The US legal system always has surprises in store for most businesspeople from Europe. Some of these “peculiarities” have attracted attention due to high-profile disputes in the US, such as the horrendous damages paid in product liability cases. Popular stories that often come to mind might include the cat in the microwave or the old lady who spilled coffee on her lap. On hearing these stories, people tend to either be quite amused or perhaps frightened, depending on the extent to which they might be affected themselves. But it is not just these “special cases” that harbor high potential liability for uninformed businesspeople. Even relatively familiar areas of law have unexpected dangers that should not be underestimated. Below, we look at some of the pitfalls of US employment law.
Differences in employment law compared to German-speaking countries
Most companies from Germany or Austria are not aware of the various differences between employment law here compared to the US. A lack of relevant information before entering into an employment relationship with a US employee can therefore have serious legal as well as professional consequences. Who would think that it isn’t right to ask applicants in the US to include a photo on their résumé or for information about their marital status or age? Habits from back home can thus quickly have consequences that are both costly and otherwise unpleasant.
Protection against dismissal in the US
Generally speaking, US employment law does not provide statutory protection against termination as in Germany or Austria. “Hire and fire” is the general principle which applies here. But while this system might seem quite harsh by European standards, it reflects what is seen as a love of freedom and independence on the part of both the employer and the employee. When it comes to finding workers and finding jobs, the flexibility this system creates in the US labor market is generally highly valued by both sides.
Risk of liability and legal action for employers
Many employers in the US underestimate the risks involved in human resources management, which, unfortunately, is the cause for of a high number of lawsuits in the US. The violation of anti-discrimination rules is generally the cause for such suits. In this respect the US system differs significantly from Germany’s philosophy of employment law. The risk of liability is therefore immense.
Federal and state laws must be observed – discrimination is prohibited
In the US, employment law generally is generally regulated by the individual states. Therefore, a state court typically decides whether certain clauses in employment contracts are valid. However, a very significant area of employment law falls under the reserved jurisdiction of federal law – the prohibition of discrimination of any kind in the workplace, for example, on the grounds of race, gender, sexual orientation, or age. While dismissals are certainly considered justified due to professional incompetence or a lack of dedication in most cases, lawsuits against such dismissals usually focus on some type of discriminatory behavior by the employer.
How to protect your company against liability claims and lawsuits under employment law
In order to protect your business adequately against lawsuits or unpleasant investigations by the authorities, it is important to take preventive action by compiling clear, complete documentation ahead of time. These include written:
- Employment contracts (also known as employment agreements or engagement letters)
- Independent contractor agreements
- Supplemental agreements for expatriate employees, especially regarding tax and social security issues
- Company policies
- Employment manuals or employee handbooks
- Non-compete clauses, confidentiality clauses, and non-solicitation clauses
- Company retirement plans (known as employee benefit plans, including 401(k), IRAs, and medical plans)
The above documents are partly designed to protect the employer from liability claims due to allegations of discrimination in the workplace. One example is when an employee handbook clearly states that certain behaviors will not be tolerated or accepted by the employer. This may include the consumption of drugs and alcoholic beverages in the workplace, but also certain types of behavior toward colleagues. If this information is missing from the handbook, it could result in allegations that the employer has negligently failed to perform its duty of supervision and has condoned such misconduct at a minimum. This can prove to be very expensive for the employer.
Mitigating conflicts and the potential for liability under US employment law
Regardless of the wording of these documents, their aim is to mitigate the potential for conflict and thus liability as optimally as possible. That said, it is unlikely that they can ever provide full protection, as anti-discrimination laws are too complex for this.
The bottom line: Get the best advice before conflicts involving employment law arise
The key is to take proactive steps to prevent potential conflicts by preparing and implementing the above documents accordingly. Ultimately, comprehensive legal advice is essential before entering into an employment relationship. This applies to both sides, especially if the potential employee is a person who receives a higher salary and holds a management role. If litigation, arbitration, or administrative proceedings nonetheless cannot be avoided, or if layoffs need to be announced, our attorneys will provide comprehensive advice and work out an appropriate strategy with you.