US Regional Employment 2022 Comparisons

Global Workforce of Today

Due to the COVID-19 pandemic, the concept of a global remote workforce has taken grip throughout the United States. Companies that once thought their teams had to be housed physically together in an office space have completely changed their thinking, allowing for recruitment of employees across the country and the globe.

Compliance Obligations

Businesses should be mindful of the patchwork quilt of compliance obligations that vary from state to state in the US. Generally, the laws of the state in which the employee is located will apply, not the laws of the state where the company is headquartered. Not only must the company register to do business in each state in which it has employees, but it must also register with the state unemployment commission, state tax office, and state workers’ compensation board. 

Labor and employment laws also vary widely from state to state in the US. Some states have no requirements for paid sick leave and others require certain minimums of paid sick leave with steep penalties if this leave is not provided. Some states require paid family and medical leave, while others do not. The final paycheck laws and vacation payout laws also vary from state to state.

Texas Employment Laws

Texas employment laws are some of the most employer-friendly laws in the country. There are no paid sick leave, vacation, or paid family leave requirements. 

In Texas, if an employee is laid off, discharged, fired, or otherwise involuntarily ceases to be employed, the final pay is due within six calendar days of discharge. If the employee quits, retires, resigns, or otherwise leaves employment voluntarily, the final pay is due on the next regularly-scheduled payday following the effective date of resignation.

A global company expanding into the US market must be aware of how to navigate this patchwork quilt of compliance obligations in the United States. Companies should consider state-specific obligations when recruiting employees. 

Silence No More

In the wake of the recent social justice movements in the US like “Black Lives Matter” and “Me Too”, it is no longer culturally acceptable for large businesses to remain silent during what is perceived as a social injustice. Today, silence is not tolerated by the many Millennial, Gen X, and Gen Z employees that make up the majority of the workforce. They expect their employers to take a stand against social injustices, which is a great departure from how large companies operated ten or 20 years ago.

Impact on Claim Value

Companies should also be aware that the recent social justice movements in the US have had a great impact on the overall value of employment law claims by employees against employers. Both juries and arbitrators in Texas and across the country have a deep-seated need for someone to be held accountable for a wrong. What might once have been a great defense against an employment claim is no longer enough. People want to know who is responsible, which has translated into higher jury awards and arbitrator awards on employee claims. This has also driven up the settlement value of cases. 

This change has increased per claim litigation costs for many businesses. Companies in the US should plan for litigation costs as a cost of doing business. Eventually, most companies in the US (even in business-friendly states like Texas) will be sued (whether the case has merit or not) and the business will have to pay to defend itself. Typically, those fees are not recoverable. 

Training and Prevention

One way to mitigate these risks is to implement robust workplace culture training. Companies that invest in creating a more diverse and inclusive workforce have better business results, higher profits, and lower staff turnover. This investment in equity and inclusion on the front end pays off on the back end.

With the technological advances that brought about the “app age”, the gig economy is stronger than ever before. While the gig economy was a major part of the US economy before COVID-19, it has become a stronghold since the pandemic. 

Since the “Great Resignation” that occurred after the pandemic, when swaths of employees resigned from their traditional nine-to-five jobs, employers have been left wondering, “Where did all the workers go?” One part of the answer is that many of these workers discovered gig work during the pandemic. 

During COVID-19, many people lost their jobs and started picking up gig work as a means to earn a living. What they found was that they actually liked the flexibility of being able to work when they wanted, how they wanted, and on their own terms.

The popularity of the gig economy has created recruiting and staffing problems for companies that want traditional nine-to-five office employees. Employees now want flexibility and they want the ability to work remotely from wherever and whenever they want. If a business cannot give them that flexibility, they are likely to go elsewhere in many instances.

Companies that want to utilize the gig economy to supplement their own labor force, need to be aware of the vastly varying regulatory framework that exists when it comes to the gig economy. There are different legal tests for whether the worker can be classified as an independent contractor, depending on the jurisdiction and the regulatory body evaluating the worker’s status.

Since the COVID-19 pandemic, there has been a union boom in the United States and while Texas is still predominantly a right-to-work state, union activity is on the rise. 

History of the Unions

Unions in the United States surged during the Second Industrial Revolution in the late 1800s and early 1900s. However, in the 1970s and 1980s the United States experienced the age of computers and a presidential administration (under Ronald Reagan) that was largely anti-union. Between 1975 and 1985, union membership fell by five million. By the end of the 1980s, less than 17% of American workers were unionized. Until recently, unions were traditionally thought of as only being for the public sector or in certain industries like the airline, transit and automotive industries.

Post-pandemic Union Activity

The COVID-19 pandemic changed so much about the world. One place where this change is most apparent is in the labor market. What we are seeing today in the United States hasn't been seen for decades or maybe ever: employees are asking for more and they are, in many respects, controlling the market. This may taper off if the US goes into a recession, but in the meantime, there has been a large resurgence of unions.

The current union activity in the US is in markets and industries that have not traditionally been unionized, in particular retail and hospitality. Recently, over 200 Starbucks stores officially voted to unionize according to the National Labor Relations Board. First-ever unions have also been formed at an Apple Store in Maryland, Trader Joe's grocery store, and the national retailer, REI. What is different with this union activity from previous union activity is that it is concentrated among young workers and sometimes college-educated young workers who feel overworked, underpaid and overeducated for the jobs they have. Many have decided to band together to demand more. According to Gallup data from 2021, there is a 77% approval rate for unions among young adults aged 18 to 34.

Why Employees Join Unions

Generally, the top reasons employees cite for joining a union are:

• the company ignores my complaints and does not care about me; 
• my boss does not respect me; 
• the company does not care about safety; 
• I do not like my pay or benefits, or I do not understand how pay and benefits are calculated and awarded; and 
• my boss plays favorites and I am not treated fairly.

Companies need to be aware of these issues and make sure that they are being addressed in the workplace. Even in states like Texas that are largely anti-union, there is growing popularity for union organization. 

Under the Biden administration, the National Labor Relations Board (NLRB) has been more active. The National Labor Relations Act (NLRA) was passed by congress in 1935 to encourage collective bargaining by protecting workers’ full freedom of association. While many have viewed the NLRA as antiquated because it protects union activity and organizing efforts, there has been more NLRB activity with the new surge of organizing efforts in the US. 

Even outside of a unionized workforce, the NLRB safeguards employees’ right to engage in protected concerted activity. This means that under the NLRA, discussions or comments regarding wages, hours, working conditions, or other terms and conditions of employment by more than one employee, or by someone speaking on behalf of others, cannot be restricted and is protected under the Act. The NLRB has cracked down on company social media policies in recent years where these policies appear to restrict protected concerted activity by employees on social media. 

Companies from overseas expanding into the US market should be aware of these regulations and ensure that their policies (especially policies that might limit employee ability to discuss wages and other terms of employment) are not restricted. 

After the COVID-19 pandemic, the United States saw a huge sector of the population resign from their employment. This has now been coined “the Great Resignation”. The Great Resignation has left companies wondering where all the workers have gone. While experts debate the answer to this question, the impact on businesses is that it is extremely difficult to find and recruit talent.

For perhaps the first time in this generation, employees are asking for more and they are getting it. The recruiting challenges have translated into immense wage-rate pressure on companies. In many respects, employees are calling the shots in the labor market, and companies that want to retain top talent have to meet their demands.

In a hot labor market there tends to be less post-employment litigation. Often this is because if an employee feels like they have not been treated fairly, it is incredibly easy for them to find a new job and perhaps even a better offer elsewhere. If the US moves into a recession and unemployment goes up, however, there will likely be more post-employment litigation across the country again.

When determining how to define, structure and implement a global entity within the United States, there is no “one size fits all”. The analysis will depend on, among other things, the type of business and the location of its operations. Unlike many jurisdictions across the globe, the US system of government has different layers of legislative and regulatory considerations – both on the national scale and at the state level. 

Federal Laws

When it comes to the federal regime, there is no escaping its applicability, as it applies to any location within the country. Most of the employment laws affecting companies from the federal level pertain to anti-discrimination, anti-harassment and anti-retaliation under a myriad of statutes. These include, among others, Title VII of the Civil Rights Act (addressing race, color, national origin, sex, and religion), the Americans with Disabilities Act, the Age Discrimination in Employment Act, the Occupational Safety and Health Act, and the Family and Medical Leave Act. In addition, the Fair Labor Standards Act governs wage and hour and related compensation requirements of the federal government. This law also governs when an employer can classify a worker as a contractor, as well as when businesses can pay employees a salary versus by the hour (with overtime). 

State Laws

Turning to the state legal regimes, by selecting their location, businesses have more discretion in terms of formation and operation. State-specific jurisdiction issues will only arise when the enterprise conducts business in the state or has a contract that is applied according to that state's law. State politics can vary quite drastically. Accordingly, foreign businesses can expect completely different experiences, from a legal standpoint, depending on their selected jurisdiction. Traditionally, the more conservative voting states have been more business friendly. However, recent political movements centered on social issues have changed that situation to make it more nuanced. In addition, state legislatures are now finding themselves at odds with the business community on certain issues. Any selection of jurisdiction will require a detailed analysis.

Texas 

Texas has one of the most business-friendly regulatory schemes in the country. Outside of the federal requirements, which apply in every state, Texas has very few requirements or restrictions on how businesses choose to define the employment relationship. Businesses should consider the regulatory scheme of the state when recruiting talent in the US. Recruiting in compliance-heavy states like California and New York will impose more obligations on employers than sourcing candidates in states like Texas. 

The COVID-19 pandemic had an enormous impact on immigration during the pandemic, and the impact will continue for the foreseeable future. For much of the pandemic, citizens of many countries were completely prohibited from entering the US Department of State embassies. Consulates around the world with the responsibility of issuing non-immigrant and immigrant visas to the US were shut down for many months. This, of course, caused an enormous backlog of applications that will take time to process. 

When the consulates reopened, visa interviews remained hard to come by, with candidates having to wait weeks or months for an appointment. Even now, there is a waiting list of more than a year for visa interviews in some countries. The effects of state department shutdowns will likely continue to be felt for the foreseeable future. Thus, employers must allow for a delay in the application process when arranging for their foreign workforce to start employment in the US. 

Additionally, many H-1B workers in the past few years have taken advantage of the work-from-home opportunities and have relocated to areas outside their approved H-1B locations without filing amendments to their H-1B petitions. This causes a change of status for employees and impacts the renewal of visas, requiring the employees to return to their previous country. Identifying and remedying these issues far in advance of the renewal process may alleviate complications.

Due to the COVID-19 pandemic and the social justice movements across the United States in recent years, there has been a union boom in the US. A union is an organized group of workers who unite to make decisions about conditions affecting their work and negotiate collectively with the employer. 

History of Unions

Unions surged during the Second Industrial Revolution in the United States and again in the 1950s. By the end of the 1980s, less than 17% of American workers were organized, which was half the proportion in the early 1950s. Until recently, unions were most common in the public sector (ie, teachers, police, and city workers), or in certain industries, such as steel manufacturing, automotive, airline, and transit.

Union Boom

Recently in the US, however, there has been a union boom. Not only are more workers starting to organize, they are starting to organize in industries that have traditionally not been unionized, including retail and hospitality. We are also seeing union activity among younger workers, sometimes college-educated workers, in lower-paying service sector jobs. While Texas remains a largely anti-union, right-to-work state, there has still been an uptick in organizing campaigns in the state. 

Why is there a union boom? 

In addition to the pandemic conditions, labor experts have said there was a perfect storm for organizing in the United States including:

• four decades of stagnant wages; 
• inflation; 
• many companies made more money after lockdowns; 
• there are many jobs available without enough applicants to fill them; and 
• the Biden administration is generally pro-union. 

Most of the present pro-union workers are in their early twenties. According to Gallup data from 2021, young adults aged 18 to 34 approve of unions at a rate of 77%.

Why do employees join unions?

See 1.4 Decline in Union Membership?

Why do companies care about union activity?

Generally, the top reasons companies cite for wanting to avoid a unionized workplace include:

• this makes them unable to provide employee-specific solutions to problems; 
• companies prefer to consider merit over seniority; 
• the company has more limited performance-management abilities in this situation; 
• terminations may only be made for “just cause”, as defined by a collective bargaining agreement; and 
• higher labor costs.

Outside of traditionally unionized industries, companies that generally make an effort to welcome and quickly address employee complaints see less union activity. Companies expanding into the US market that wish to avoid unions in the workplace should understand what drives union campaigns and the best practices for having a positive workplace culture where the employees feel like they can come to the company to address their issues and do not need a union to do it for them. If they are concerned about organizing, they should also know that selecting a business location in a right-to-work state like Texas will decrease the risks of union activity. 

In the United States, including Texas, the hiring process typically includes a written application and in-person and/or virtual interviews between the candidate and human resources, the hiring manager, and/or the recruiter. Because the application is the first opportunity for the employer to obtain information regarding a candidate, it is critical that an employer’s application form complies with the federal, state and local laws.

"Ban the Box" Legislation

Whether an employer can ask about criminal history (arrests and convictions) at all on an application, or only after a conditional offer, varies by state and local law. How far back in the candidate’s life questions can be asked also varies. Specifically, 37 states and 150 cities and counties have adopted what is referred to as “ban the box” legislation. 

This typically requires removal of conviction and arrest history questions from job applications and only allows background checks to be performed once a conditional offer is extended. It also sets the time period covered. Similar restrictions are also in place for credit checks of job applicants. For states where the questions are allowed on the application or after a conditional offer, the employer must still ensure that the employee has signed a proper authorization prior to doing the check, and that the requisite notifications are sent out after the check is done. 

Texas Law on Criminal History Inquiries

At the state level, Texas has no law restricting employer’s ability to ask about criminal history on a job application. However, the city of Austin prohibits most employers from asking questions about criminal history until after making a conditional offer of employment. 

When a Texas employer is running a background check into criminal history, if the position pays less than $75,000 annually, the check can only go back seven years. However, this seven-year rule does not apply to higher-paying roles. For such positions, the check can go all the way back to the applicant’s 18th birthday. 

Other Application Questions That Can Cause Issues

Background and credit checks are not the only areas on an application that can cause an employer issues. Across the US and in Texas, it is illegal to discriminate against an employee based upon a candidate’s gender, age, race, citizenship, etc. Because many of these facts can be gleaned from an application, some employers have chosen to remove many questions from their application that would elicit information related to these protected classes, including questions about: 

• birthdate; 
• dates graduated from high school, college, etc;
• dates worked at former employer;
• candidate's preferred pronoun;
• a gap in employment;
• candidate's title (eg, Mr, Ms or Mrs); and
• salary/pay history.

While much of this information may be offered by the candidate through the interview process, it is important that the application does not appear to be prying into these facts at the outset. If information is volunteered, employers can consider this as long as no hiring decision is made based on the candidate’s status in the protected class. 

Some nationwide employers prefer to have a uniform application across jurisdictions that complies with the stricter laws, while some prefer to customize an application according to the local laws. Either way, ensuring the application is compliant is the first step towards a compliant recruiting process.

Artificial Intelligence (AI) in the hiring process is intended to automate many of the tasks recruiters and hiring managers handle, such as scheduling interviews, resume checking, answering basic hiring questions, etc, so focus can be put on greater priorities. While AI comes with many pros, an employer must be aware of the potential shortfalls of the technology too. 

The Pros

Advertising openings

Rather than burdening an employee with posting openings on job boards, attending career fairs, and scouring LinkedIn for potential candidates, AI can help automate this process as openings become available by auto-posting openings across career sites and pushing openings to potential candidates in a fast and efficient way. 

Screening

One of the most timesaving benefits of AI is its ability to sort through resumes quickly, searching for relevant education and work history, and screening candidates to ensure they have the basic requirements for the position. This helps to ensure that hiring managers spend their time reviewing qualified candidates. 

Response time

AI can also help improve communication with candidates when they are applying, interviewing, and posting interview feedback. Chatbots can be programmed to respond to the most common questions sent to recruiters and human resources without any employee involvement. AI can also reach out to qualified candidates to gather more information and set up an interview.

Neutralizing human bias and increasing diversity

Although AI has its own bias risks discussed below, it is a great tool to neutralize human bias in the recruiting and hiring process. For example, data shows that job descriptions written with masculine or feminine verbiage will attract that gender of applicants at a very high rate. However, augmented writing platforms can write gender-neutral job descriptions that will increase the diversity of applicants.

Additionally, AI-enabled systems can be programmed to ignore information such as gender, race and age when reviewing resumes and applications, helping to ensure that no discrimination occurs. While not a perfect art, conscientious vendors that have conducted validation tests for their algorithm can provide employers with evidence that the program does not introduce bias. 

The Cons

Overlooking candidates

As beneficial as AI’s ability to find suitable candidates can be, AI has also been found to overlook or even reject candidates that would be a great fit because AI is programmed to look strictly for certain data points and keywords and reject all else without further review. Thus, nuance and differences in someone’s education or experience, or even errors in how this information was entered or formatted, may cause a candidate to be rejected even though they are qualified. This is where the AI’s lack of human judgment can become a hindrance. 

Learned and/or programmed bias

Despite popular perception, AI does have the potential to be biased. Properly developed AI can help prevent human bias, but the technology’s need to learn through pattern, when paired with training data, can cause the AI to penalize certain words associated with a particular gender, generation, race, etc. For example, if the AI learned from training data that male candidates tended to have more experience in technical roles, the AI might then learn to penalize words like “women’s” or “Ms” and overlook women or put them at a disadvantage. Even when this bias is unintentional by the employer, it is the employer’s burden to ensure its hiring practices do not discriminate based on protected classes. Therefore, if the AI causes a group to be discriminated against, the employer can be liable. 

Americans with disabilities violations

An AI-enabled system may violate the Americans with Disabilities Act (ADA) if it improperly screens out an individual based on a disability, whether or not the employer intends this result. The ADA prohibits businesses with 15 or more employees from discriminating on the basis of disability. Among other things, the ADA requires employers to provide reasonable accommodations to individuals with disabilities, including during the application process, as well as during the employee’s employment. 

The following are examples of a potential violation: 

• the AI-technology itself may be difficult for someone with a disability to use, such as someone who is visually impaired or needs extended time, and it does not accommodate them;
• when a job requires a candidate to be able to perform certain physical activities, the AI-enabled system may elicit information about a disability, which results in the candidate being screened out, despite their ability to perform the job with reasonable accommodation as required under the ADA; 
• the AI’s programming rejects applicants who indicate they have a significant gap in employment history, where the gap is the result of a disability; or 
• the AI’s use of a personality test that delves into an employee’s “optimism” may screen out someone with mental illness.

Restrictive covenants are a product of state law. There is no “one size fits all”, as different state jurisdictions will apply restrictive covenants differently based on that particular state’s regime. 

Non-competes in Texas

In Texas, non-competes are authorized by the Business and Commerce Code. To be enforceable under Texas law, a non-compete must meet all of the following criteria:

• the non-compete must be “ancillary to or part of an otherwise enforceable agreement”;
• the non-compete must contain reasonable limitations as to time, geographical area, and scope of activity; and
• the non-compete must not impose a greater restraint than is necessary to protect the goodwill or other business interest of the employer.

Drafting Considerations for Non-compete Agreements

Texas and most states recognize a business's ability to restrict competition (work or ownership in a competitive business) and solicitation of employees and customers or clients of the business. Many jurisdictions, including Texas, require any restraint on trade to be ancillary to or part of an otherwise enforceable agreement. This means a “non-compete” or “non-solicit” agreement cannot be the only part of the contract. There must be provisions that are part of a separately enforceable contract that provides recognized consideration. 

While some jurisdictions allow for simple continued employment as consideration for the restrictions, many states, including Texas, require something else such as access to confidential information and trade secrets, specialized training, or the exchange of equity interest, separate and apart from basic compensation. 

The restrictions must also be reasonable in not unlawfully restraining trade. Typically, this requires a reasonable time period (two years or less in most situations), reasonable restriction of geography (areas where the worker performed work), and reasonable restrictions on scope of activity (performing the same job for a competitor). 

Drafting Consideration for Non-solicitation Agreements

Enforceable customer and employee non-solicitation provisions often require narrowing down to customers to whom the worker sold goods or services or employees with whom the employee worked. What is or is not reasonable is a case-by-case analysis based upon the industry, level of worker, and other market-based factors. The most important thing for a global company to identify is what specific information and resources that company wishes to protect, and to carefully tailor any restrictive covenants to protect those. Failure to heed these limitations can result in a court striking or failing to enforce the covenants as written. This is true even in Texas where restrictive covenants are routinely enforced. 

Federal Pressure to Limit Non-competes 

There has been a lot of movement and development across the country to curtail or substantially limit non-compete restrictive covenants. The federal government even tried to regulate non-compete agreements, although those bills have not become law and there is no indication they will in the near future.

The biggest privacy issues facing companies as a result of COVID-19 stem from the intermingling between the personal and professional lives of workers by the drastic rise in consistent remote work. Prior to the pandemic, remote work was not unheard of, however, it was not the norm it is presently. Accordingly, there are both worker-specific and business-specific considerations to which companies must pay attention. 

From the worker end, companies must make sure that none of their monitoring equipment or systems unlawfully intrude on the worker’s right to privacy. That level varies by state. In Texas, employers should adopt policies making it clear that the employee has no right to privacy on company equipment or systems. 

From the company end, businesses must ensure they require and enforce adequate protections to ensure their confidential information and any trade secret material does not become compromised, by accident or intent. This requires heightened attention to information security and meticulous enforcement of policies and practices for remote workers or those who regularly deal with such information outside of the confines of a business’s physical premises.

The “Black Lives Matter” and “Me Too” movements have impacted discrimination, harassment and retaliation issues in the workplace in at least two ways:

• workplace training; and
• reporting procedures. 

Workplace Training

Even in more conservative states like Texas, employees want more training surrounding these social justice issues. They want to learn about implicit bias and how to identify and try to eliminate it. In addition, they want to know that their employer is investing in training across the company that will help to make it a place of equity and inclusion. What we have seen in the US is a great shift from simply trying to recruit and retain diverse talent. Employees want more than that now. Not only do they want a diverse workplace, they want a workplace where everyone feels like they have a sense of belonging. That is inclusion. Diversity is not enough. Employers must work toward and invest money in making their workplaces a place of equity and inclusion if they want to retain top talent.

Reporting Procedures

Employees are much more likely to speak out about injustices they perceive in the workplace than they once were. The social justice movements of the last few years have emboldened US workers to speak out and speak up when they see something. Companies should make sure that they have reporting procedures in place and their employees are educated in how to file a complaint. 

One way companies can control workplace issues and ensure that they are being addressed appropriately is a robust complaint procedure. Having a robust complaint and investigation procedure will also give the company some litigation protection in the event of a post-employment claim.

In the US, workplace safety standards are set and enforced by the federal Occupational Safety and Health Administration (OSHA). OSHA has specific regulations that it requires to be followed with regard to general safety, training and reporting, as well as industry-specific regulations. When a potential violation, injury or death is reported, OSHA will conduct an inspection, determine the violations, and assess fines against the employer. 

In additional to the federal program, 22 states also have state-run safety and health programs, which are at least as effective as OSHA, if not more strict. However, Texas does not have a state-run program and defers to the federal OSHA program.

In the instance of a workplace injury, all states except for Texas require that employers hold workers’ compensation insurance for their employees. The insurance is intended to cover all costs for treatment for a workplace injury and lost worktime as a result of the injury. In Texas, employers may opt out of workers’ compensation insurance and handle workplace injuries through their own benefit plan. This saves the employer the cost of workers’ compensation. 

The US is a patchwork quilt of compliance obligations that vary widely from state to state. While there are certain federal laws that apply across the country, many states have their own laws regarding things like compensation and minimum wage, and other benefits such as paid sick leave and paid family medical leave. In Texas, there are almost no state-specific requirements outside the federal requirements regarding compensation and benefits. 

Any employer expanding into the US market should be aware of these varying compliance obligations to evaluate where they want to hire employees and to ensure compliance in each state in which they operate. The regulations will be triggered by the locations in which the company has employees, not the location at which the company is headquartered or based. While there are some exceptions, states on the West Coast and in the Northeast traditionally impose more stringent obligations on companies with regard to compensation and benefits, while states in the South and Midwest generally have fewer obligations for employers. Texas is regarded as having some of the most employer-friendly laws in the country. 

At-Will Employment 

When facing termination of the employment relationship, companies should look to see whether the employee is party to any employment contract or collective bargaining agreement that governs the termination or employment relationship itself. The default rule in 49 states, including Texas, is that employees are “at-will”, meaning the employee or the business can terminate the employment relationship for any reason or no reason at all, so long as the reason or no reason is not “illegal”, which is typically tied to a protected classification. 

Employment Contracts and Collective Bargaining Agreements

If there is an employment contract, the business must determine what steps, if any, are needed to end the relationship. For example, some employment contracts may require a severance payment or certain notice if the employee is terminated without cause (which should be defined in the agreement). A collective bargaining agreement will typically require “just cause” (as defined in the agreement) for an employer to terminate employment. 

Best Practices to Minimize Risk

Assuming there is no contractual relationship or collective bargaining agreement with the employee that governs the termination, the employer should still ensure it has legitimate business reasons for the termination and no decision is tied to a protected classification or in response to a workplace complaint. There are many state and federal statutes that protect against discrimination, harassment and retaliation that employers should heed. 

The best defense to such a claim is to ensure that the employer documents important events during the entire employment relationship. In Texas, there is no requirement that businesses use progressive discipline to coach an employee, but it can serve as a valuable legal defense to any claim of unlawful action. 

Additionally, having clear and concise policies and guidelines (often found in an employee handbook) as well as appropriate non-disclosure and confidentiality agreements for private information, will help establish the rules and framework that will govern the employment relationship. Pay and position adjustments during the employee’s tenure, as well as performance reviews, should likewise be documented. Perhaps the most significant defense to employment claims comes around the real-time documentation of performance or conduct issues of employees. Many employers opt to implement progressive discipline polices, which typically (not in all cases) require levels of warning, or addressing of the performance or conduct issue before an ultimate termination.

Contractual disputes arising out of the employment context are typically split into two groups:

• wrongful termination in breach of an employment agreement; and
• failure to compensate employee per their contract. 

How Do Contractual Claims Come Up?

Generally in Texas, unless there is an agreement otherwise, all employees are at-will. This means that the employee and employer can terminate employment for any reason, provided that the reason is not illegal (relating to discrimination, retaliation, whistle-blowing, etc). 

However, an employer can choose to enter into an employment agreement that sets out a specific term of employment and under what circumstances the employee and employer can end the relationship. This is typically referred to as termination “for cause”. In such situations, disputes arise as to:

• whether proper cause was present to end the employment;
• if the terminating party followed all the requisite steps to terminate the employment; and/or
• if any severance is required. 

These disputes are highly variable depending on the contract language, including the remedies set out in the agreement. The main remedy is typically the “benefit of the bargain” or what the party would have received had the breach not occurred. Additionally, in some situations, the prevailing party will be entitled to their attorneys’ fees incurred. 

Contract Disputes about Compensation

Contractual disputes can also arise when the employee’s employment contract sets out how they will be paid (salary, bonuses, equity options, etc) and the compensation is not paid according to the contract provisions. In addition to employees with employment contracts, contractual disputes regarding pay typically arise when an at-will employee has a commission agreement and disputes that their commissions have been calculated and paid correctly under the contract. 

Such contractual disputes set out above can be filed in court or arbitrated, if the contract provides for this. 

Contractual Disputes That Occur Even When an Employee Is At-Will

When an employee is at-will, contractual disputes can still arise if that employee has other agreements with the company, such as a non-compete, non-solicitation, or confidentiality agreement. 

There is currently a trend in the federal government and among some states to ban non-compete agreements or significantly weaken them. Texas has not taken any such legislative steps and will enforce an otherwise enforceable restrictive covenant agreement. 

When an employee is violating their non-compete or non-solicitation agreement, employers have the ability to seek immediate relief in the form of an injunction or protective order from the court that prohibits the employee from competing and improper solicitation. Such relief can become permanent when warranted. See 4.1 Restrictive Covenants for more information.

Protected Characteristics 

In the US, discrimination and harassment claims can be brought against companies if based on a protected characteristic under the law. At the federal level, the law prohibits discrimination and harassment based on race, color, religion, sex (including pregnancy, gender identity, sexual orientation), national origin, disability, age (40 or older), or genetic information. While states impose additional protected characteristics, Texas follows federal law. This means that companies in Texas cannot make employment decisions based on any of these protected characteristics and employees are protected from harassment based on any of these protected characteristics. 

Other than claims relating to race or sexual harassment (which can be asserted against employers of any size), the protection of most Texas employment laws will be triggered once an employer has 15 or more employees. 

Texas Anti-sexual Harassment Law

Effective September 2021, Texas passed sweeping legislation imposing more stringent sexual harassment laws on employers in the state. 

Key changes under the new law include:

• additional time for employees to bring claims; 
• expanded coverage to any company with one or more employees (previously 15 or more employees); 
• personal liability for supervisors or managers or anyone else acting directly in the interests of the employer; and 
• liability if the employer fails to act “immediately” once the employer or its agents knew or should have known about the harassment. 

Retaliation is Prohibited 

Complaining about perceived discriminatory or harassing conduct in the workplace, or other unlawful conduct, is also protected under the law. This means that a company cannot retaliate against an employee for making a claim or complaint in good faith, or otherwise participating in an investigation.

As a result of the recent social justice movements in the US like “Black Lives Matter” and “Me Too”, employees have been emboldened to speak up and speak out against perceived discrimination, harassment and retaliation in the workplace. This means there could be more opportunity for adverse employment actions to be perceived as retaliation for speaking out against injustices. 

Reasonable Accommodations Post-pandemic

Texas and federal laws concerning disability discrimination, as well as the legal obligation to provide certain accommodations to disabled employees, have also been expanded in the wake of the COVID-19 pandemic. For example, when many companies pivoted to a remote workplace during the lockdowns, some employees demonstrated that they could do their jobs remotely. Now, those businesses requiring employees to return to office work may have a more difficult time enforcing this for disabled employees who request remote work as a reasonable accommodation. 

Companies outside of the US should also be aware of the extremely broad definition of a disability under US and Texas law, which includes essentially any condition that substantially limits a major life activity even when it is controlled by medication. Ultimately, employees must be able to perform the essential functions of their job with or without reasonable accommodation, but much of that has come under scrutiny since the pandemic.

Common Wage and Hour Claims 

The two most common types of wage and hour disputes that arise in the employment or employment-related context surround the failure to pay overtime for non-exempt hourly workers and what aggrieved plaintiffs characterize as “misclassification” of exempt workers. For other niche businesses, such as restaurant operators, common claims relate to tip pooling and tip credits. 

Texas Law and the FLSA

Texas follows the federal wage and hour laws. Under the federal law governing wage and hour disputes, the Fair Labor Standards Act (FLSA), when determining pay structure, employers must determine whether the employee is exempt or non-exempt. Different analyses can be used to determine this, based on the duties performed and how the worker is compensated. If the employee is “exempt” from overtime, then the employer need not track the employee’s hours and the employee can be paid a salary. If, however, the employee does not meet one of the exemptions, the employer must compensate the employee on an hourly basis, pay at least a minimum wage ($7.25 per hour nationally and in Texas, but higher in certain states), and accurately record the employee's hours worked. If the non-exempt employee works more than 40 hours during one workweek, the employer must pay that employee time and one-half more than the hourly wage rate for every hour that exceeds 40. 

Damages under the FLSA

Employers who violate the FLSA are liable for economic damages in the form of unpaid overtime wages. If there is a violation, the employee is also entitled to liquidated damages or “double damages”, matching the amount of the unpaid overtime wages, unless the employer proves it acted in good faith and had reasonable grounds to believe its actions did not violate the FLSA. In addition, if the employee proves the violation was willful, the statute of limitations period extends beyond the standard two years to a third year. Often in the largest category of damages, if the workers prevail, they are also entitled to recover their attorney's fees. 

In the wake of the social justice movements, “Black Lives Matter” and “Me Too” in the US, employees are much more likely to speak out against discrimination, harassment and other injustices they perceive in the workplace. Many of these complaints will qualify as protected activity under the US employment laws that prohibit retaliation. 

Given that the number of employees speaking out about workplace misconduct (whether right or wrong) is increasing, employers must be mindful of the potential legal risk associated with taking adverse employment actions against any employee who speaks out. 

One way to control some of these risks is for the business to implement a robust complaint procedure with multiple avenues through which employees can submit reports of workplace misconduct. The employer should treat these complaints confidentially and should thoroughly investigate each complaint it receives. Limiting who has access and knowledge about these complaints and investigations will maintain confidentiality, and it will also reduce the risk of any actual or perceived retaliation against employees who submit claims.

In the wake of social justice movements such as “Black Lives Matter” and “MeToo”, employees are demanding that companies do more in terms of workplace culture training. Recruiting a diverse workforce was once the focus of many companies in the US. However, that is no longer enough. 

Now, there is a demand for an inclusive and equitable workplace where every employee has a sense of belonging. Companies can achieve diversity, equity and inclusion by investing in training for their employees, and leadership. Just as companies train employees for the technical aspects of their job, companies should train employees on how to foster a more equitable and inclusive work environment. Companies that make these investments in specialized training generally see less turnover and higher productivity.

Collective Actions

The most common employment claim brought as a class or collective action is a wage and hour claim. Employers must be cognizant of wage and hour issues not only on an individual level, but also on a class basis. Texas law and the FLSA provide for what are called collective action cases. These allow a group of employees who are all “similarly situated” – who performed the same or similar jobs and suffered the same or similar pay violations – to pursue their claims collectively.

Collective action cases increase the size and scope of the FLSA lawsuit dramatically and create a substantially greater expense, as the employer must not only navigate a case with what can be up to thousands of plaintiffs, but must also account for potential damages affecting all of them. Unlike a traditional class action lawsuit, these collective action plaintiffs must affirmatively “opt in” to the lawsuit to be a part of it. Collective action cases are permitted in Texas. 

Class Actions

Certain states have corollary wage and hour statutes, which provide for class relief, which means that all similarly situated workers are party to the lawsuit unless they opt out. Texas does not permit wage and hour class actions. 

Mitigating Risk

Employers do have tools in their arsenals to combat these large claims through “class and collective action waivers”, which the United States Supreme Court recently upheld as lawful. Employers may require mandatory arbitration of all disputes on an individual basis and not on a class or collective basis. These waivers can prohibit the lead plaintiff(s) from bringing a collective action or class action matter and can dramatically decrease the value of the case for the plaintiff’s lawyer handling the claim(s).

The Texas Labor Code closely follows federal employment laws regarding harassment, discrimination and retaliation claims. 

Damages for Employment Claims

The typical categories of damages-related lawsuits for discrimination and harassment or retaliation include:

• compensatory damages for –
1. wages the employee would have received if not fired;
2. benefits the employee would have been entitled to if not fired;
3. front pay for future lost earnings (in lieu of reinstatement), or reinstatement; and
4. emotional distress and mental anguish, if the termination caused emotional harm to the employee;
• liquidated damages, which are typically double or triple the amount of compensatory damages;
• punitive damages – to punish the employer for knowingly or willfully breaking the law; 
• attorney’s fees for the plaintiff; and
• prejudgment and postjudgment interest on certain categories of damages.

The particular type of damages will vary depending on the type of claim being asserted. 

Wage and Hour Claims

In a wage and hour lawsuit alleging violations such as failure to pay overtime or misclassification of a worker (as either salaried or an independent contractor), the damages would typically include unpaid wages, liquidated damages, and attorney’s fees. These wage and hour claims are often brought as a collective action, which increases the damages model substantially, based on volume.

Businesses expanding into the US should consider a wage and hour audit to ensure that their pay policies comply with US and local laws.