Employment Law

Disclaimer: This skill provides general educational guidance on employment law concepts and common practices. It is NOT legal advice. Employment law is highly jurisdiction-specific - federal, state/province, and local laws interact in complex ways and change frequently. Always consult a licensed employment attorney before making consequential decisions around terminations, classifications, or legally binding agreements. What is lawful in one state may be unlawful in another.

Employment law governs the relationship between employers, employees, and contractors. It spans the full employment lifecycle: recruiting and hiring, wage and hour compliance, workplace policies, leaves of absence, and separation. Getting it wrong creates significant legal and financial exposure. Getting it right builds a compliant, fair workplace that attracts and retains talent.

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When to use this skill

Trigger this skill when the user:

• Needs to draft or review an offer letter or employment agreement
• Is preparing to terminate an employee and wants a proper process
• Needs to determine whether a worker should be classified as an employee or contractor
• Wants to create or update workplace policies (handbook, PTO, remote work, etc.)
• Is drafting a non-compete, non-solicitation, or confidentiality agreement
• Needs to handle a leave of absence request (FMLA, ADA, state leave laws)
• Is conducting or documenting a workplace investigation
• Wants to understand severance obligations and best practices

Do NOT trigger this skill for:

• Providing jurisdiction-specific legal opinions - always recommend consulting counsel
• Tax advice on contractor payments or payroll - use a CPA or tax attorney

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Key principles

1. Document everything - Employment decisions that lack documentation become indefensible in litigation. Every performance issue, accommodation request, policy acknowledgment, and disciplinary action must be written, dated, and retained. If it is not in writing, it did not happen.

2. Classify workers correctly from the start - Misclassifying an employee as an independent contractor is one of the most common and costly employment law errors. Back taxes, penalties, benefits liability, and class action exposure can result. Apply the applicable classification test before engaging any worker.

3. At-will does not mean no process - Most US employment is at-will, meaning either party can end the relationship at any time for any legal reason. But terminating without process creates discrimination and retaliation exposure. A consistent, documented process protects the company and treats employees fairly.

4. Consistency prevents discrimination claims - Applying policies selectively - enforcing attendance rules for some employees but not others, offering severance to some but not others - creates disparate treatment claims. Whatever you do for one, document your rationale when you do differently for another.

5. Consult counsel before terminating - Termination is the highest-risk moment in the employment lifecycle. Wrongful termination claims, discrimination claims, retaliation claims, and WARN Act violations all originate here. A 30-minute attorney consultation before a complex termination is cheap insurance.

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Core concepts

At-will employment

In most US states, employment is "at-will" - either party may end the relationship at any time, for any reason that is not illegal. Exceptions include:

• Discrimination - Cannot terminate based on a protected class (race, sex, age, disability, religion, national origin, etc.)
• Retaliation - Cannot terminate for protected activity (whistleblowing, filing an EEOC complaint, taking FMLA leave, reporting wage violations)
• Implied contracts - Employee handbooks or offer letters that imply job security can erode at-will status
• Public policy exceptions - Vary by state (e.g., terminating for jury duty)

Outside the US, most jurisdictions have statutory notice periods, severance requirements, and "just cause" standards. At-will is a US-specific concept.

Worker classification tests

Three primary tests are used in the US depending on context:

IRS Common Law Test (for federal tax purposes)

• Behavioral control: Does the company control how work is done?
• Financial control: Is the worker economically dependent on one company?
• Type of relationship: Is there a written contract? Benefits? Permanent relationship?

ABC Test (California AB5 and many other states) A worker is presumed an employee UNLESS the hiring entity proves all three:

• A: The worker is free from control in connection with the work
• B: The work is outside the usual course of the company's business
• C: The worker is customarily engaged in an independently established trade

Economic Reality Test (federal FLSA) Focuses on economic dependence: does the worker depend economically on this company (employee) or is the worker in business for themselves (contractor)?

Protected classes

Federal law prohibits employment discrimination based on:

• Race, color, national origin (Title VII)
• Sex, pregnancy, sexual orientation, gender identity (Title VII + Bostock)
• Age (40+) (ADEA)
• Disability (ADA)
• Religion (Title VII)
• Genetic information (GINA)

State and local laws frequently add: marital status, political affiliation, criminal history (ban-the-box laws), salary history, and more. Always check local law.

Wage and hour basics

• Minimum wage: Federal minimum is $7.25/hr but most states and many cities are higher. The highest applicable rate governs.
• Overtime: Non-exempt employees must receive 1.5x their regular rate for hours over 40 in a workweek (FLSA). Some states require daily overtime.
• Exempt vs. non-exempt: The FLSA salary threshold (currently $684/week) and the duties tests determine exemption. Job title does NOT determine exempt status.
• Pay frequency and final pay: States dictate how often employees must be paid and when final paychecks must be issued (often immediately on termination in states like California).

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Common tasks

Draft an offer letter

An offer letter sets expectations and establishes key terms. Use this template as a starting point - always have counsel review for jurisdiction-specific requirements:

[Date]

[Candidate Name]
[Address]

Dear [Name],

[Company Name] is pleased to offer you the position of [Job Title] in the
[Department] department, reporting to [Manager Title].

START DATE: [Date], subject to successful completion of onboarding requirements.

COMPENSATION: Your starting annual salary will be $[Amount], paid [bi-weekly/
semi-monthly], equivalent to $[hourly rate] per hour. This position is classified
as [exempt/non-exempt] under the Fair Labor Standards Act.

BENEFITS: You will be eligible for the Company's standard benefits package,
including [health/dental/vision/401k], subject to plan terms and eligibility
periods. Details will be provided separately.

EQUITY: [Include if applicable: You will be granted an option to purchase
[X] shares of Company common stock at the fair market value on the grant date,
subject to the terms of the Company's equity plan and a 4-year vesting schedule
with a 1-year cliff.]

AT-WILL EMPLOYMENT: Your employment with [Company] is at-will, meaning either
you or the Company may terminate the employment relationship at any time, with
or without cause or advance notice.

CONDITIONS OF EMPLOYMENT: This offer is contingent upon:
- Satisfactory completion of a background check (if applicable)
- Proof of authorization to work in the United States (I-9 verification)
- Execution of the Company's standard Confidentiality and IP Assignment Agreement

This offer expires on [Date]. Please sign below to indicate your acceptance.

Sincerely,
[Name], [Title]
[Company Name]

______________________________
Accepted: [Candidate Name]   Date: ___________

Key omissions to avoid:

• Do not promise specific duration of employment
• Do not use language like "permanent position" or "job security"
• Do not list benefits in binding detail - reference the plan documents instead
• Do not state the position is anything other than at-will (unless intentional)

Handle termination

Follow a structured process. See references/termination-checklist.md for the complete step-by-step checklist. Summary:

1. Pre-termination review - Document the reason, verify it is not pretextual, check for protected class membership and any recent protected activity. Consult HR and consider legal review for complex cases.
2. Calculate final pay obligations - Determine what is owed: final wages, accrued PTO (if applicable in your state), expense reimbursements.
3. Prepare separation paperwork - Separation agreement (if offering severance), COBRA notice, unemployment notice, any required state-specific notices.
4. Conduct the meeting - Brief, respectful, with a witness present. Do not debate the decision. Have security/IT access revocation ready.
5. Post-termination - Preserve all relevant records, respond to unemployment claims accurately, honor any non-disparagement obligations.

Classify contractor vs employee (IRS test)

Use this decision framework before engaging or continuing a contractor relationship:

Factor	Points toward Employee	Points toward Contractor
Instructions	Company controls how/when/where work is done	Worker controls their own methods
Training	Company trains the worker	Worker uses their own methods
Integration	Work is integral to business operations	Work is peripheral or project-based
Services rendered personally	Must perform services themselves	Can hire substitutes
Hiring assistants	Company hires helpers	Worker hires and pays own assistants
Continuing relationship	Ongoing, indefinite relationship	Defined project or period
Set hours	Company sets schedule	Worker sets own hours
Full-time required	Worker must work full-time for company	Worker free to work for others
Work location	Company premises	Worker's own location or client sites
Tools and equipment	Company provides	Worker provides own
Profit/loss	No financial risk	Worker can profit or lose money
Multiple clients	Works primarily for one company	Works for multiple clients

If the majority of factors point toward employee, misclassification risk is high.

Create employee handbook policies

Every handbook needs these foundational policies. Each should be reviewed by employment counsel for your specific jurisdictions:

Policy	Key elements to include
At-will statement	Clear statement; get signed acknowledgment annually
Equal opportunity / anti-harassment	Protected classes, reporting procedures, no-retaliation statement
Anti-retaliation	Explicit prohibition; multiple reporting channels
PTO / paid leave	Accrual or front-load, carryover rules, payout on termination
Remote work	Eligibility, equipment, expense reimbursement, time zone expectations
Expense reimbursement	Approval process, documentation requirements, timing
Social media	Guidelines, confidentiality reminders, personal vs. professional use
Confidentiality and IP	What is confidential, IP assignment, post-employment obligations

Handbook pitfalls:

• Avoid mandatory arbitration clauses without legal review (enforceability varies)
• Do not include policies you will not enforce consistently
• Update annually or when laws change - outdated handbooks create liability
• Always get a signed acknowledgment of receipt from every employee

Draft non-compete and non-solicitation agreements

Non-compete enforceability varies dramatically by state:

• Not enforceable: California, North Dakota, Minnesota, Oklahoma, and FTC rules (if/when they take effect) prohibit most non-competes entirely
• Narrowly enforceable: Most states require reasonable duration (6-12 months), limited geographic scope, and protection of a legitimate business interest
• More broadly enforceable: Florida and some other states are more permissive

Elements of an enforceable non-compete (where permitted):

RESTRICTED PERIOD: [6-12 months is generally more defensible than 2+ years]
GEOGRAPHIC SCOPE: [Specific states/metros where company actually operates]
RESTRICTED ACTIVITIES: [Specific role/industry, not broad "employment anywhere"]
CONSIDERATION: [Must be supported by adequate consideration - offer of employment
  for new hires, or additional compensation/equity for existing employees]

Non-solicitation of customers and employees is more broadly enforceable than non-competes. Focus on protecting actual customer relationships the employee had, not all customers.

Always have counsel draft or review these agreements. Overbroad agreements may be voided entirely or blue-penciled (rewritten by courts) in ways that eliminate your intended protection.

Manage leaves of absence (FMLA / ADA)

FMLA (Family and Medical Leave Act) - federal:

• Applies to employers with 50+ employees
• Eligible employees (12 months employed, 1,250 hours worked) get 12 weeks unpaid, job-protected leave per year
• Qualifying reasons: serious health condition (employee or immediate family), childbirth/adoption, qualifying military exigency
• Obligation: provide notice, designation letter, and maintain health benefits
• Key trap: Never terminate during FMLA leave without careful legal review - retaliation claims are common and costly

ADA (Americans with Disabilities Act) - federal:

• Applies to employers with 15+ employees
• Obligation: engage in an "interactive process" with any employee who requests an accommodation for a physical or mental impairment
• Reasonable accommodations: schedule changes, modified duties, leave extensions, remote work, equipment modifications
• Key trap: Denying leave or accommodation without documented undue hardship analysis creates ADA exposure

Practical process:

1. Employee notifies you of a health condition or need for leave
2. Provide FMLA paperwork within 5 business days (if FMLA-eligible)
3. Require healthcare provider certification
4. Designate leave as FMLA in writing
5. If FMLA is exhausted or does not apply, evaluate ADA accommodation
6. Document every step of the interactive process

Handle workplace investigations

When to investigate: Any complaint of harassment, discrimination, or retaliation; suspected policy violations; reports of hostile work environment; allegations of misconduct that could expose the company to liability.

Investigation steps:

1. Act promptly - Delay signals indifference and can itself create liability
2. Assign the investigator - HR, in-house counsel, or outside investigator (use outside counsel for senior executive complaints or complex matters)
3. Preserve evidence - Litigation hold on emails, messages, and documents related to the complaint before interviews begin
4. Interview in order: Complainant first, then witnesses, then respondent last
5. Document every interview - Date, time, attendees, summary of statements
6. Make findings - Substantiated, not substantiated, or inconclusive
7. Take action - Proportionate to findings; document the decision rationale
8. Close the loop - Notify the complainant that the investigation is complete (you need not share the outcome in detail)

Investigation rules:

• Maintain confidentiality to the extent possible (not absolute confidentiality)
• Do not promise absolute confidentiality - you may need to act on what you learn
• Never retaliate against a complainant - even if the complaint is not substantiated

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Anti-patterns / common mistakes

Mistake	Why it is wrong	What to do instead
Verbal-only performance warnings	Creates "he said/she said" disputes; no evidence trail if termination is challenged	Use written PIPs and written warnings with employee signature or delivery confirmation
Classifying workers as contractors to avoid benefits	Triggers IRS reclassification, back taxes, penalties, and potential class actions	Apply the ABC or common law test; reclassify proactively if risk is high
Terminating the day after FMLA/complaint	Creates a perfect retaliation timeline that juries find compelling	Document independent reasons; consult counsel; allow time to pass and performance evidence to build
One-size-fits-all handbook	Federal law governs minimum standards, but state and city laws vary widely and override weaker federal rules	Have counsel review the handbook for every state where you have employees
Overbroad non-competes	Courts in employee-friendly states void them entirely, eliminating any protection	Narrow scope to legitimate interests; consult counsel on enforceability by jurisdiction
No interactive process documentation	ADA requires good-faith engagement; no documentation = no defense	Document every step: employee request, company response, options considered, outcome

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Gotchas

1. Terminating an employee the week after they filed a complaint creates a near-perfect retaliation timeline - Even if the termination is for a legitimate, unrelated reason, the timing is extremely difficult to defend in litigation. Document independent reasons thoroughly before acting and, where possible, allow time and additional performance evidence to build. Always consult counsel before terminating anyone who has recently engaged in protected activity.

2. Employee handbooks that promise progressive discipline eliminate at-will status - Language like "employees will receive a verbal warning, then a written warning, then termination" creates an implied contract. If the company then terminates without following the stated steps, it has violated its own policy. Use permissive language: "may include" rather than "will include."

3. The ABC test (California AB5 and similar state laws) presumes all workers are employees - Unlike the IRS common law test, the burden is on the company to prove contractor status under all three prongs. A worker who primarily does work core to your business (prong B) almost certainly cannot be classified as a contractor in California, regardless of what their contract says.

4. FMLA leave runs concurrently with other leave - but only if you designate it in writing - If an employee takes disability leave and you don't formally designate it as FMLA within 5 business days, you may have waived your ability to count it. The employee could then take an additional 12 weeks of FMLA after returning. Always send a written FMLA designation notice immediately.

5. Non-competes that are overbroad get voided entirely in many states, not narrowed - Some states (California, for example) refuse to enforce any non-compete regardless of scope. Others may "blue-pencil" (rewrite) an overbroad agreement, but the rewrite may eliminate your actual protection. Draft narrowly from the start rather than starting broad and hoping a court will trim it.

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References

For detailed guidance on specific tasks, load the relevant file from references/:

• references/termination-checklist.md - Step-by-step pre-termination review, meeting conduct, final pay, and documentation checklist

Only load a references file when the current task requires it.