Human resources employment law: keeping out of harm's way.

Although the relationship between employers and employees continues to grow more complex and litigious, CPAs who are responsible for managing their companies' human resources function frequently lack the training needed to address the problem. This article seeks to correct that shortcoming. It cites some key personnel issues management accountants face and tells how to avoid legal traps.

DEFINING EMPLOYMENT

Not so long ago, all employment was at will, unless there was a specific written document citing an employment contract or some other restriction. Under the at-will employment doctrine, either the employer or the employee could end the employment relationship without notice and for any reason or even for no reason. However, in some states the courts have held that an employee handbook or a statement by a supervisor may be construed as a contract-eroding the at-will doctrine to such an extent that employers generally cannot fire employees freely. In these states, terminated employees can sue their employers for breach of contract--with the "contract" consisting of a statement in an employee handbook or a supervisor's statement.

There are ways to protect against such suits. If such a handbook does exist, employers should include a statement in it reserving their right to terminate employment freely. A similar statement should be included in employment applications. The statement should say something like this: "Employment is at will. You may terminate your employment at any time, for any reason, with or without notice and with or without cause, and your employer may do the same. This employment relationship is neither an express nor an implied employment contract. This relationship can be changed only by a written agreement signed by the employee and the president of this company."

Certain statements should be avoided when communicating with employees because they may imply employment is on a contractual basis. Such statements include

* "You will have a long and successful career...."

* "Stay with us until you retire...."

Employers also should warn all supervisors that their statements can be construed to imply a contract of employment and direct them to avoid such comments in employment interviews and other situations.

FREEDOM TO FIRE

Policies--especially disciplinary ones--should give employers considerable discretion in their implementation. For example, disciplinary policies should state that the employer will follow certain disciplinary procedures but should add that the employer reserves the right to forgo any of them and terminate an employee immediately.

Moreover, employers should avoid policies that provide lists of prohibited employee conduct unless such lists also include a statement that in addition to the expressly prohibited conduct other unacceptable conduct, as determined solely by the employer, may result in termination.

RECORDING DISCIPLINARY EVENTS

In general, the best defense in any legal action is one supported by contemporaneous records. That's especially important when it comes to employee discipline. Every time an employee is subject to a disciplinary event--from a warning to a discipline--a memorandum recording what transpired when the warning was issued or when the punishment was meted out should be prepared by the supervisor involved. Doing so is the best way to protect a company's interest should the matter lead to legal proceedings. Such documents should be written in simple, clear language so the employee understands the issues involved and the seriousness with which the employer views the errant behavior.

After reading a disciplinary report, the employee should be asked to sign it, confirming that it is accurate and that he or she understands it. If the employee refuses to sign, another supervisor should be briefed on what transpired during the meeting and then also sign the document so there is a contemporaneous record of the event.

RECORDKEEPING

In accordance with many state statutes, all employment documents must be confidential. Moreover, in compliance with the Americans with Disabilities Act, documents pertaining to employees' medical conditions should not only be confidential but also be maintained in files separate from the employees' other records. All personnel records should be retained for at least three years after termination in case an employee files a civil suit against the company. Such records also are vital for support if the employer is audited by the Office of Federal Contracts Compliance Programs, which monitors government contractors' compliance with hiring policies, especially as they relate to minorities and women.

AGE DISCRIMINATION

The Age Discrimination in Employment Act (ADEA) protects workers 40 years old and over from unfair dismissal. The key words here are "and over": There is no longer an upper age limit. Consequently, employers should not assume older workers will retire voluntarily at any age. This is true even if an older worker orally has expressed an intent to retire. Because employers cannot mandate retirement, employees who say they plan to retire may change their minds before such decisions are implemented. Employers always should ask employees to provide a signed, written record of their intention to retire. However, such records do not always provide effective protection if an employee changes his or her mind.

The only employees not protected by the mandated retirement policy are those who (1) work in a bona fide policy-making executive capacity and (2) will receive an annual pension of $44,000 or more from the employer.

In addition to ADEA, older workers also are protected by the Older Workers Benefit Protection Act (OWBPA), which prohibits discrimination in benefits and establishes minimum standards for waiving ADEA rights. The minimum standards require that when an employee is offered early retirement, the terms of the agreement must

* Be knowingly and voluntarily entered into.

* Be written in plain language.

* Specifically refer to rights arising under the ADEA.

* Specifically inform workers they are waiving their rights under ADEA.

* Include the causes of action that may be brought, including nonstatutory causes of action, such as wrongful discharge or contract claims

Such releases can apply only to claims that arose by the date they are signed. Employees must be told in writing in such releases that they may consult legal counsel before signing. Releases also must be supported by a "consideration"--something more than what is available under the employer's general policies. For example, severance might be increased or health benefits extended.

EARLY RETIREMENT

Employees who are offered early retirement incentives or asked to sign releases must be given sufficient time--defined as 21 days--to decide whether to sign such releases. Employees who are being laid off or who are asked to sign waivers in connection with exit incentives or other termination programs must be given 45 days to decide whether to sign. Further, if they do sign waivers they must be given another 7 days to decide whether to rescind the release. Because employees may change their minds, employers should wait until after the rescission period has passed before giving them the additional benefits. Otherwise, employees may take the benefits and then rescind the release.

Employees who are not offered early retirement packages but are being discharged also may be asked to sign releases in exchange for similar kinds of consideration--for example, additional severance or increased benefits.

REASONS FOR DISCHARGE

Before employees are terminated, certain preliminary steps must be taken. Employers must be sure a termination is based on legitimate, nondiscriminatory reasons such as performance deficiencies, which should be documented. They also should be sure that employees are advised of the reasons for their termination. The documents should reflect the fairness of the employer's actions and show the employees were given adequate warning and sufficient time to improve. Of course, some actions are so unacceptable they may lead to termination after a first offense--for example, using alcohol or drugs on company premises or hitting a supervisor.

If a layoff is necessary, employers should have a neutral policy for determining who will be let go. The safest policy to follow is one based on seniority. However, other criteria also may be used--for example, anyone with less than a "good" annual rating will be laid off. Whatever the policy is, it must be followed consistently. Any exceptions leave the employer open to discrimination suits.

SEXUAL HARASSMENT 

One of the most important documents that employers must have is a policy specifically prohibiting sexual harassment. Sexual harassment has become one of the most frequently litigated employment-related issues. Sexual harassment is prohibited by Title VII of the Civil Rights Act of 1964 and also by many state laws. Title VII's definition of sexual harassment includes any unwelcome sexual advances or requests for sexual favors or any conduct of a sexual nature when

1. Submission to such conduct is made either explicitly or implicitly a term or condition of an individual's employment.

2. Submission to or rejection of such conduct by an individual is used as the basis for employment decisions affecting that individual.

3. Such conduct has the purpose or effect of substantially interfering with an individual's work performance or creating an intimidating, hostile or offensive working environment.

Policies prohibiting sexual harassment also must contain procedures for reporting harassment. For example, they must provide a choice of people to whom such complaints may be brought. One of these people should be responsible for human resources. Policies that say complaints may be brought only to an employee's supervisor are inadequate because the supervisor might be the harasser, in which case the employee would be reluctant to make a complaint.

Employers cannot rely on a defense of ignorance if they fail to investigate a sexual harassment claim. Rather, the standard is that an employer must take remedial action if it knew or should have known of the harassment. Once an employer is aware of sexual harassment, it must investigate the claims promptly, document the investigation and, if harassment appears to have occurred, remedy the situation promptly and effectively. If the employer fails to remedy the situation and the harassed individual quits because of the harassment, the employee can allege he or she was effectively discharged because the employer knew of the harassment and allowed it to continue.

The U.S. Supreme Court ruled in November 1993 that persons who sue their employers for sexual harassment do not have to prove severe psychological harm to win their suits. The Court held that it is sufficient if a reasonable person would find the atmosphere hostile or abusive.

Even though employment relationships have become more complex, many problems employers may encounter can be countered successfully through adequate contemporaneous documentation and up-to-date knowledge of constantly changing employment laws. CPAs responsible for employee relations should establish forums for educating and updating the staff, such as seminars, and become members of an organization for human resources professionals.

EXECUTIVE SUMMARY

* THE RELATIONSHIP between employers and employees continues to grow more complex and litigious. Here are some strategies for avoiding the legal traps:

* BE SURE company handbooks or comments by supervisors cannot be construed as implying a contractual basis for employment. For safety, make clear in employment applications that any employment relationship is not a contract of employment.

* PREPARE POLICIES that give the employer freedom to exercise its discretion when firing or disciplining employees.

* BE SURE all disciplinary actions are backed up with contemporaneous records signed by the disciplined employee.

* KEEP ALL EMPLOYMENT documents confidential and maintain any records pertaining to employees' medical conditions in separate files.

* BE AWARE THAT the law protects workers 40 years old and over from unfair dismissal. The key words here are "and over": There is no longer an upper age limit. Consequently, employers should not assume olders workers will reture voluntarily at any age.

* DO NOT FIRE AN employee before taking certain preliminary steps: Be sure the firing is based on legitimate, nondiscriminatory reasons; the reasons for the discharge are fully documented; and the employee is advised of the reasons and is given adequate warning and sufficient time to improve.

* DEVELOP POLICIES that specifically prohibit sexual harassment and include procedures for reporting harassment.

SUSAN K. KRELL, JD, is a partner of Wiggin & Dana, a law firm in Hartford, Connecticut. She serves on the American Bar Association's labor and employment law committee and is a past vice-president of the Federal Bar Association. She has argued employment discrimination cases before the U.S. Supreme Court.