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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.

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

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.

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).

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.