vio-
lation of the National Labor Relations Act (NLRA). Do the same
rules apply for employment discrimination against illegal aliens?
Although the Supreme Court has not had occasion to answer the
question as of this writing, there is every reason to think that
the holdings in Sure-Tan and Hoffman Plastics will apply here as
well. In other words, while discrimination against undocument-
ed workers is illegal, the remedies available to them for illegal
discrimination probably do not include reinstatement and back
pay, since those remedies would contravene federal immigration
policy.

Recognizing the likely impact of Hoffman on employment dis-
crimination, the Equal Employment Opportunity Commission
(EEOC) rescinded provisions in its Enforcement Guidance regard-
ing seeking back pay for undocumented workers.

ALERT!
Sure-Tan and Hoffman resolved possible inconsistencies between two federal laws—the

NLRA and the Immigration Reform and Control Act. Some courts have ruled, however,

that back pay is available when an employee is fired in violation of state nondiscrimina-

tion laws.

Yet another question involves violations of wage and hour laws.
Suppose, for example, that, contrary to the FLSA, an employer fails
to pay an undocumented worker the minimum wage or overtime
for work already performed. Most courts considering the question

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Foreign Workers 393

have concluded that payment should be ordered. They have rea-
soned that the Hoffman rule against back pay does not apply, since
back pay involves compensation the employee failed to earn because
he or she was improperly fired, not compensation that he or she
actually earned but was not paid.

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The Employment
Relationship

CHAPTER 1

• Overview

• Employees, Independent Contractors, and Agents

• Statutory Employees and Nonemployees

• Joint Employers

• The Employment-at-Will Doctrine

• Employment Contracts

• Indemnity Obligations

• Arbitration Agreements

• Business Owners’ Employment Status

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Book: The SHRM Essential Guide to Employment Law : A Handbook for HR Professionals,
Managers, Businesses, and Organizations. Author: Charles Fleischer Date: 2017

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The SHRM Essential Guide to Employment Law2

OVERVIEW
The employment relationship is a mutual, voluntary arrange-
ment between two parties. The employer—which may be a
corporation, some other entity, or an individual—voluntarily
agrees to pay the employee in exchange for the employee’s work.

The employee—who is always an individual—voluntarily
agrees to work for the employer in exchange for pay.

The relationship is voluntary in the sense that the law does
not force anyone to work for a particular employer. The 13th
Amendment to the U.S. Constitution declares that “neither
slavery nor involuntary servitude … shall exist within the
United States.” As implemented by the Congress, the 13th
Amendment prohibits forced labor through use of physical
restraints, threats of physical harm, or threats of legal action.
The prohibitions against forced labor also protect persons from
compulsory work to pay off a debt—sometimes called peonage
or indentured servitude.

The United Nations International Labour Organization
(ILO) has adopted the ILO Declaration on Fundamental Prin-
ciples and Rights at Work, to which the United States subscribes.
The declaration states that all member nations have an obliga-
tion to respect four fundamental rights:

• “freedom of association and the effective recognition of the
right to collective bargaining;

• the elimination of all forms of forced or compulsory labour;
• the effective abolition of child labour; and
• the elimination of discrimination in respect of employment
and occupation.”

Although the employment relationship is voluntary from the
employer’s viewpoint, in that the employer usually has no obli-
gation to employ anyone in particular, in limited circumstances
an employer can be forced to hire or re-employ a particular
individual as a remedy for discriminating against that individ-

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The Employment Relationship 3

ual or violating that individual’s rights under a protected leave
law, such as the Family and Medical Leave Act (FMLA).

The employment relationship is often thought of as a contract
between employer and employee. However, it usually does not take
the form of a typical bilateral (or mutual) contract, in which each
party makes a promise to the other, such as, “I promise to deliver
goods to you next week if you promise to pay me $1,000 in 30
days.” Instead, the employment relationship usually takes the form
of a unilateral contract, in which only one party (the employer)
makes a promise, such as, “If you come work for me, I will pay
you $12 per hour.” The employee usually does not promise to
work. He or she just shows up, works, and becomes entitled to the
promised pay. Mutual employment contracts are discussed in more
detail on the following pages.

EMPLOYEES, INDEPENDENT CONTRACTORS, AND AGENTS
An employer’s workforce can be classified broadly as employees and
independent contractors. An employee and an independent contrac-
tor may or may not be an agent of the employer, depending on the
authority given by the employer to obligate the employer to contracts.

Employees
An employee is someone whose manner of work the employer has a
right to control, even if the employer does not actually exercise that
control. An entry-level file clerk will likely be subject to close, daily,
or even hour-by-hour supervision and is therefore an employee.
So, too, is the president of a large corporation, not because he or
she is closely supervised, but because the corporation’s board of
directors has the right to control his or her work. This right to
control is illustrated by the outdated legal terms master and ser-
vant used historically to describe the employment relationship.

True employees (as distinguished from independent contractors)
are sometimes known as W-2 employees, referring to the Forms W-2
issued to them for federal income tax purposes.

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The SHRM Essential Guide to Employment Law4

Vicarious Liability
As a matter of public policy, the courts hold employers vicariously
liable for injuries or property damage caused by their employees if
the injury or damage occurred during the course and scope of the
employee’s employment. This is sometimes referred to as the doctrine
of respondeat superior—a doctrine requiring the superior (the employ-
er) to respond (by paying damages) for the conduct of its employee.

Normally, such liability is imposed when the employee acts neg-
ligently, such a causing a car accident while driving on the job. But
vicarious liability may be imposed even if the employee intentionally
causes the injury, so long as the employee acted with the intention
to benefit his or her employer and the employment relationship
enabled the employee to cause the injury. An example might be a
store clerk who physically restrains a customer wrongfully suspected
of shoplifting.

Negligence and intentional misconduct that cause injury or
damage are referred to in the law as torts—French for wrongs.

Independent Contractors
An independent contractor, in contrast to an employee, is someone
you engage to perform a certain task, but whose manner of work
you do not have a right to control. Good examples are professionals,
such as outside lawyers or accountants, and trades persons such as
electricians and plumbers. In each of these examples, the independent
contractor’s work is governed by professional standards, state and
county codes, and the like, with which you are probably not familiar.
Your lack of familiarity is precisely why you engage an independent
contractor instead of doing the work yourself or having one of your
employees do it.

Certainly you can tell your independent contractor what it is you
want done, and you remain free to dismiss him or her if you do not
like the work. But it is the result you are interested in; the manner in
which that result is accomplished is up to the independent contrac-
tor and is not subject to your control.

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The Employment Relationship 5

Unlike an employee, an independent contractor generally cannot
impose vicarious (tort) liability on his or her employer.

ALERT!
Whenever a worker’s status as an independent contractor could reasonably be ques-

tioned, the safest course is to treat that worker as an employee.

Independent contractors are issued Forms 1099 to report
income for federal tax purposes, as opposed to Forms W-2 issued
to employees. Unlike employees, independent contractors are not
subject to income and payroll tax withholding.

Employers sometimes try to classify their workforce as inde-
pendent contractors, rather than employees, in an effort to avoid
being subject to laws and regulations that apply to employees. In
response, the various regulatory agencies, such as the Internal Rev-
enue Service (IRS), the U.S. Department of Labor (DOL), the
Equal Employment Opportunity Commission (EEOC), the Occu-
pational Safety and Health Administration (OSHA), state wage
and hour departments, workers’ compensation commissions, and
unemployment insurance administrators, have adopted complex
tests—that differ from agency to agency—to distinguish employ-
ees from independent contractors. These tests tend to be biased
in favor of an employer-employee relationship—that is, in favor of
finding that the person is covered by the particular employment
law or regulation the agency is charged with enforcing. (Tax issues
relating to independent contractors are discussed in Chapter 7. See
“Contingent Workers” in Chapter 20 for more details about the
independent contractor relationship.)

The consequences of misclassifying an employee or a group of
employees as independent contractors can be expensive. For exam-
ple, the employer might be held liable for income taxes that should
have been withheld, but were not, wage and hour violations, retro-
active coverage under employee benefit plans, back pay, penalties,
statutory damages, and interest.

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The SHRM Essential Guide to Employment Law6

QUICK TIP
Some workers are required by law to work under another’s supervision. This is true,

for example, in various health care professions. Even though the worker may otherwise

qualify as an independent contractor, the duty to be supervised may convert the worker

into an employee.

Agents
An agent is someone you authorize to make contracts on your behalf
and to bind you to those contracts. Employees can be agents, but
employees do not automatically become agents; it depends on what, if
any, additional authority you give them. For example, if you told your
employee to take a computer to the shop and make arrangements to
have it repaired, you have given your employee authority to act as
your agent. When he or she signs a work order in your name, you as
the principal, not the employee, will have to pay the repair bill.

Similarly, an independent contractor can be, but is not necessarily,
an agent. When you engage a landscape architect to prepare a design
for the grounds around your new office building, the architect is an
independent contractor but not an agent. However, when you then
authorize the architect to buy plantings, he or she becomes your agent
as well and has the power to obligate you in contract to the nursery.

STATUTORY EMPLOYEES AND NONEMPLOYEES
Some laws classify workers as employees or independent contrac-
tors regardless of the employer’s right of control or lack of control
over the manner in which the work is done.

For payroll tax purposes, the Internal Revenue Code classifies
the following four categories of individuals as statutory employees
even though they could be independent contractors under the
common-law test:

• a delivery driver (other than one who delivers milk)
• a full-time life insurance agent
• an individual who works at home on materials or goods supplied
by the employer

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The Employment Relationship 7

• a full-time salesperson who sells merchandise for resale or for use
in the buyer’s business operation

The Internal Revenue Code classifies the following individuals
as statutory nonemployees for all federal tax purposes:

• direct sellers of consumer products in the home or a place of
business other than a permanent retail establishment

• licensed real estate agents
• companion sitters who are not employed by a companion sitter
placement service

Workers’ compensation statutes, unemployment insurance stat-
utes, and other laws also state who does or does not qualify as an
employee for purposes of the statute.

JOINT EMPLOYERS
In a number of situations the law considers an employee to be joint-
ly employed by two or more employers. As a result, both employers
may be liable for discrimination or unfair labor practices, obligated
to pay overtime and withhold and remit payroll taxes, or provide
workers’ compensation or other benefits.

A common example of joint employment is the staffing firm that
leases an employee to another business. If the business directs the
staffing firm to replace the leased employee based on the employ-
ee’s race or age and the staffing firm does so, both the business and
the staffing firm will be liable for discrimination.

In another example, suppose a nurse’s aide works for two sepa-
rate nursing homes that are owned in part by the same individuals.
The total hours she works for both nursing homes may be aggre-
gated in determining whether she is entitled to overtime.

In the construction industry, a prime contractor may engage a
subcontractor, who in turn provides employees to the job site. If
those employees perform work both for the subcontractor and the
prime contractor, they may be deemed jointly employed by both

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The SHRM Essential Guide to Employment Law8

entities. Similarly, franchisers may be considered as joint employers
of their franchisees’ employees.

In the 2015 decision in Browning-Ferris Industries of Califor-
nia, Inc., the National Labor Relations Board (NLRB) expanded
its definition of joint employment in determining what constitutes
an appropriate bargaining unit for union representation purposes.
According to the NLRB, in evaluating whether an employer pos-
sesses sufficient control over employees to qualify as a joint employ-
er, the board considers whether an employer has exercised control
over terms and conditions of employment indirectly through an
intermediary or whether it has reserved the authority to do so. As of
this writing, the case is on appeal to the U.S. Court of Appeals for
the D.C. Circuit. (Unions and labor relations are discussed in more
detail in Chapter 24.)

In Salinas v. Commercial Interiors, Inc., the U.S. Court of Appeals
for the 4th Circuit (headquartered in Richmond, Va.) ruled that
joint employment exists when two or more entities “share, agree to
allocate responsibility for, or otherwise co-determine—formally or
informally, directly or indirectly—the essential terms and conditions
of a worker’s employment.” The Court went on to list a number of
factors to be considered in determining that question.

As these cases indicate, joint employment remains a developing
legal area and is becoming more common given the growing variety
of business models and labor arrangements. It should also be noted,
however, that the DOL under the Trump administration has with-
drawn a 2015 administrator’s interpretations that offered an expan-
sive view of joint employment.

THE EMPLOYMENT-AT-WILL DOCTRINE
Most employment is at will. That means there is no fixed period of
time that the employment relationship will last, and either party is
free to terminate the relationship at any time, with or without cause.
In other words, the employer may fire, or the employee may quit,
for any reason or for no reason at all.

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The Employment Relationship 9

In almost all states, there is a presumption that any particu-
lar employment relationship is at will. The presumption applies
unless it is shown that employment for a specific period of time,
such as two years, was intended. The fact that the employer and
the employee intended the relationship to last a long time or
for an indefinite period does not overcome the presumption of
at-will employment, since in almost all cases the parties hope (at
least at the outset) that the relationship will last a long time or
indefinitely. An employer’s promise of work for as long as the
job exists and for as long as the employee wants it is nothing
more than indefinite, at-will employment. Even so-called perma-
nent employment is still employment at will (although employ-
ers should not use the term permanent when intending only an
at-will relationship).

An important corollary of the at-will doctrine is the implied
covenant of good faith and fair dealing. In most states, every
contract is presumed to contain that implied covenant, requir-
ing parties to the contract to act reasonably toward each other.
However, the covenant is generally not implied in the normal
at-will employment arrangement, since the covenant depends on
the existence of an employment contract with a definite term. (A
handful of states do recognize the covenant in an at-will employ-
ment relationship.) It follows, at least in theory, that an employ-
er may treat at-will employees unreasonably and may fire them
without cause, although it is seldom good practice to do so.

The at-will employment doctrine has five important exceptions:
• the employment contract exception (discussed later in this
chapter)

• the abusive discharge exception (see Chapter 4)
• the exception for protected leave (see Chapter 8)
• the discrimination/retaliation exception (see Chapters 14 through
17)

• the exception for collective bargaining agreements (see Chap-
ter 24)

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The SHRM Essential Guide to Employment Law10

When one of these exceptions applies, discharging an at-will
employee may result in a lawsuit, an award of money damages against
the employer, or an order that the employer reinstate the employee.

EMPLOYMENT CONTRACTS
An employment contract (more accurately, a mutual employment
contract) is an agreement between the employer and the employee
that the employment relationship will last for a fixed, definite period
of time or that the relationship can be terminated only for cause
or under specified conditions. Employment contracts should be in
writing, since oral contracts that cannot be performed within one
year are generally unenforceable according to the statute of frauds.
Even if an oral contract of employment is enforceable, it can give rise
to misunderstandings, and its provisions are difficult to prove.

The contents of any particular employment contract depend
on the circumstances. A typical contract might include provisions
dealing with the following:

• job description, including employee duties and authority
• whether the position is exempt or nonexempt under the Fair
Labor Standards Act

• beginning date and term of the contract and any extensions
• compensation arrangements
• bonuses and equity, such as stock options
• health and other benefit plans
• other fringe benefits, such as a company car or an expense
account

• exclusivity, such as no moonlighting or no conflicts of interest
during term

• vacation and sick leave arrangements
• grounds for early termination, such as death, disability, revoca-
tion of a required license, or dishonesty

• confidentiality and trade secrets
• ownership of intellectual property, such as copyrightable and
patentable works or inventions

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The Employment Relationship 11

• noncompetition and nonsolicitation of customers and fellow
employees after termination

• liquidated damages for breach by employee
• waiver of jury trial or arbitration of disputes, along with prohibi-
tion on participating in class or collective actions

• indemnification
• choice-of-law provision
• choice-of-forum provision
• abbreviated statute of limitations

In most cases, the employer wants to preserve an at-will employ-
ment relationship and avoid being bound by an employment con-
tract or by any implied covenant of good faith and fair dealing. This
would be true, for example, in the case of lower-level employees
who can be replaced fairly easily. However, in a tight labor market
in which qualified employees are difficult to find, the employer
may want the protection of an employment contract. The employ-
er might also want contract protection for employees in whom
costly training is being invested, for employees who have access
to closely guarded company secrets, or for employees who have
unusual or complicated compensation arrangements.

An employee may want the security of a contract when, for
example, the employee is resigning from a stable position to take
a job with a start-up company or making a costly move to the new
employer’s headquarters. Whether the employer gives a contract in
those circumstances depends on the employee’s bargaining power
and worth to the new employer.

Choice-of-law and choice-of-forum provisions are particularly helpful
to large, multistate employers, which might otherwise be subject to
conflicting state laws. They allow the employer to specify which state
law will govern the employment contract and which court will hear
any disputes that arise under the contract. The employer might, for
example, specify the law of the state and the courts of the state where
its headquarters are located or where most of its employees work. So

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The SHRM Essential Guide to Employment Law12

long as the employer’s choices are reasonable and do not impose an
undue burden on the employee, most courts uphold these provisions.

Some employment contracts also seek to shorten the time within
which an employee may bring suit against the employer. If state law
specifies a three-year statute of limitations, the contract might short-
en that time limit to, say, 18 months. While these types of provisions
are controversial, some courts have upheld them.

Fill-in-the-blank contract forms are available from commercial
publishers. Electronic forms can even be purchased or downloaded
from the Internet. But if the employment relationship is important
enough to justify a contract in the first place, it should be important
enough to justify a consultation with employment counsel to be
sure the contract fits the particular circumstances and conforms with
state and local law.

Implied Contracts
Although the parties may not have explicitly intended to enter
into an employment contract, the employer’s actions can inad-
vertently bind the employer to the same extent as if there were a
written, signed agreement. Some courts have found, for example,
that an employee handbook amounts to an employment contract,
even though no contract was actually intended. Even the wording
of a simple employment letter can create a contract if it implies
that a specific time period is contemplated. Consider this letter:

We are pleased to offer you the position of sales manager
beginning January 1. Your base salary will be $50,000
per year, increasing to $60,000 your second year, and
$70,000 your third year. You will also earn an override
commission of 2.5 percent on all sales.

We have already made definite plans to expand our
market into the southeastern states over the next three
years. By the end of the third year, sales should reach
$1.5 million, which translates to a commission to you
of $37,500. We are counting on you to take the lead

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The Employment Relationship 13

in these expansion plans, and we have every confidence
that, with you at the helm of our sales department, we
will reach our goal.

While the letter does not exactly promise a three-year arrange-
ment, it certainly implies that the sales manager should expect to
stay that long. Couple that with the sales manager’s own testi-
mony that he was indeed promised three years, and the employer
might find itself bound to such a contract.

Breach of Contract
When employer and employee have agreed that the employment
will last a fixed period of time, or that the employment can be ter-
minated only for specified reasons, the courts generally enforce such
an agreement by awarding money damages for its breach. If the
employer breaches, it may be liable not only for the compensation
the employee would have earned but also for fringe benefits such
as health insurance, pension plan contributions, and stock options.

If the employee breaches, damages are more difficult to measure,
since it is not easy to quantify just how a particular employee’s
performance would have affected future profitability. Absent a liq-
uidated damages provision (a provision that specifies in advance
the amount of damages to be recovered), the employer’s claim
might be limited to employment agency fees, employee relocation
costs covered by the employer, and any license or similar fees paid
by the employer on the employee’s behalf. Remember that a court
will not order the employee back to work since such an order
would violate the Constitution’s involuntary servitude clause.

ALERT!
Even in employment-at-will situations, the employer may be held liable for misrepre-

sentation if an employee is induced to accept work based on false or incomplete repre-

sentations as to the conditions of employment. (See Chapter 2 for more on fraud and

misrepresentation during the hiring process.)

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The SHRM Essential Guide to Employment Law14

INDEMNITY OBLIGATIONS
In an indemnity agreement, one party agrees to protect the
other party from claims by third parties. For example, a physi-
cian employed by a hospital might agree to indemnify the hospital
from malpractice claims by the physician’s patient. Or a business
corporation might agree to indemnify its senior management from
claims by shareholders or other employees. Such an agreement
serves, in effect, as private insurance between the parties.

Whether an indemnity provision will be included in an employ-
ment contract and, if so, who will be indemnifying whom, are mat-
ters of negotiation between the parties. A highly desired candidate,
for example, might insist on being indemnified as a condition to
accepting a job offer. On the other hand, a candidate with little
bargaining power may have no choice but to agree to indemnify
his or her employer to get the job.

Even absent an indemnity provision in an employment contract,
the employer may have an indemnity obligation to some or all of
its employees under state corporation law or under provisions of its
corporate charter or bylaws.

ALERT!
An indemnity provision in an employment contract or in corporate documents exposes the

employer to a risk of substantial liability. The employer should therefore carry adequate lia-

bility insurance and be sure that the potential indemnity obligation is covered by the policy.

ARBITRATION AGREEMENTS
Arbitration of disputes is often viewed as preferable to litigation. Arbi-
tration is generally faster and cheaper; it involves only limited pretrial
discovery, the proceedings take place in private, and the results are
usually final and unappealable. Since arbitration means no jury trial,
an employer that fears a runaway jury and a runaway damage award
may view arbitration as a highly desirable alternative to litigation.

Both the Federal Arbitration Act (FAA) and its state counter-
parts say that a contract provision for resolution of future disputes

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The Employment Relationship 15

by arbitration is valid and enforceable. The courts have gone so far
as to rule that the law favors arbitration and that when a contract
contains an arbitration clause, a presumption arises that all disputes
relating to the contract must be arbitrated. These principles have
been applied to labor disputes under collective bargaining agree-
ments and to employment disputes in the securities industry, in
which arbitration clauses have been common for years. Arbitration
provisions are now finding their way into more and more con-
tracts, including routine employment agreements.

QUICK TIP
A pre-dispute arbitration agreement—that is, an agreement to arbitrate made at the

outset of employment or at some other time before a dispute has arisen—should

be distinguished from an agreement to arbitrate made after a dispute has arisen.

Courts almost always enforce a post-dispute arbitration agreement that is entered

into knowingly and voluntarily. Enforcement of a pre-dispute arbitration agreement,

however, may be open to a variety of objections, such as unfairness or lack of true

consent.

For some time, there was a question whether an employee
could be forced to submit federal statutory claims to arbitration.
Suppose an employer routinely requires employees, as a condi-
tion of employment, to sign an agreement that subjects all future
employment-related disputes to binding arbitration, including
discrimination claims based on the various federal nondiscrimi-
nation statutes. Under the principle that statutory rights cannot
be waived in advance, some federal courts initially ruled that an
employee would not be bound by such an agreement, made in
advance of any dispute.

The Supreme Court, which is the ultimate authority on interpre-
tation of federal law, resolved the question in March 2001. In a deci-
sion involving an employee of an electronics store in California, the
court ruled that an agreement to arbitrate discrimination claims was
valid and enforceable under the FAA. The court went on to praise

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The SHRM Essential Guide to Employment Law16

arbitration agreements in the employment context, because of the
smaller sums of money normally involved.

The EEOC, which opposes binding arbitration of discrimina-
tion claims, will not stay its own hand in investigating or attempt-
ing to resolve a discrimination charge just because the parties have
entered into an arbitration agreement. In a 2002 case, an employ-
ee of a chain restaurant was fired from his short-order cook job
when the restaurant learned he suffered from seizures. In response
to the EEOC’s suit for violations of the Americans with Disabilities
Act (ADA), the restaurant argued that the employee had signed a
pre-dispute arbitration agreement that barred the EEOC’s suit.
The Supreme Court upheld the EEOC’s suit, saying the EEOC
has an independent statutory right to pursue whatever remedies it
feels appropriate that included not only injunctions against future
violations but also victim-specific relief such as reinstatement and
back pay.

Nor can an arbitration agreement, or any other agreement for
that matter, prevent an employee or former employee from filing a
charge of discrimination with the EEOC or a state fair employment
practices agency.

Arbitration may not always be cheaper than litigation. There
are often significant filing fees just to initiate arbitration. And
while judges are provided by the government without charge,
arbitrators typically charge substantial hourly rates payable by the
parties.

Some employers have tried to shift the burden of arbitration costs
to the employee, so that the employee ends up paying far more to
arbitrate than he or she would in a court suit. Other employers have
drafted arbitration agreements that are so one-sided in favor of the
employer as to be fundamentally unfair to the employee. Decisions
by a number of federal appellate courts have refused to enforce such
agreements, ruling that any attempt to burden an employee with
excessive costs or to give employers unfair procedural advantages is
a denial of the employee’s statutory rights.

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The Employment Relationship 17

QUICK TIP
For companies that require employees to sign noncompetition or nonsolicitation con-

tracts, an arbitration agreement should have an exception allowing the employer to go

to court for an injunction to bar an employee’s or former employee’s violation of the

contract.

Arbitration provisions should not be placed in the employee
handbook, since the employee handbook is not intended to be a
contract of employment. (However, the handbook may mention
the fact that an employer has an arbitration-of-disputes policy.) For
those employees with whom the employer has a formal contract of
employment, the arbitration provision would be included there. For
at-will employees, the employer should use a separate written doc-
ument, dated and signed by the employee, that contains both the
desired arbitration provision and a disclaimer to the effect that the
arbitration provision is not a contract of employment and does not
change the at-will status of the employee.

Despite the Supreme Court’s blessing, legal issues involving
pre-dispute arbitration agreements continue to arise, particularly in
the area of fairness and cost-shifting. To help ensure their validity,
arbitration agreements should do the following:

• contain a clear and unmistakable waiver of the employee’s right to
go to court and specify that arbitration is final and binding

• specifically identify the types of potential claims that the employer
intends to submit to arbitration—claims under Title VII of the
Civil Rights Act, the ADA, the Age Discrimination in Employment
Act (ADEA), the FMLA, state human rights and fair employment
practices acts, county and local nondiscrimination laws, claims for
abusive discharge, pay disputes, etc.

• provide for a neutral arbitrator, not one who is affiliated with the
employer or who regularly hears disputes involving the employer

• allow at least minimal discovery
• not burden the employee with costs in excess of those he or she
would incur in court

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The SHRM Essential Guide to Employment Law18

• be balanced, fair to both sides, and not attempt to give the
employer any procedural advantages

• be binding on the employer as well as the employee (that is, it
should not obligate the employee to arbitrate while giving the
employer the option of arbitrating or not)

• not attempt to take away any of the employee’s substantive statu-
tory rights or limit an employee’s statutory remedies

• require the arbitrator to issue a written award

With increasing frequency, employers are including class- and col-
lective-action waivers in arbitration agreements in an effort to pre-
vent employees from participating with a large group of plaintiffs.
Class and collective actions allow individual plaintiffs to aggregate
their claims into one lawsuit or arbitration proceeding when each
individual claim may be economically too small to pursue.

In AT&T Mobility LLC v. Concepcion, the U.S. Supreme Court
held that class-action waivers are enforceable in the context of a dis-
pute between a business and a consumer. However, the National
Labor Relations Board takes the view that in the employer-employ-
ee context, such waivers violate employees’ rights under the Nation-
al Labor Relations Act (NLRA). (See Chapter 24 for more on the
NLRA.) As of this writing, the issue is before the U.S. Supreme
Court in NLRB v. Murphy Oil USA, Inc.

BUSINESS OWNERS’ EMPLOYMENT STATUS
Business can be conducted in a variety of forms, from the sole
proprietorship to the publicly held, multinational corporation. In
between are general partnerships; small or closely held corpora-
tions that have elected S status for federal income tax purposes
(S corps), limited liability partnerships (LLPs), limited liability
companies (LLCs), and professional corporations (PCs).

The right choice of business entity goes beyond the scope of
this book. This section is concerned with the status of business
owners who also work for the entity they own. Are they con-

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The Employment Relationship 19

sidered employees of the entity? And what liability do they have
for entity obligations or the negligence of other employees? The
answers depend on the specific type of entity involved and on
certain tax elections available to those entities.

Sole Proprietorships
A sole proprietorship is a business owned by a single individual in his or
her individual name. While a sole proprietor can have employees, he
or she is considered self-employed and can never be an employee of the
business. Sole proprietors report their business income and expenses
on Schedule C of Form 1040 for federal income tax purposes.

Sole proprietors are personally liable for their own negligence,
and, as employers, they are vicariously liable for the work-related
negligence of their employees. They are also personally liable for
the business’ obligations, such as wages, lease payments, business
loans, and vendor invoices. For liability reasons, a sole proprietor-
ship is usually not a recommended form for doing business.

General Partnerships
A general partnership is a group of individuals who share profits
and losses of the partnership’s business. Partnerships are treated
as separate entities for some purposes and as pass-through entities
for other purposes. For example, a partnership can have employees
(other than the partners themselves), and it files its own income tax
returns. However, partnerships generally do not pay any income
tax. Instead, any net income or loss shown on the partnership
return is allocated to the partners according to the partnership
agreement. Partners pay tax on their allocated share (as shown on
Schedule K-1 (Form 1065) that the partnership issues to them)
whether or not net income has actually been distributed to them
in cash. Partners are considered to be self-employed.

Partners are personally liable for partnership obligations, just
like sole proprietors. Also, each partner is considered the agent of
each other partner and is personally liable for the negligence and

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The SHRM Essential Guide to Employment Law20

contractual obligations of each partner. (Think of a partner as a
sole proprietor with multiple personalities.) This is the main reason
for the popularity of S corps and, more recently, LLPs and LLCs.

S Corporations
An S corporation, or S corp, is just like any other corporation formed
under state law, but it has elected S status for federal income tax
purposes. (The S refers to the Internal Revenue Code subchap-
ter that permits the election.) As a result, it is treated much like
a partnership for federal income tax purposes, yet it retains the
limited liability features of a corporation. An owner of an S corp
is considered self-employed and gets a Form K-1, just like a part-
ner in a partnership. However, there is no personal liability for
corporate obligations or for the negligence of other employees or
co-owners. Because they have characteristics of both corporations
and partnerships, S corps (along with LLPs and LLCs) are some-
times called hybrids.

S corp status is available only to small business corporations with
one class of stock and fewer than 100 shareholders. Only individu-
als, decedent’s estates, and some types of trusts can be shareholders.
Partnerships and other corporations cannot own stock in an S corp.

Limited Liability Partnerships and Limited Liability Companies
Owners of an LLP (who are called partners) and owners of an
LLC (who are called members) are the equivalent of partners in a
general partnership for tax purposes. Therefore, they are normally
considered self-employed and they get year-end K-1 forms show-
ing their taxable shares of LLP or LLC profits. However, LLPs
and LLCs (or any other entity treated as a partnership under state
law) may take advantage of the IRS’s check-the-box rule and elect
to be taxed as corporations. Worker-owners would then be treated
as employees, as with any other corporation.

Regardless of an LLP’s or LLC’s status for tax purposes, its
partners or members have no personal liability for obligations of

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The Employment Relationship 21

the LLP or LLC, or for the negligence of other partners, mem-
bers, or employees.

QUICK TIP
Small businesses with only a few owners may find it advantageous to organize as LLCs

and then elect to be taxed as S corps. This arrangement enjoys simplicity of organization,

pass-through tax status, and protection of owners from personal liability. In addition, it

allows an income tax deduction for the employer’s portion of FICA due on compensation

paid to owner-employees. Had the LLC not elected corporate taxation status, all compen-

sation to owner-employees would have been subject to self-employment tax for which

no deduction is available.

Professional Corporations
Traditionally, professionals like doctors, lawyers, and accountants
were only permitted to practice as sole proprietors or as partnerships.
The fear was that if they practiced in corporate form, their profes-
sional judgment would be compromised by being subjected to the
wishes of a corporate board of directors. At the same time, however,
federal income tax law (particularly regarding pension plans) strong-
ly favored corporations over partnerships. So professionals brought
pressure on state legislators and licensing boards to allow them to
incorporate. The result was the professional corporation (PC).

QUICK TIP
Depending on a variety of factors, owners of a professional corporation may or may not

be counted as employees for federal nondiscrimination law purposes. In Clackamas Gas-

troenterology Associates, P.C. v. Wells, the Supreme Court applied the common-law test

of whether the employer controls the means and manner of the workers’ performance in

determining whether the physician-shareholders in a medical practice should be counted

as employees.

PCs are in every respect true corporations under state law. An
owner who works for the PC is usually classified as an employee for
tax purposes and receives a Form W-2 at year-end, just like employ-

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The SHRM Essential Guide to Employment Law22

ees of other corporations. (PCs can elect S corp status in which case
owners are treated as self-employed for federal tax purposes.) How-
ever, only licensed members of the particular profession for which
the PC was organized can be shareholders, directors, and officers.

Professionals who work for a PC are personally liable to their cli-
ents for professional negligence, regardless of their status as employ-
ees for other purposes. But the good news is that they are not
personally liable for the negligence of their fellow professionals—a
liability they would have if they had organized in partnership form.

C Corporations
Large businesses have little choice in their type of entity. To participate
effectively in capital markets they must organize in corporate form.
They also cannot qualify as S corps under the Internal Revenue Code
because they have a broad shareholder base, and perhaps several
classes of stock. C corp shareholders may work for the corporation
but they have no special status as shareholder-employees. Both the
president who owns 10,000 shares and the janitor who owns 10
shares get Forms W-2, and neither is generally liable for corporate
obligations or the negligence of fellow employees.

QUICK TIP
Although sole proprietors and partners are considered self-employed, many workers’

compensation statutes allow them to opt in and obtain coverage. Conversely, while

members of LLCs and corporate officers are covered by workers’ comp statutes, they are

often permitted to opt out of coverage. (Workers’ compensation insurance is discussed

in Chapter 11.)

EBSCOhost – printed on 10/20/2022 3:28 PM via UNIVERSITY OF MARYLAND GLOBAL CAMPUS. All use subject to https://www.ebsco.com/terms-of-use

Competency 7: Ethical Practice
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Definition

The ability to integrate core values,

integrity, and accountability throughout all

organizational and business practices.

 Rapport Building

 Trust Building

 Personal, Professional, and Behavioral

Integrity

 Professionalism

 Credibility

 Personal and Professional Courage

 Maintains confidentiality

 Acts with personal, professional, and behavioral integrity

 Responds immediately to all reports of unethical behavior or conflicts of interest

 Empowers all employees to report unethical behavior or conflicts of interest

without fear of reprisal

 Shows consistency between espoused and enacted values

 Acknowledges mistakes

 Drives the corporate ethical environment

 Applies power or authority appropriately

 Recognizes personal bias and others’ tendency toward bias, and takes

measures to mitigate the influence of bias in business decisions

 Maintains appropriate levels of transparency in organizational practices

 Ensures that all stakeholder voices are heard

 Manages political and social pressures when making decisions

Behaviors

(These are most typically demonstrated by individuals at the
highest level of proficiency on the indicated competency)

Proficiencies by Career Level

Sub Competencies
(competencies related to and/or subsumed by the

relevant general competency)

©2012 Society for Human Resource Management

 Supports training programs regarding ethical laws,
standards, and policies

 Demonstrates accountability for actions

 Behaves in a manner consistent with the difficult decisions
made by management

 Identifies potential conflicts of interest

 Follows policies consistently

 Documents and escalates reports of unethical behavior to
management

 Maintains employee confidentiality throughout appropriate
business processes

 Maintains knowledge of internal organizational controls

 Maintains awareness of ethics laws, standards, legislation,
and trends that may affect organizational HR practice

 Supports HR policies, procedures, and guidelines

 Establishes one’s self as a credible and trustworthy source
for employees to voice concerns

 Maintains general knowledge of ethical laws, standards,
legislation, and trends that may affect organizational HR
practice

 Reinforces difficult decisions that align with organizational
strategies and values

 Establishes one’s self as a credible resource for all issues
involving employees and management

 Develops and supports systems for reporting unethical
behavior

 Enforces policies consistently

 Establishes one’s self as a credible and trustworthy source for
employees to voice concerns

 Influences others to behave in an ethical manner

 Performs as an ethical role model and positively influences
managerial integrity and accountability

 Implements training programs regarding ethics laws,
standards, and policies

 Takes immediate and appropriate action regarding reports of
unethical behavior or conflicts of interest

 Audits and monitors adherence to policies and procedures

 Creates processes to ensure confidentiality and privacy of
employee information and company data

EARLY LEVEL MID LEVEL

Proficiencies by Career Level

Competency 7: Ethical Practice

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Proficiency Standards by Career Level – Behavioral standards in which an HR professional at the relevant level should engage to be successful.

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 Establishes oneself as a credible and trustworthy source
for employees to voice concerns

 Maintains contemporary knowledge of ethics laws,
standards, legislation, and emerging trends that may affect
organizational behaviors and practice

 Establishes HR team as a credible and trustworthy
resource within the organization

 Supports executive’s and makes own difficult decisions
that align with organizational strategies and values

 Oversees processes to protect the confidentiality of
employee information

 Responds promptly and appropriately to reports of
unethical behavior

 Evaluates potential ethical risks and liabilities to the
organization

 Serves as a role model of ethical behavior by consistently
conforming to the highest ethical standards and practices

 Develops systems for employees to report unethical
behavior for implementation

 Sets organizational standards for confidentiality of
employee and privacy of company data

 Withstands political pressures when implementing and
enforcing policies and procedures

 Briefs executives on any reports of unethical behavior or
conflicts of interest that might threaten the organization

 Ensures access to ethical standards and policies for all
employees across business units

 Develops ethical policies and procedures for
implementation

 Champions organizational values

 Establishes self as a credible resource for all issues
involving employees and their management

Proficiencies by Career Level

SENIOR LEVEL

Competency 7: Ethical Practice

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Proficiency Standards by Career Level – Behavioral standards in which an HR professional at the relevant level should engage to be successful.

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©2012 Society for Human Resource Management

 Empowers senior leaders to maintain internal controls and
create an ethical environment to prevent conflicts of interest

 Maintains contemporary knowledge of ethics, laws,
standards, legislation, and emerging trends that may affect
organizational HR practice

 Establishes one’s self as a credible and trustworthy source
for employees to voice concerns

 Challenges other executives and senior leaders when
potential conflicts of interest arise

 Withstands politically motivated pressure when developing
strategy

 Sets the standard for being a role model of ethical behavior
by consistently conforming to the highest ethical standards
and practices

 Balances organizational success and employee advocacy
when creating strategy

 Develops HR policies and internal controls to minimize
organizational risk from unethical practice

 Creates HR strategy that holds employees accountable for
their actions

 Makes difficult decisions that align with organizational
strategies and values

 Communicates the vision for an organizational culture where
espoused and enacted values align

 Maintains a culture that requires all employees to report
unethical practices and behavior

 Aligns all HR practices with ethics, laws, and standards

EXECUTIVE LEVEL

Proficiencies by Career Level END

Competency 7: Ethical Practice

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Proficiency Standards by Career Level – Behavioral standards in which an HR professional at the relevant level should engage to be successful.

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