Ch1. US Labor Law Basics — Structure of Employment Law and the Employment Contract

What Is Labor Law?

Labor law corrects the inherent imbalance between employers and employees. Because workers depend economically on their employers, individual bargaining alone rarely provides adequate protection.

The Three Pillars of US Labor and Employment Law:

Individual Employment Law: FLSA, Title VII, ADA, FMLA → protects individual workers
Collective Labor Law: NLRA, LMRA → governs collective bargaining and labor-management relations
Social Insurance: ERISA, unemployment insurance, workers’ compensation → provides economic security

Coverage of the Fair Labor Standards Act (FLSA)

The FLSA is the primary federal law governing wages and hours. It covers most private-sector and government employers engaged in interstate commerce.

Small employer exemption: Employers with fewer than $500,000 in annual gross revenue and not engaged in interstate commerce may be exempt from FLSA coverage. However, most states have independent wage laws that fill any gaps.

Counting covered employees:

Full-time, part-time, temporary, and seasonal workers all count
Coverage is assessed by enterprise or individual employee coverage

Exemptions from FLSA:

Executive, administrative, and professional employees meeting salary and duties tests
Outside salespeople, agricultural workers, and certain other categories

Definitions: Employee and Employer

Employee

Under the FLSA: “any individual employed by an employer.”

The critical concept is the economic reality test. Courts examine whether the worker is economically dependent on the alleged employer.

Employee Status Factors (Supreme Court / DOL guidance):

Degree of control the employer exercises over the worker
Worker’s opportunity for profit or loss
Permanency of the relationship
Skill required
Whether the work is integral to the employer’s business

→ Gig workers, independent contractors, and freelancers are evaluated based on economic reality, not contract labels.

Employer

Any person acting directly or indirectly in the interest of an employer. Joint employer doctrine: a worker can have two employers simultaneously (e.g., staffing agency and host company).

The Employment Contract

Formation

An employment contract can be oral or written. US courts generally recognize at-will employment, but written contracts providing for a specific term or requiring “just cause” for termination are enforceable.

Key Terms an Employment Agreement Should Cover

Best practice under applicable federal and state law:

Compensation (amount, method of payment, pay frequency)
Scheduled hours of work
Paid time off and holidays
Leave entitlements (FMLA, state leave)
Job title and duties
Workplace policies and employee handbook

Violation of written notice rules (where required by state law): civil penalties, typically $50–$ 5,000 per violation.

Employees have the right to receive a copy of their employment agreement.

Fixed-Term Employees

Fixed-term contracts are enforceable. However, if an employer repeatedly renews short-term contracts to avoid granting full-time status, courts may find an implicit permanent employment relationship.

Exceptions allowing extended fixed terms:

Specific project duration
Workers 55 or older under certain agreements
Researchers holding doctoral degrees
Other categories permitted by applicable state law

Probationary Period

Wages During Probation

Under the FLSA, employers may not pay below the federal minimum wage regardless of probationary status. A few states permit a sub-minimum “training wage” for new employees under 20 years old for up to 90 days.

Exceptions to sub-minimum wages:

Routine manual labor positions (full minimum wage required)
Contracts of less than one year

Termination During Probation

In at-will states, employees may be terminated during probation for any non-discriminatory reason. However, firing someone based on protected characteristics (race, sex, disability, etc.) is illegal at any point in employment.

Employee Handbook / Workplace Policy

Employee handbook: the employer’s written statement of workplace rules, standards, and benefit entitlements.

Documentation Requirements

Employers with 15 or more employees are subject to Title VII, ADA, and ADEA. FMLA covers employers with 50 or more employees. Most state anti-discrimination laws apply to employers with as few as 1–5 employees.

Required Policy Contents

Work schedules, rest breaks, overtime rules
Pay determination, calculation, and payment methods
Termination and resignation procedures
Disciplinary process and appeal procedures
Safety and health policies (OSHA requirements)
Workers’ compensation and benefits information

Adverse Policy Changes

Changes to an employment policy that reduce compensation or benefits may require advance notice (varies by state). In a unionized workplace, changes to mandatory subjects of bargaining require negotiation with the union. Unilateral changes constitute an unfair labor practice.

Hierarchy of Legal Norms

Multiple sources of law apply simultaneously in US employment. The general priority order:

Federal Law (FLSA, Title VII, NLRA, etc.)
    > State Law (state wage statutes, state anti-discrimination law)
        > Collective Bargaining Agreement (CBA)
            > Employee Handbook / Workplace Policy
                > Individual Employment Contract

More-favorable-condition principle: employers may always give employees more than the legal minimum, but never less than what federal or state law requires.

Key Rules at the Hiring Stage

Prohibition on Soliciting Fees from Applicants

Employers may not charge job applicants fees as a condition of hiring. Many states make this a criminal offense, and the FLSA prohibits deductions that bring pay below minimum wage.

Equal Treatment Principle

Title VII of the Civil Rights Act, the ADEA, and the ADA prohibit discrimination in hiring on the basis of race, color, national origin, sex, religion, age (40+), and disability.

Equal Pay Act

Employers may not pay employees of different sexes differently for substantially equal work performed under similar conditions. Many states extend this protection to cover gender identity and other characteristics.

Learning Checklist

I can explain which employers are covered by the FLSA
I can list the five factors of the economic reality test for employee status
I can identify the key terms that belong in an employment contract
I can explain fixed-term employment and when it converts to permanent status
I can explain the hierarchy of legal norms (federal law → CBA → handbook → contract)

Core Concept Cards

Dual Nature of Constitutional Rights ★★★★ : Employment rights function both as individual entitlements and as structural constraints on government and employer power.

Proportionality / Balancing Test ★★★★★ : US courts apply a multi-step test: legitimate government interest → rational/substantial/compelling basis → least restrictive means → proportional to the harm. Core of constitutional employment rights analysis. Memory tip: Purpose → Means → Necessity → Balance

Equal Protection and Anti-Discrimination ★★★★ : The Equal Protection Clause (14th Amendment) and Title VII prohibit arbitrary, unjustified differential treatment. Courts distinguish between disparate treatment and disparate impact.

Limits on Employee Rights (at-will doctrine) ★★★★★ : Employers may terminate at-will employees for any reason except an illegal one (discrimination, retaliation, public policy violation). Written contracts and CBAs can limit this power. Memory tip: At-will = any reason except an illegal one

Practice Quiz

Q. List the five factors courts use to determine whether a worker is an employee or an independent contractor under the economic reality test.

① Employer control ② Profit-or-loss opportunity ③ Permanency ④ Skill required ⑤ Integration into the employer’s business

Q. What are three reasons employers cannot fire an employee even in an at-will state?

Discrimination based on a protected class; retaliation for engaging in protected activity (NLRA, OSHA, whistleblower statutes); violation of a public policy (e.g., terminating an employee for jury duty)

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