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“Belongs on every business owner’s bookshelf.” Los Angeles Times
“A comprehensive guide to the legal rights and obligations of employers.” Detroit News
Many state and federal laws as well as countless court decisions set out legal protocol for every phase of the employment relationship, including the hiring process. If you've correctly sensed that many workers today are well informed about their legal rights and are willing to fight to enforce them, you may be concerned about making costly mistakes during hiring.
Fortunately, you can steer clear of most of the legal perils of hiring employees by understanding and following these sensible guidelines:
Section A of this chapter discusses these key principles -- some of which apply throughout the employment relationship and are discussed elsewhere in this book as well.
Sections B through H of this chapter explain how to keep legal risks to a minimum as you write job descriptions, advertise for workers, design job applications, interview applicants, check into their backgrounds and offer them jobs.
Those hiring independent contractors should consult Chapter 11, where you'll find a detailed discussion of the legal and practical issues you'll have to consider.Legal Guidelines for Hiring Employees
Most large companies maintain human resource departments and in-house lawyers to lead them through the intricacies of employment law. But if you run a small or mid-sized company, this is an unaffordable luxury. More likely, you keep a close eye on legal expenses and call a lawyer only when absolutely necessary.
The guidelines discussed here should reduce your need for outside legal help when hiring employees.1. Avoiding Illegal Discrimination
Federal and state laws prohibit all but the smallest employers from discriminating against an employee or applicant because of race, color, gender, religious beliefs, national origin, disability or age (if the person is at least 40 years old). Also, many states and cities have laws prohibiting employment discrimination based on other criteria, such as marital status or sexual orientation.
These anti-discrimination laws covered in depth in Chapters 8 and 9 apply to all stages of the employment process: preparing job descriptions, writing ads, conducting interviews, deciding whom to hire, setting salaries and job benefits, promoting employees and disciplining and firing them.
These laws only apply to employers who have more than a certain number of employees, different for each anti-discrimination law. And many state laws apply to smaller employers who are not covered by the federal laws. To find out whether your business must comply with these laws, see Chapters 8 and 9.
A particular form of discrimination becomes illegal when Congress, a state legislature or a city council decides that a characteristic race, for example bears no legitimate relationship to employment decisions. A law or ordinance is then passed prohibiting workplace discrimination based on that characteristic. Courts get involved, too, by interpreting and applying anti-discrimination laws and ordinances.
Obviously, as an employer, you need to know what types of discrimination are illegal. At the same time, however, anti-discrimination laws don't dictate whom you must hire. You can exercise a wide range of discretion based on business considerations. You remain free, for example, to hire, promote, discipline and fire employees and to set their salaries based on their skills, experience, performance and reliability factors that are logically tied to a valid business purpose. You only risk violating the law when you treat a person or a group differently for reasons that legislators and judges have decided don't serve a valid business purpose.
Some illegal practices are obvious such as advertising a job for people ages 20 to 30 in violation of age discrimination laws, or paying lower wages to women than men for the same work in violation of equal pay laws.
Other types of discrimination are more subtle, but just as illegal. Employment practices that have a disproportionate and discriminatory impact on certain groups are also barred by anti-discrimination laws. For example, if your main means of seeking job candidates is through word of mouth and your workforce consists entirely of white men, the word-of-mouth recruitment can be illegal discrimination; it's likely that few people other than white men will hear about the job openings. The effect of the procedures is what counts.
To avoid violating anti-discrimination laws at the hiring stage:
Running afoul of anti-discrimination laws can be both time-consuming and costly. An unhappy employee or applicant may sue your business. Federal and state agencies also may take legal action against it. And publicity about a violation of anti-discrimination laws can adversely affect your business reputation, driving down revenues. If word gets out that a company has discriminated against women employees, for example, women customers may avoid dealing with the company for years even long after the discriminatory practices have been dropped.2. Respecting Applicants' Privacy Rights
As an employer, you likely believe that the more information you have about job applicants, the better your hiring decisions will be. But there's a potential problem in mounting intensive background checks. Your attempt to assess an applicant by gathering information about the past can conflict with his or her right to privacy and sometimes violate federal and state laws. (See Section G for guidelines on staying within the law when you gather transcripts, credit reports and other background information.)
In addition, laws and court rulings restrict your right to screen applicants through aptitude tests and drug tests. (See Section F.)
Another privacy concern, for which legal guidelines are less clear, is your ability to control what workers do outside of the workplace. Some states have granted a measure of legal protection for an employee's off-the-job conduct. Colorado, for example, has a statute prohibiting discharge based on lawful activity off the employer's premises.
But in other states, employers are free to reject a job applicant or fire an employee whose lifestyle or conduct away from work they find distasteful. Even in such states, however, caution is in order; to be on relatively safe legal ground, it's best to avoid rejecting or firing a worker for off-duty conduct or lifestyle unless you can tie the actions to actual or highly likely business losses. In Baltimore, for example, it was OK for a bus company to fire a driver who was publicly identified as the Grand Dragon of the Ku Klux Klan. The court considering the case found that there was a real threat of physical danger and a possibility of a boycott if the driver were retained.
If you base hiring decisions on applicants' off-duty conduct (assuming your state allows you to do so), make sure to apply your selection criteria evenhandedly. If, for example, you choose not to hire single parents, you must apply this standard to men and women alike or risk a discrimination lawsuit (see Chapter 8).
Some employers want to limit their employees to people who don't smoke, drink alcohol or use drugs even off the job to hold down healthcare costs or to keep a harmonious workforce. The emerging law is that you can't dictate such off-the-job behavior. (See Chapter 7, Section G, for more on smoking and Chapter 7, Section H, for more on drug testing.)
Will It Tell You What You Need to Know?
It's often a waste of time and effort to acquire and review transcripts and credit reports -- although occasionally they're useful. If you're hiring a bookkeeper, for example, experience garnered on the job is much more important than the grades the applicant received in a community college bookkeeping program ten years ago. But if the applicant is fresh out of school and has never held a bookkeeping job, then a transcript may yield some insights. Similarly, if you're hiring a switchboard operator, information on a credit report would be irrelevant. But if you're filling a job for a bar manager who will be handling large cash receipts, you might want to see a credit report to learn if the applicant is in financial trouble.
Traditionally, employees have had no job security. Employment has been an at-will relationship. If there's no contract for a fixed term of employment, the employee works at the will of the employer and employee. The employer can fire the employee at any time and the employee is free to quit at any time for any reason or for no reason at all. That's still the basic law, although you can't fire someone for an illegal reason because of the color of the employee's skin, for example, or because you prefer to put a younger person in the job.
The at-will relationship gives you maximum freedom to fire employees, but preserving your legal right to fire at will can be tricky. Courts in many states have held that if employers are not careful about what they tell the employee, what they write in employee handbooks and what they say in documents and letters, they may lose that right. For example:
During the hiring process, don't give assurances that you may not be able to honor and that may give an applicant a false sense of security. It can be difficult to restrain yourself when you're trying hard to entice an attractive candidate to join your workforce. You'll have a natural tendency to say positive things about your business, the candidate and the future employment relationship. But those upbeat statements can be turned against you if your promises don't come true or the employee is later fired.
Your best protection is to make sure your application forms, employee handbooks and offers of employment state that the job is at will and to have the applicant acknowledge this in writing. Then you'll have an excellent chance of terminating the employment on your own terms, without legal repercussions. Be aware, however, that some judges approach the whole idea of at-will employment with a measure of hostility or skepticism. These judges may disregard even the most carefully worded at-will language if it seems to be contradicted by other oral or written statements you've made to the applicant or new employee.
Here's an example of language you may wish to include in your job application form:
At-Will Employment. I acknowledge that if hired, I will be an at-will employee. I will be subject to dismissal or discipline without notice or cause, at the discretion of the employer. I also understand that this means I am free to quit my employment at any time, for any reason, without notice. I understand that no representative of the company, other than the president, has authority to change the terms of an at-will employment and that any such change can occur only in a written employment contract.
Another way to protect yourself is to make sure that you always have a good business-related reason for firing an employee. In legal parlance this is called firing "for cause." If you fire for cause, the firing will be lawful, even if a court later finds that the employee was not an at-will employee after all.4. Preventing Negligent Hiring Claims
The main reason to investigate an applicant's background is to make sure the person will do a good job for you and fit in with your other employees. But sometimes there's an additional, equally powerful reason to make a thorough investigation. When you hire someone for a position that may expose customers or others to danger, you must use special care in checking references and making other background checks.
Legally, you have a duty to protect your customers, clients, visitors and members of the general public from injury caused by employees whom you know, or should know, pose a risk of harm to others. In some states, you may also have a duty to protect other employees from an employee whom you know -- or should know -- is dangerous. If someone gets hurt or has property stolen or damaged by an employee whose background you didn't check carefully, you can be sued for negligent hiring.
Be especially vigilant when hiring maintenance workers and delivery drivers, whose jobs give them easy access to homes and apartments.
EXAMPLE: The Village Green, a 200-unit apartment complex, hires Elton as a maintenance worker and gives him a master key. Elton enters an apartment and sexually molests a four-year-old girl while the child's parents are running an errand. Had the company checked before hiring Elton, it would have discovered that Elton had just completed a prison term for a sexual offense. The child's parents sue The Village Green for negligent hiring.
Truth In Hiring
Statements you make while interviewing and making job offers may later be treated as binding contracts.
In a leading case, a New York law firm recruited a lawyer who was beginning to make a name for herself in environmental law. The carrot that was dangled in front of her was that she'd head an environmental law department that the firm was starting. She bit but wound up being assigned to general litigation work instead.
Later, when she was fired as part of a cutback, she sued the firm, claiming she'd been damaged because the firm had thwarted her career objective of continuing to specialize in environmental law. The court of appeals held that her claim was valid. (Stewart v. Jackson & Nash, 976 F.2d 86 (2d Cir. 1992).)
The lesson of this and similar cases is that the type of work an employee does can be important. Employees often leave one employer to join another -- or turn down opportunities -- because a particular job seems to offer a greater chance for career advancement. To avoid claims that you misled an applicant about the nature of the work, stick to what you know the work will consist of rather than what you think the applicant may want to hear.
Similarly, if your company is considering staff reductions in the near future -- because, for example, a major account is about to move out of the state -- disclose this to applicants. Otherwise, you may find yourself on the defensive end of a lawsuit, especially if the employee left a secure job elsewhere to come work for you.
Consider, for example, the case of Andrew, who held a good job in New York City -- a job that paid $120,000 a year. According to Andrew, executives of a Los Angeles company strongly urged him to take a job that they said would be secure and would involve significant pay increases. The executives portrayed the company as financially strong, with a profitable future. Brushing aside Andrew's request for a written employment contract, they told him, "Our word is our bond."
That was good enough for Andrew. He quit his New York job, bought a home in California, moved there with his wife and two children and began working for the L.A. company. Two years later, the company fired Andrew as part of a management reorganization. He sued, claiming that the company fraudulently induced him to give up his old job and move to California. He said that when the company executives induced him to change jobs, they falsely represented the company's financial condition -- concealing the fact that the company's financial outlook was bleak and that the company was already planning to eliminate the job for which it was hiring him. The California Supreme Court held that Andrew could sue for both fraud and breach of contract. (Lazar v. Superior Court (Rykoff-Sexton Inc.), 49 Cal. Rptr. 2d 377 (1996).)
Doing a background check can be a delicate matter, because you are also legally required to respect the applicant's privacy. If you hire people for sensitive jobs, you must investigate their backgrounds as thoroughly as possible without stepping over the line and violating their privacy rights. You can be faulted for not looking into an applicant's criminal convictions but not for failing to learn about prior arrests that didn't result in convictions, since such arrest records are generally protected by privacy laws.
In doing background checks on applicants for sensitive jobs, check for felony convictions. Also, be diligent in contacting all previous employers. Keep a written record of your investigation efforts. Insist that the applicant explain any gaps in employment history. Consider turning over the pre-hire investigation to professionals who do this for a living. If you choose to follow this route -- and can afford it it can go a long way toward refuting later claims that you failed to use reasonable efforts to learn about the employee's history.
Strict Rules May Apply to Background Checks. Any time you hire a business -- such as a credit bureau or investigative agency to gather information about applicants (or employees), you must follow the strict guidelines set forth in the Fair Credit Reporting Act or FCRA (15 U.S.C. § 1681 and following). This federal law requires you to, among other things, get the applicant's consent to the investigation and give the applicant a copy of the investigative report if you decide not to hire the applicant based on its contents. See Section G for more information on the FCRA.5. Protecting Against Unfair Competition
Whenever you hire workers, you run the risk that they'll later start a competing business or go to work for a competitor. If so, they may use information or contacts they gained at your workplace to draw away business that otherwise would be yours.
Obviously, you need not be too concerned about the employee you hire to flip hamburgers or the clerk you hire to handle dry cleaning orders. But employees who have access to inside information about product pricing or business expansion plans, for example, may pose competitive risks. The same goes for employees who serve valuable and hard-won customers -- such as a salesperson who handles a $200,000 account.
You can help protect your business from unfair competition by asking new hires to sign agreements not to take or disclose trade secrets and other confidential information. You can also ask selected employees to sign covenants not to compete with your business although such covenants must be carefully written so that a former employee has a reasonable chance to earn a living.
To learn more about noncompete and nondisclosure agreements including how to create your own see How to Create a Noncompete Agreement, by attorney Shannon Miehe (Nolo). To learn more about nondisclosure agreements, see Nondisclosure Agreements: Protect Your Trade Secrets & More, by attorneys Richard Stim and Stephen Fishman (Nolo).a. Trade secrets
In hiring and working with employees, some business owners need to protect their unique assets from misuse. Some possibly protectible business assets may include, for example:
If they are treated as such, the recipes, the customer list and the assembly process are all trade secrets. Other examples are an unpatented invention, engineering techniques, cost data, a formula or a machine. To qualify for trade secret protection, your business information must meet two requirements.
First, you must show that you've taken steps to keep the information secret for example, by:
EXAMPLE: Sue works at Speedy Copy Shop. She has daily access to the list of larger accounts that are regularly billed more than $2,000 per month. Sue quits to open her own competing shop. Before she does, she copies the list of major accounts. One of her first steps in getting her new business going is to try to get their business away from her former employer. Speedy sues Sue for infringing on its trade secret. At trial, Speedy shows that it keeps the list in a secure place and permits access only to selected employees who need the information. In light of these precautions, the judge orders Sue not to contact the customers on the list and requires her to compensate Speedy for any profits she has already earned on those accounts.
Second, the information must not be freely available from other sources. If the recipe for a restaurant's award-winning custard tart can be found in a standard American cookbook or recreated by a competent chef, it isn't a trade secret. On the other hand, if the restaurant's chef found the recipe in a medieval French cookbook in a provincial museum, translated it and figured out how to adapt it to currently available ingredients, it probably would be considered obscure enough to receive trade secret protection -- the recipe isn't readily available to other American restaurants.
In addition to the requirements that a trade secret must be guarded information that is somewhat obscure, judges sometimes look at how valuable the information is to you and your competitors and how much money and effort you spent in developing the trade secret.
For more information on the legal nuances of trade secrets, see Trade Secrets, by Roger M. Milgrim (Matthew Bender & Company), available at many law libraries.b. Covenants not to compete
To prevent an employee from competing with you after leaving your workplace, consider having him or her sign a covenant not to compete (also called a noncompete agreement). In a typical covenant, the employee agrees not to become an owner or employee of a business that competes with yours for a specific time and in a specific location.
The best time to secure a covenant not to compete is when you hire an employee. An employee who is already on the payroll may be more reluctant to sign anything and you'll have less leverage to negotiate the agreement.
Battles over the legality of these agreements must usually be resolved in court. Judges are reluctant to deprive people of their rights to earn a living, so the key to a legally enforceable covenant not to compete is to make its terms reasonable. In evaluating whether a covenant not to compete is reasonable, focus on three questions each of which relates to the specific job and the specific employee.
EXAMPLE: When Mary hires Sid to be the office manager for her profitable travel agency, she realizes that Sid will have access to major corporate accounts and daily contact with the corporate managers who make travel arrangements. Mary also knows that she'll spend considerable time in training Sid and invest more than $4,000 in specialized seminars that she will require Sid to attend. She asks Sid to sign a covenant not to compete in which Sid promises that while working for Mary and for two years afterwards, he won't work for or own a travel agency within 50 miles of Mary's agency. After six months, Sid quits and starts a competing agency one mile from Mary's. The judge enforces the covenant not to compete by forbidding Sid from operating his new business and by awarding damages to Mary.
Not All States Honor Noncompete Agreements. Noncompete agreements can be difficult or impossible to enforce. In California, for example, courts virtually never enforce noncompete agreements against employees or ex-employees, due to a very restrictive statute. Other states enforce noncompetes only in limited circumstances. Even in the states where they are enforced, it's often hard to overcome a judge's reluctance to interfere with an employee's ability to earn a living. One way around this potential uphill battle is to ask employees to sign a nonsolicitation agreement and a nondisclosure agreement. Courts are much more willing to enforce these agreements. They can keep ex-employees from using your client or customer lists, luring employees to a competing business or stealing your trade secrets. If you can get all of these protections, you don't lose much by foregoing a noncompete agreement.
If you base hiring decisions on applicants' off-duty conduct (assuming your state allows you to do so), make sure to apply your selection criteria evenhandedly. If, for example, you choose not to hire single parents, you must apply this standard to men and women alike or risk a discrimination lawsuit (see Chapter 8).
To learn more about noncompete and nondisclosure agreements including how to create your own see How to Create a Noncompete Agreement, by attorney Shannon Miehe (Nolo).6. Hiring Young Workers
Federal and state laws restrict your right to hire workers who are younger than 18 years old. These laws limit the type of work for which young people may be hired and the hours they may work. (See Chapter 3, Section F, for more information.)7. Hiring Immigrants
Federal law prohibits hiring undocumented aliens. You and each new employee are required to complete INS Form I-9, Employment Eligibility Verification. (See Section K for details.)Job Descriptions
Write a job description for each position you're seeking to fill. Listing the skills and attributes you're looking for in applicants will help make the hiring process more objective. It will also give you ready standards you can use to measure whether or not applicants are qualified -- and which ones are most qualified. Current employees can often help you write job descriptions. They know how the business operates and the kind of skills that are needed.
In writing job descriptions, be careful not to violate the laws that prohibit discrimination in employment and that seek to assure employment opportunities for people with disabilities.
Basically, you can't discriminate against applicants on the basis of their race, skin color, gender, religious beliefs, national origin, disability or age (if the applicant is at least 40 years old). In addition, many states prohibit discrimination based on a variety of other characteristics, including marital status and sexual orientation. To learn about your state laws prohibiting discrimination in employment, see Chapter 8, Section G.1. Necessary Elements
A well-drafted job description usually contains these components:
Anti-discrimination laws recognize that in certain very limited circumstances, an employer may have a legitimate reason to seek an employee of a particular gender, religion or ethnicity -- even though such a preference would ordinarily be illegal. These are called bona fide occupational qualification (BFOQ) exceptions. Religion, sex or national origin can be a BFOQ only if it's a reasonably necessary qualification for the normal operation of a business or enterprise and it almost never is. Race can never be a BFOQ.
Here are some guidelines.
Religion. Obviously, religion can be a job requirement where the job involves performing religious duties. The law recognizes, for example, that being Catholic is a valid qualification for performing the duties of a Catholic priest and being Jewish is a valid qualification for performing the duties of a rabbi. But beyond that, religion rarely can be a BFOQ. A court has allowed a Jesuit university to limit teaching jobs in its philosophy department to Jesuits. (Pime v. Loyola University of Chicago, 585 F. Supp. 435 (N.D. Ill., 1984).) But a school established under a will that required all teachers to be Protestant couldn't enforce that restriction as a job requirement; the school wasn't teaching religion. (EEOC v. Kamehameha Schools/Bishop Estate, 990 F.2d 458 (9th Cir. 1993).)
National origin. National origin can sometimes, but rarely, be a BFOQ. An American subsidiary of a Japanese company involved in international trade might be allowed to make Japanese nationality a job requirement because of the need for language proficiency, cultural background and acceptability to trading partners of customers. (Avigliano v. Sumitomo Shoji of America, Inc., 638 F.2d 552 (2d Cir. 1981).) Aside from such a narrow situation, you can't use national origin as a BFOQ.
Gender. About the only time that gender can be a BFOQ is for jobs affecting personal privacy for example, restroom attendants or security guards who are required to search employees and acting and modeling work.Job Advertisements
Even if you write a great job description, you could still get tripped up when summarizing the job in an advertisement. This can easily happen if you let someone write your ad who's not familiar with the legal guidelines. Nuances in an ad can be used as evidence of discrimination against applicants of a particular gender, age or other protected characteristic.
There are a number of semantical pitfalls to avoid in job ads.
Requiring a high school or college degree may be discriminatory in some job categories. You can avoid problems by stating that an applicant must have a "degree or equivalent experience."
The best way to write an ad that meets legal requirements is to keep it short and sweet: Stick to the skills needed and the basic responsibilities the job entails. Some examples:
"Fifty-unit apartment complex seeks experienced manager with general maintenance skills."
"Mid-sized manufacturing company has opening for accountant with tax experience to oversee interstate accounts."
"Cook trainee position available in new vegetarian restaurant. Flexible hours."
Help Wanted ads placed by federal contractors must state that all qualified applicants will receive consideration for employment without regard to race, color, religion, sex or national origin. Ads often express this with the phrase An Equal Opportunity Employer, or EOE.
Some employers who are not federal contractors also use this phrase in their ads; it's a good shorthand way to let potential employees know that you'll give them a fair shake, which can help you attract a more diverse group of applicants.Job Applications
Develop a standard application form to make it easy to compare the experience and skills of applicants. Limit the form to job-related information that will help you decide who's the best person for the job. Questions like these are fairly standard:
In designing a job application, keep two legal principles in mind:
The chart below outlines the type of information that you can ask for in applications and during job interviews. Follow the chart to comply with federal laws. The chart may also be sufficient for complying with the laws of your state. To be sure, double-check with your state's fair employment office. (You can find a chart listing state fair employment laws and offices in Chapter 8.)
In addition to the areas covered in the chart, the Americans with Disabilities Act (ADA) prohibits any pre-employment questions about a disability. Before you make a job offer, you may ask questions about an applicant's ability to perform specific job functions. You may not, however, inquire about the nature or severity of a disability, ask about medical history or treatment or require any medical exam. These rules apply to application forms, job interviews and background or reference checks. (See Chapter 9 for more on the ADA.)
The Rules Change After You've Made a Job Offer. After you make a conditional job offer and before an applicant starts work, you're free to gather more details. At that point, you can require a medical exam or ask health-related questions but only if you require this for all candidates who receive conditional offers in the same job category.
The U.S. Equal Employment Opportunity Commission (the government agency that enforces federal workplace discrimination laws) sets out the following examples of questions employers may not ask on application forms or in job interviews as prohibited by the ADA:
(However, you may provide information on your attendance requirements and ask if the applicant will be able to meet those requirements.)
For additional information on hiring and the ADA, see the Technical Assistance Manual on the Employment Provisions (Title I) of the Americans with Disabilities Act, available from the Equal Employment Opportunities Commission, 1801 L Street, NW, Washington, DC 20507; phone: 202-663-4900. To be connected with the EEOC field office closest to you: 800-669-4000. You can also reach the agency through its website at www.eeoc.gov.
Pre-employment Inquiries Chart ommitted for online purposes.2. The Legal Effect of Job Applications
A well-written application form can help get the employment relationship off on a solid legal footing. Since it's filled out very early in the process, you can use the form to let the applicant know the basic terms and conditions of the job and the workplace. And, because the applicant signs the application, it can be a valuable piece of evidence if a question comes up later about what you actually promised about the job. (See Chapter 2.)
Section A3, above, suggests language to add to your job application form emphasizing your right to fire an employee at will -- that is, without having to give any reason to justify the firing. Be aware, however, that putting this language in the application form won't by itself guarantee that a court will find an at-will employment relationship. As noted in Section A3, a judge may treat this at-will language as non-binding.
You can also use the job application to obtain the employee's consent to a background investigation and reference check. If the applicant consents to your investigation, he or she will have a tough time later claiming an invasion of privacy. And if you plan to hire another person or agency to conduct a background check, you may be legally required to get the applicant's consent first (see Section G).
Authorization. I authorize XYZ Company to obtain information about me from my previous employers, schools and credit sources. I authorize my previous employers, schools that I have attended and all credit sources to disclose to XYZ Company such information about me as XYZ Company may request.
Impress on the applicant the need to be honest and accurate in completing the form. Lying or giving incomplete information on an application can be a good legal reason to fire an employee if the correct story later surfaces. So serious is application fraud resume fraud as it's sometimes called that some courts have allowed employers to use it to justify a firing even though the employers didn't even know of the fraud when they let the employee go.
EXAMPLE: Dolores, age 42, applies for a job as a land surveyor with Progressive Engineering Consultants (PEC). In her application, Dolores states that she has a civil engineering degree from a prestigious college and is licensed by the state. The application form warns that false information will be a cause for immediate discharge. Relying on the application, PEC hires Dolores. Six months later, PEC becomes dissatisfied with Dolores's work and fires her, replacing her with a 30-year-old man. Dolores sues, claiming that the firm discriminated against her based on age and gender. PEC belatedly looks into her application statements and discovers that Dolores has neither the degree nor the license she said she had. Because of Dolores's lies, the judge dismisses the case without getting into the discrimination charges.
Including the following language in an application form can help you establish that you clearly told the applicant about the consequences of lying.
Accuracy. I verify that the statements I have made in this application are true and complete. I understand that if I am hired, any false or incomplete statements in this application will be grounds for immediate discharge.
A few unscrupulous applicants have actually taken home an application form and asked other people to fill it out for them. This can increase the risk of the form being used as an exercise in creative and deceptive writing. To safeguard against such abuses, require applicants to complete the application form on your premises where you can keep an eye on them.Interviews
Before you begin to interview applicants for a job opening, write down a set of questions focusing on the job duties and the applicant's skills and experience. Some examples:
"Tell me about your experience in running a mailroom."
"How much experience did you have in making cold calls on your last job?"
"Explain how you typically go about organizing your workday."
"Have any of your jobs required strong leadership skills?"
By writing down the questions and sticking to the same format in all interviews for the position, you reduce the risk that a rejected applicant will later complain about unequal treatment. It's also smart to summarize the applicant's answers for your files -- but don't get so involved in documenting the interview that you forget to listen closely to the applicant. And don't be so locked in to your list of questions that you don't follow up on something significant that an applicant has said, or try to pin down an ambiguous or evasive response.1. Interviewing Protocol
Get the interview started by giving the applicant some information about the job the duties, hours, pay range, benefits and career opportunities. This will give the applicant a chance to get comfortable before you start in on the questions. Questions about the applicant's work history and experience that may be relevant to the job opening are always appropriate. But don't encourage the employee to divulge the trade secrets of a present or former employer especially a competitor. That can lead to a lawsuit. And be cautious about an employee who volunteers such information or promises to bring secrets to the new position; such an employee will probably play fast and loose with your own company's secrets, given the chance.
Keep your antennae tuned carefully to the applicant who spouts a litany of complaints against former employers. If you hire that person, your business may well become the next object of the applicant's invective. And employees with a ton of gripes also tend to have an appetite for litigation. But watch your step if you learn that the applicant has sued a former employer for discrimination or filed a discrimination charge with the U.S. Equal Employment Opportunity Commission (EEOC). If you refuse to hire the applicant because of the prior proceedings, the EEOC may treat your refusal as a form of illegal retaliation, even though your business wasn't involved in the earlier problem. See Chapter 8, Section A, for more on retaliation claims.
Give applicants plenty of time to answer questions. Make sure they understand your questions; ask them to let you know if something is unclear. And ask them if they have any questions about your company or the job for which they're applying. Finally, let them know your time frame for getting back to them with a hiring decision so they won't bug you with premature phone calls.
For additional suggestions on interviewing, see 267 Hire Tough Proven Interview Questions, by Mel Kleiman (HTG Press), and The Manager's Book of Questions: 751 Great Interview Questions for Hiring the Best Person, by John Kador (McGraw Hill).2. Legal Restrictions on Questions
The Rules of Etiquette once dictated that you avoid discussing sex, religion or politics in a social setting. While that standard has been relaxed, it still applies to job interviews -- along with similar cautions to avoid focusing on an applicant's age, ethnicity, birthplace or personal finances. In fact, such inquiries are not only bad manners; they're illegal, plain and simple.
During an interview, stay focused on job requirements and company policies. Suppose you're concerned that an applicant with young kids may spend too much time talking with them on the phone. You can't ask: "Do you have children?" or "Who watches the kids when you're at work?" But you can say to the applicant: "We don't allow personal phone calls during workhours. Do you have a problem with that?" The applicant then knows the ground rules and can let you know if a problem exists. Just be sure you apply your phone policy to all employees.
Review the legal restrictions on what you can and can't ask in a job application. (See Section D.) The same guidelines and restrictions apply to interviews. As with job applications, the focus of your interviews should be to find the best person for the job based on skill, experience, education and other qualifications needed to perform the job.
During an interview, you can ask about the applicant's ability to perform job tasks and about any needed accommodation. You'll be walking a fine line here, so take some time to avoid potential legal problems with disability laws. Remember to focus on the applicant's ability to do the job not on the applicant's disability.
EXAMPLE: Zack, who has only one arm, applies at ABC Industries for a job that requires driving. The interviewer avoids asking Zack if or how this disability would affect his driving. Instead, to comply with the law, the interviewer asks: "Do you have a valid driver's license?" "Can you drive on frequent long distance trips, with or without an accommodation?" The interviewer continues: "At least 80% of the time of this sales job must be spent on the road covering a three-state territory. What is your outside selling experience? What is your accident record?" All are permissible questions.
You can describe or demonstrate the specific job tasks, then ask whether the applicant can perform these tasks with or without an accommodation. If you're interviewing an applicant for a mailroom job, you can say: "The person in this job is responsible for receiving incoming mail and packages, sorting the mail and taking it in a cart to many offices in two buildings, one block apart. The mail clerk must also receive boxes of supplies weighing up to 50 pounds and place them on storage shelves six feet high. Can you perform these tasks with or without an accommodation?"
You can ask an applicant to describe or show how he or she will perform specific job functions but only if you require this of everyone applying for a job in this category.
EXAMPLE: PhoneSale, a telemarketing firm, requires all applicants to demonstrate selling ability by taking a simulated telephone sales test.
Be mindful that some applicants with disabilities will need accommodations to participate in the interview process. For example, you may need to provide an accessible location for an applicant in a wheelchair, a sign interpreter for a deaf person or a reader for a blind person. (See Chapter 9 for an extensive discussion of the disability law requirements.)
You can find a number of articles about hiring and job interviews in the Employment Law Center of Nolo's website at www.nolo.com.Testing
Pre-employment testing which might include skills testing, aptitude testing, honesty testing, medical testing and drug testing is most common in larger businesses. But no matter what size your business is, you should know the legal limits on your ability to test applicants.1. Skills Tests
Most small businesses especially new ones operate on a slim profit margin. This means that your employees must be up to speed from day one. If you're hiring a typist, you may want to test the applicant for typing speed and accuracy. If you're hiring a person to be a clerk in your bookstore, you may want to test the applicant's knowledge of literature. If you're hiring a driver for a delivery van, a road test would be appropriate. As long as the skills you're testing for are genuinely related to the job duties, a skills test is generally legal.
To avoid discriminating against applicants protected by the Americans with Disabilities Act (ADA), be sure your tests measure the actual skills and abilities needed to do a job for example, a typing test or a sales demonstration test. (For more on the ADA, see Chapter 9.)
Avoid tests that reflect impaired mental, sensory, manual or speaking skills unless those are job-related skills that the test is trying to measure. For example, written question-and-answer test for a job as a heavy equipment operator might screen out an applicant with dyslexia or other learning disability, even though the applicant has the necessary skills to operate heavy equipment.2. Aptitude and Psychological Tests
Some employers use written tests usually multiple choice tests to get additional insight into applicants' abilities. Others attempt to probe the psyche of their applicants.
These tests are going out of fashion, and for good reason. A multiple choice aptitude test may discriminate illegally against minority applicants, because it really reflects test-taking ability rather than actual job skills. A personality test can be even riskier. Besides its potential for illegal discrimination, such a test may invade an applicant's privacy by inquiring, for example, into religious beliefs or sexual practices. (See Section A2 for more on privacy concerns.)
If you do decide to use aptitude or personality tests, proceed cautiously. Make sure that the tests have been screened scientifically for validity and that they are correlated to job performance. Review them carefully for any questions that may intrude into the applicant's privacy.
Another concern for employers is the Americans with Disabilities Act (ADA), which lets you give a psychological test or exam to a job applicant -- as long as the test or exam isn't medical. This can be tricky. A psychological test or exam is considered medical if it provides evidence that can help identify a mental disorder or impairment. A test or exam is permissible if it measures only such things as honesty, tastes and habits. But if it helps identify whether the applicant has excessive anxiety, depression or a compulsive disorder, it qualifies as a medical test and is illegal if given at the wrong time.
Be aware, too, that the ADA sets special requirements when you test people who have impaired sensory, speaking or manual skills. Sensory skills include the abilities to hear, to see and to process information. If the applicant wouldn't have to use the impaired skill on the job, you must design your tests so that he or she doesn't have to use the impaired skill to take the test.
EXAMPLE: Joe is applying for a position as a food handler which requires hardly any reading. Because of dyslexia, Joe has a very difficult time reading. He should be given an oral rather than a written aptitude test. By contrast, if you were interviewing Joe for a proofreader job which clearly requires the ability to read without help a written test would be appropriate and legal.3. Honesty Tests
Lie detector or polygraph tests rarely used by small businesses anyhow -- are virtually outlawed by the federal Employee Polygraph Protection Act. With just a few exceptions, you can't require job applicants to take lie detector tests and you can't inquire about previous tests. The only private employers who can use lie detector tests to screen applicants are businesses that offer armored car, alarm and guard services or that manufacture, distribute or dispense pharmaceuticals -- and even in those situations, there are restrictions on which applicants can be tested and how the tests must be administered.
About the only time a typical employer can use a lie detector test is to question an employee who is reasonably suspected of being involved in a workplace theft or embezzlement.
One large department store used a psychology test to screen applicants for security guard jobs. The test was based on the Minnesota Multiphasic Personality Inventory which has been used for decades and was widely accepted. Included in the test were hundreds of true or false questions, including:
A group of applicants in California sued the store, claiming that the test violated their rights to privacy and was discriminatory. The California Court of Appeals agreed, ruling that the questions were not job-related. The court held that the job applicants were entitled to a legal order prohibiting the store from using the test. (Soroka v. Dayton Hudson Corp., 235 Cal. App. 3d 654 (1991).)
You must post a notice of the Employee Polygraph Protection Act where employees and job applicants can readily see it. For a poster containing the required notice, contact the local office of the Wage and Hour Division of the U.S. Department of Labor. (See Appendix for contact details.)
Some employers use written honesty tests to screen job applicants. Because these tests are often inaccurate and can invade an applicant's privacy or have a discriminatory impact, the legality of the tests is doubtful in most states. While honesty tests are not yet prohibited or restricted by federal law, Congress is considering possible legislation against them.
Limit honesty tests to situations in which you have a legitimate business reason to be concerned about workers' honesty -- such as in hiring workers who will be handling large amounts of cash. Before using a test, ask to see scientific backup establishing the test's accuracy. And to protect yourself against charges of illegal discrimination, test all applicants for a particular job.
For detailed information on the Employment Polygraph Protection Act, including who the law covers, what the law requires and prohibits, tips for compliance and exceptions to the law, see Federal Employment Laws: A Desk Reference, by Amy DelPo and Lisa Guerin (Nolo).4. Medical Tests
To avoid violating the Americans with Disabilities Act (ADA), don't ask the applicant about his or her medical history or conduct any medical exam before you make a job offer. You can, however, offer a job conditioned on the applicant passing a medical exam. If you do require such a post-offer exam, be sure you require exams for all entering employees who will be doing the same job.
EXAMPLE: Cornerstone Corporation has openings for construction crane operators. It offers Bill a job conditioned on a medical exam showing he doesn't have a medical condition, such as uncontrolled seizures, which may be risky to other workers. Because Cornerstone requires such exams for all the crane operators it hires, and because the exam screens out only those workers who would not be able to do the job safely, the exam is perfectly legal.
If you require medical exams only for people with known disabilities or those who you believe may have a disability, you'll violate the ADA. But the scope of medical exams needn't be identical for all employees. You can give follow-up tests or exams if further information is needed. Suppose, for example, that your restaurant requires a blood test for all prospective kitchen workers. If one person's test indicates a problem that may affect job performance or is a direct threat to health and safety, you can require further tests for that person.
After making a conditional job offer, you may require a full physical exam and you may ask questions that you couldn't ask at the pre-employment stage -- for example, questions about previous illnesses, diseases or medications. You can probe to find out if the person has the physical or mental qualifications needed to perform the job or to determine if a person can perform the job without posing a direct threat to the health or safety of others.
If you withdraw a conditional job offer based on results of an exam or inquiry, you must be able to show that:
To avoid claims that you discriminated against a person with a disability, carefully document all medical inquiries and the responses to them. If you reject the prospective employee, be prepared to show how the medical facts relate to the person's ability to perform the job or reveal a direct threat to health and safety.
The U.S. Equal Employment Opportunity Commission, the enforcing agency of the ADA's employment provisions, has set out a number of examples of post-offer employment decisions that are likely to be permitted under the law.
You have a legal right to insist on a drug-free workplace. The only problem is that testing to weed out drug users may conflict with workers' rights to privacy. The laws on drug testing vary widely from state to state and are changing quickly as legislators and judges struggle to strike a balance between workers' rights and the legitimate needs of businesses. (See chart, below.)
Federal Contractors Must Comply With the Drug-Free Workplace Act. The law requires federal contractors and grantees to agree to maintain a drug-free workplace. If your business has a contract with the federal government for $100,000 or more (for something other than goods you're selling to the government), you need to notify employees that they're prohibited from unlawfully making, distributing, possessing or using controlled substances in your workplace. And you need to set up an awareness program that tells workers about the dangers of drug abuse while at work and lets them know about assistance programs that may be available.
Some state statutes allow you to test employees only in a narrow range of jobs, such as those concerned with safety. (See chart, below.) Fortunately, even restrictive states generally allow you much more leeway in screening job applicants than in testing employees who are already on board. If your state permits testing applicants or employees and you plan to do such testing, use the application form to let applicants know of this policy. State law may also require you to give applicants a written policy statement that's separate from the application. When applicants are told up front about drug testing, it's harder for them to later claim that they expected more privacy on drug testing results.
Because the laws of drug testing are in constant flux, consider talking to a lawyer before administering any tests.
Once an applicant becomes an employee, drug testing gets stickier. Testing is usually permitted when employees have been in an accident or you've seen them bring illegal drugs to work. Your legal right to test at random and without prior notice is unclear -- and questionable.
In any drug testing, treat all individuals consistently, being careful not to single out any one group. And consult with competent drug testing experts to assure that your test procedures are as accurate as possible.
For help in developing a drug policy, contact the Center for Substance Abuse Prevention Workplace Helpline at 800-967-5752. You can also find lots of helpful information on their website at www.samhsa.gov/centers/csap/csap.html.
Recovering Addicts Are Protected from Discrimination. The Americans with Disabilities Act (ADA) prohibits you from discriminating against people because of past drug problems. This includes people who no longer use drugs illegally and those who are receiving treatment for drug addiction or who have been rehabilitated successfully.
Additional Laws May Apply. If the chart below indicates that your state has no statute, this means there is no law that specifically addresses the issue. However, there may be a state administrative regulation or local ordinance that does control. Call your state labor department for more information. (See the Appendix for contact details.)
State Drug and Alcohol Testing chart omitted for online purposes.Investigations
Since some people give false or incomplete information in their job applications, it's a good idea to do some investigating to verify their application information. You might find out, for example, that an applicant doesn't have the work experience or occupational license that he or she claimed to have in a job application -- or that the applicant didn't really leave the last job voluntarily. What's more, you might learn that the applicant has a history of violent behavior or even a criminal record that would disqualify him or her from a job that may put members of the public or other employees at risk.
Your need to investigate a job applicant is legitimate -- but if you go overboard you may violate the job applicant's legal right to privacy. The best way to reduce the risk of an invasion of privacy claim is to:
Ask the applicant to sign a consent form as part of the application process. The consent can either be a part of the application form itself or a separate document. The advantage of having the applicant sign a separate document is that you can easily photocopy it and send it to the people from whom you're seeking information. (See Section D2 for sample language.)1. The Fair Credit Reporting Act
A federal law called the Fair Credit Reporting Act or FCRA (15 U.S.C. § 1681 and following) imposes strict rules on your ordering and use of "consumer reports" which includes background checks, credit reports and other information gathered on applicants for employment.a. Which background checks are covered
The FCRA regulates your ordering and use of any report prepared by a consumer reporting agency (CRA) any business that assembles such reports for other businesses. So if you order an applicant's credit payment record from a credit bureau, that clearly would be a consumer report covered by the FCRA. So would a report you order from a business about an applicant's driving record or criminal history (though ordering similar information from a governmental agency wouldn't be).
You may be thinking of hiring a CRA, such as a detective agency or professional investigator, to prepare an investigative consumer report based on interviews the CRA conducts with an applicant's or employee's friends, neighbors and associates. This would also constitute a consumer report and would, therefore, be covered by the FCRA.
Checking an applicant's references may or may not come under the FCRA. If you or someone within your company does the checking, the FCRA doesn't apply the statute doesn't cover any information you gather on your own. However, if you use an employment or reference-checking agency to do the job, you must comply with the FCRA.b. Requirements for handling reports
Before you get a consumer report for employment purposes, you must notify the applicant or employee in writing and get that person's written permission to gather the information. And the agency you ask to prepare the report will require you to certify that you're complying with the federal law and that you won't use the information in the report in violation of federal or state equal employment opportunity laws. These laws discussed in Chapters 8 and 9 prohibit certain types of discrimination. Special rules apply if your business is in the trucking industry.
After you get the report, special rules apply if, based on the report, you're going to take adverse action against the applicant in the hiring process, this is most likely to come up if you decide, based on the information on the report, not to hire the applicant.
Step 1: Before you take adverse action, you have to give the applicant or employee a pre-adverse action disclosure. You must include a copy of the consumer report and a copy of "A Summary of Your Rights Under the Fair Credit Reporting Act" a publication prepared by the Federal Trade Commission (FTC). The business that prepared the consumer report will give you the Summary, or you can get a copy from the FTC's website at www.ftc.gov/os/statutes/2summary.htm.
Step 2: After you take an adverse action, you must notify the applicant or employee that you've taken the action. You can give notice orally, in writing, by email or by fax. Your adverse action notice must:
You face legal trouble if you don't get an applicant's or employee's permission before requesting a consumer report, or if you don't provide the required disclosures about adverse action. The applicant or employee may sue you for damages in federal court. If successful, the person may recover court costs and reasonable attorney fees. You can also be ordered to pay punitive damages damages intended to punish you for deliberate violations.
Also, federal and state agencies may sue you and obtain civil penalties.
For detailed information about the FCRA including who it covers, what it requires and prohibits and tips for compliance see Federal Employment Laws: A Desk Reference, by Amy DelPo and Lisa Guerin (Nolo).2. Information From Former Employers
Some job applicants exaggerate or even lie about their qualifications and experience. The best way to uncover this kind of puffery is to ask some former employers for the inside story.
Former employers are often reluctant to say anything negative for fear that if they speak frankly, they may be hit with a lawsuit for defamation. They're hesitant to do anything more than to verify that the former employee did in fact work there and to give the dates of employment. This reluctance can make it hard to get an accurate picture of an applicant's job history. As mentioned, it may be helpful to send the former employer a copy of the applicant's signed consent to a full disclosure of employment information. (See Chapter 10, Section L, for suggestions on giving references for former employees when you're the one being asked for information.)
In speaking with former employers, learn to read between the lines. If a former employer is neutral, offers only faint praise or overpraises a person for one aspect of a job only -- "great with numbers" or "invariably on time" -- there's a good chance some negative information is hiding in the wings. Ask former employers: "Would you hire this person back if you could?" The response may be telling. To help put the applicant in perspective, you might ask: "What are this person's greatest strengths and greatest weaknesses?" Since no one is perfect, this may lead to a candid evaluation of the applicant.
If a reference isn't glowing and doesn't take in all aspects of the job, check several other references and perhaps call back the applicant for a more directed interview.
For more details, see Hiring, Staffing, Recruiting and Retention, published by the Society for Human Resource Management. To order by phone, call the SHRM Bookstore at 703-548-3440. You can also order the book by mail by sending a check for $19.95 to the SHRM Bookstore, at P.O. Box 930132, Atlanta, GA 30201. You can also order the book online at www.shrmstore.shrm.org/shrm. If you are a SHRM member, the price is $16.95.
Reference Checks May Become More Informative. In response to the problem of unhelpful reference checks, many states have passed laws that allow employers to speak more frankly about their former employees.
Find out if your state has such a law. If so, don't assume that the former employers you call for reference checks know about it. Telling them about the protection they have under your state's law may allow you to get a fuller picture of a prospective employee. To find out about your state law, contact your state labor department. (See Appendix for contact details.)3. School Transcripts
On-the-job experience generally is much more relevant to employment than an applicant's educational credentials. Still, you may have good reasons for requiring a high school diploma or college degree for some jobs. If so, you may want to see proof that the applicant really received the diploma or degree or took the courses claimed in the job application.
If you wish to see these records, ask the applicant to sign a written release acknowledging your right to obtain them. Federal law prohibits schools that receive federal funds from turning over the records without such a release -- and many schools won't deliver records to anyone except a former student. This can, of course, complicate your verification, since it creates the possibility of forgery or tampering.4. Credit History
Credit information usually isn't relevant to employment, but it might come into play if you hire someone who will handle money. Someone with large debts may be especially tempted to skim money from your business. And an applicant who can't keep his or her personal finances in order is probably not a good choice for a job managing your company's finances.
In most other situations, however, a credit check is an unnecessary intrusion into an applicant's private life. What's more, unless you have a good reason for doing a credit check for a particular job, you may run afoul of anti-discrimination laws. According to the EEOC, requiring an applicant to have good credit may subtly discriminate against some minority groups. State laws, too, may limit your use of credit information in deciding whether to hire someone.
Assuming that you have a good business reason to order a credit report on a job applicant, be sure to get the applicant's written permission first. This is required by the federal Fair Credit Reporting Act and may also be mandated by state law. (See Section G1, above.)5. Criminal History
Asking an applicant about his or her arrest record or making a hiring decision based on that record can be a subtle form of discrimination that violates state and federal anti-discrimination laws. Many people are arrested and the charges are later dropped or found to be without merit. Asking about arrests can be particularly harmful to black applicants because blacks are arrested disproportionately to their population size. Very rarely is there a legitimate business reason to reject an applicant simply because of an arrest record.
Convictions are another matter. While it can be unlawful discrimination to automatically exclude every applicant who's ever had a conviction, anti-discrimination laws generally do allow you to inquire about an applicant's conviction record and to reject an applicant because of a conviction record that's job-related. If you're hiring a delivery truck driver, for example, it wouldn't violate the anti-discrimination laws to reject an applicant based on a conviction for drunk driving.
State laws may specifically prohibit you from asking about arrest records -- and may go even farther in restricting your inquiries into an applicant's criminal history. (See the chart below.) In many states, for example, you can't ask an applicant about juvenile records. In some states, you can't ask about convictions for minor offenses or misdemeanors that go back more than five years if the applicant has had a clean slate since that time.
State Laws on Employee Arrest & Conviction Records chart omitted for online purposes.
Expunging the Past. Many states have laws that allow individuals to expunge, or seal, their criminal records. When a record is expunged, it is usually not available to anyone other than criminal justice agencies and the courts. If a criminal record has been expunged, a prospective employee is generally allowed to act as if the conviction never happened in other words, the applicant is legally permitted to deny having a criminal record.6. Driving Records
When a job requires the employee to drive, it's wise to check on an applicant's driving record. You usually can obtain driving records for a modest cost from the state authority that issues drivers' licenses.Making a Job Offer
Be careful what you say orally and in writing when you make a job offer to any applicant. The positive statements you make to an applicant about long-term opportunities can come back to haunt you if you later fire the person. (See Section A3.) A judge or jury reviewing the firing may conclude that your glowing statements were actually a promise a promise, perhaps, that the applicant's job would be secure for years or that he or she wouldn't be fired without good cause.
You can protect yourself from such misunderstandings by using an employment letter such as the one shown below.Rejecting Applicants
It's courteous to let unsuccessful applicants know that you've hired someone else for the job. You don't, however, owe them an explanation about why they weren't hired. If pressed, simply tell them that the person you hired is, in your judgment, more appropriate for the job.
There's no ideal way to give someone the news that he or she didn't get the job. The least painful way -- which also presents the fewest legal difficulties -- is to send a short letter informing the rejected applicant of your decision. Send the letter as soon as you've decided whom you're going to hire or when you've narrowed the field down to a few candidates. There's no need to let applicants twist in the wind. Quickly sending your rejection letter will cut down on the number of post interview calls you get from unsuccessful applicants calls that are uncomfortable for everyone.
Keep the letter simple and upbeat. And keep a copy in your files, along with the employment application and any information you gathered during the screening process. Lawsuits by rejected applicants are rare, but you can't predict in advance which ones might take that step.Sample Rejection Letter
June 10, 20XXTax Compliance
Before you hire employees, you must get an Employer Identification Number (EIN) from the IRS although if you're a sole proprietor, you have the option of using your own Social Security number. To obtain an EIN, file Form SS-4, Application for Employer Identification Number. Some states have similar requirements. (See Chapter 5, Section A, for further information.)
When you hire an employee, have him or her complete Form W-4, the Employee's Withholding Allowance Certificate. This lets you know how many dependents or withholding allowances the employee is claiming and the employee's filing status single, married or married but withholding at the higher single rate. Keep a signed Form W-4 on file for each employee. If an employee doesn't complete a Form W-4, you won't know how much income tax to withhold. In that case, you must withhold tax as if the employee were a single person claiming no withholding allowances.
You needn't send the signed Form W-4 to the IRS unless:
You can find detailed information on your tax obligations as an employer in Chapter 5.
The IRS has two free publications that may be useful in helping establish tax procedures for your business. Circular E, Employers Tax Guide, containing withholding tables, is updated periodically and mailed automatically to every business that has an Employer Identification Number.
IRS Publication 334, Tax Guide for Small Business, covers a wide range of tax issues. You can get it at your local IRS office or by calling 800-829-3676. You can also obtain IRS publications through the agency's website at www.irs.gov.Immigration Law Requirements
Immigration laws, enforced by the Immigration and Naturalization Service (INS), prohibit employers from hiring aliens who don't have government authorization to work in the United States. There are specific procedures you must follow when hiring employees even those who were born and raised in the town where your business is located.
You and the new employee must complete INS Form I-9, Employment Eligibility Verification. This one-page form is intended to ensure that the employee can legally work in the United States and has proof of his or her identity.
For full details, see the free publication Handbook for Employers: Instructions for Completing Form I-9, available from the INS. Call the nearest regional office of the INS to obtain a copy. You can find a list of INS field offices at the agency's website at www.ins.usdoj.gov.
The employee completes Section 1 of the form, attesting that he or she is a citizen or national of the United States, a lawful permanent resident alien or an alien with work authorization. Only people in these three categories can lawfully work in the United States.
Section 2 of the form requires you to review documents such as a passport or naturalization certificate presented by the employee as proof of the employee's identity and employment eligibility.
You must indicate on Form I-9 which documents you've examined. It's your responsibility to decide whether the employee's documents appear valid. The INS advises that you must accept documents that reasonably appear to be genuine and to relate to the person presenting them. To do otherwise could be an unfair immigration-related employment practice and therefore illegal.
It's a good idea to keep photocopies of the employee's documents to prove that you reviewed these papers in case the INS questions your hiring practices in the future. Also, hang on to all Form I-9s for at least three years. If the employee stays with your company longer than that, keep the form for at least one year after he or she leaves. The INS has the right to see your I-9s. You can be fined up to $1,000 per employee if you can't produce them. (See Chapter 2, Section A, for information on where to keep I-9s.)
For more information on immigration law requirements, including detailed information on filling out Form 1-9, see Federal Employment Laws: A Desk Reference, by Amy DelPo and Lisa Guerin (Nolo).New Hire Reporting Form
Federal law requires you to report certain identifying information about new employees and re-hired employees to a designated state agency. Under federal law, you have 20 days to provide this information, but some states require you to do it more quickly The information becomes part of the National Directory of New Hires. It's used primarily to locate parents so that child support orders can be enforced. Government agencies also use the data to prevent improper payment of workers' compensation, unemployment benefits or public assistance benefits.
Each state has its own form, but all require the following basic information:
Some states ask for additional information, such as your state unemployment compensation number, and the employee's driver's license number and date of birth, though providing this information may be optional.
Your state department of labor can tell you how to get the forms and where to send them. Or you can use a computer search engine such as Google to find out. Just type in New Hire Reporting and the name of your state. Most states provide the form online, and allow you to file it electronically.
Here's a list of documents and forms that you should consider each time you hire someone:
Employment Letter. You can find an example of such a letter in Section H, above.
Employee Handbook. If you have such a handbook and didn't give it to the employee during the application and interview stages, now is the time to do so. Get a written receipt and keep it in the employee's file. (For more on employee handbooks, see Chapter 2, Section B.)
Covenant Not to Compete. This is useful if you have employees who could harm your business if they left to work for a competitor or started a business of their own in competition with yours. (For more information, see Section A5 of this chapter.)
Confidentiality Agreement. Use such an agreement if you'll be disclosing trade secrets and other proprietary information to an employee.
INS Form I-9. This form, required by the U.S. Immigration and Naturalization Service, is intended to help exclude undocumented aliens from the workforce. (See Section K of this chapter.)
IRS Form W-4. Each employee must complete this form so you can properly determine the level of tax to withhold from every paycheck. (See Section J and Chapter 5, Sections B, C and D, for details.)
New Hire Reporting Form. Within a short time after you hire someone 20 days or less, depending on your state's rules -- you must file a New Hire Reporting Form with a designated state agency.
Employee Benefit Sign-Up. If your business offers employee benefit programs such as health insurance or a 401(k) plan, you may have a sign-up procedure so employees can name their dependents and select options.
IRS Form SS-4 (new employers only). The IRS requires an Employer Identification Number for all employers except sole proprietorships. (See Chapter 5, Section A.)
Posted August 1, 2009
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