Generally speaking, what differentiates U.S. employment law from that of other countries is that the U.S. has very few legally required benefits that an employer must offer its employees.  Although it can differ state by state, things that are legally required and commonplace in other countries—such as paid holiday, paid leave, and mandatory severance benefits—are generally not legally required in the United States.  Instead, most benefits offered by employers are considered gratuitous and used as tools to recruit and retain employees.  This has led employers to be creative in their benefit offerings, including the use of “unlimited” vacation policies, fully remote work, egg freezing or fertility stipends, and the like.

Applicable Law

Most employers conducting operations in the U.S. will be required to comply with federal employment laws, which apply nationwide.  Additionally, employers are required to comply with state and local employment laws in the jurisdictions in which they operate.  These vary widely from state to state and city to city.

Companies with very few employees may be exempt from certain laws.  

Employment Relationships Generally

At Will Employment

In almost every U.S. state, “at will” employment is the default position.  This means that the employment is for an indefinite term and either the employer or the employee may terminate the employment relationship at any time, for any reason or no reason (except unlawful reasons such as discrimination), with or without notice.

In our experience, “at will” employment is a concept unique to the United States.  One key consequence of this doctrine is that continued employment may serve as consideration for changing the terms and conditions of employment.  For example, if an employer wishes to require an employee to enter into enforceable restrictive covenants, in some cases, the only necessary consideration is continued employment and a financial or other monetary benefit is not needed.

Hiring Practices

Increasingly, states are regulating aspects of the hiring process, such as when an employer may request information about the criminal history or salary expectations of a candidate.  For example, several states have laws prohibiting employers from seeking information about a candidate’s current salary or salary history.  Likewise, some states limit what information an employer may request about a candidate’s criminal background and/or at what point in the hiring process this information may be requested.  For example, New York prohibits employers from seeking criminal history information until after a conditional offer for employment has been extended.  If an employer wishes to rescind the conditional offer after learning about the candidate’s criminal history, it must undertake a specific statutory analysis and cannot consider certain information in making the decision.

Once a hiring decision has been made, an employer may choose to offer employees a written employment contract, but this is not required.  Many employers reserve formal employment agreements for upper-level management and executives.

Probationary periods are not required in any U.S. jurisdiction, but they are a commonly used tool for new employees to ensure the person’s performance meets basic expectations.  In some cases, employers may impose limits on an employee’s benefits eligibility during the probationary period.  Generally, the process for terminating a probationary employee’s employment is the same for employees who have completed the probationary period.

Disciplinary Processes

Generally speaking, once an employee is hired, there are no specific laws governing how or when an employer may issue discipline such as warnings or reprimands, performance improvement plans, suspensions, or termination of employment.  Employers should always follow internal policy and any applicable collective bargaining agreements, which may require certain disciplinary procedures to be followed.

Separation from Employment

In at-will relationships, where the company and the employee have not agreed to a fixed period of employment or a required notice period, the employer may terminate the relationship at any time with or without notice to the employee, so long as the reason is lawful (e.g., it is not discriminatory or retaliatory).  This means that employers generally can terminate employees with or without cause and without giving notice, although prior notice of termination is common in without-cause separations, such as in the case of redundancy or reduction in force.

Nowhere in the United States is an employer required to provide mandatory severance or separation benefits.  Some employers choose to do this in certain cases, e.g., if the employment is terminated in connection with a reduction in force or due to redundancy.  Receipt of such benefits is almost always conditioned upon the employee’s execution of a release of claims against the employer.  Individual separation agreements can also be reached in cases where the employer does not have a severance plan or the severance plan is inapplicable (e.g., if an employee is being terminated for cause and is not entitled to benefits but where the employer wishes to avoid litigation or claims).

If an employer is undertaking a large-scale redundancy, employee notification laws such as the federal Worker Adjustment and Retraining Notification (WARN) Act and/or state-level “mini-WARN” requirements may apply.  This generally requires employers to provide written notice in advance of certain facility closures and mass lay-offs.  In some states, like Maine, employers may be required to pay employees severance in connection with a closure or mass layoff.

Individual employment agreements, collective bargaining agreements, and the employer’s internal policies may contain provisions governing the termination of the employment relationship.  These should always be reviewed before a termination is carried out as they may impose requirements on how to conduct the termination even where no statutory requirements exist.

Wage and Hour Laws

Minimum Wage

All employees are entitled to receive a gross minimum wage of $7.25 per hour.  Many states impose a higher minimum wage and, in some jurisdictions, the minimum wage increases annually.

Overtime

Employees who are “non-exempt” (i.e., not exempt from certain requirements within wage and hour laws) are entitled to receive overtime of one and a half times their regular rate of pay for all hours worked in excess of 40 hours per week.  Some states impose additional overtime pay requirements.  For example, California requires employers to pay non-exempt employees double their regular rate for working more than 12 hours in one day or for any time worked beyond eight hours on the seventh consecutive day of work in any workweek.

Exempt employees, including executives, white-collar workers, professional employees, and administrative employees who exercise discretion and independent judgment in their position, are not entitled to overtime pay.  These employees earn an annual salary, typically paid monthly or biweekly, which does not change regardless of the hours the employee has worked during a particular pay period.

Compensable Time

Employees must be paid for all time worked.  In some cases, employers are required to provide meal or rest breaks, which can be unpaid.  Employers should require non-exempt employees to clock in and out using a time clock in order to ensure their time is tracked and they are paid accurately.

Paid Time Off

There is no federal requirement for employers to provide paid time off.  Paid time off including vacation, holiday, or annual leave days, sick days, and medical or parental leaves of absence are governed at the state and local level.

Generally speaking, employers are not required to provide paid vacation, though most employers offer this as an employment benefit.  Some states now require the provision of paid sick days as well as paid medical or parental leave, typically paid for via state-mandated employment insurance programs.

Where an employer does offer paid vacation or other benefits, some states require the payment of accrued but unused time upon separation from employment.  In other cases, employers may implement “use it or lose it” policies, under which an employee is not entitled to payment for unused time off benefits at the conclusion of the employment relationship.

Unions & Collective Agreements

The federal National Labor Relations Act (“NLRA”) affords employees the right to join labor unions and engage in concerted activities related to their working conditions.  Certain employees such as government workers, independent contractors, management or supervisory-level employees, and agricultural workers are exempt from coverage under the NLRA.  According to the Bureau of Labor Statistics, only 11.3% of employees in the U.S. were members of unions in 2022.

Once a union has formed, the employer may not reduce wages or modify working conditions without negotiating with employees through the union.  Employers are required to bargain with unions in good faith.  After such negotiations take place, the employer and the union will sign a collective bargaining agreement, which typically covers wages, working hours, working conditions, benefits such as paid time off, and a grievance and arbitration process through which the union can challenge adverse employment actions on behalf of employees.

The NLRA is enforced by the National Labor Relations Board, which certifies newly formed unions and decides disputes between unions and employers.

Restrictive Covenants

Restrictive covenants, such as non-competition and employee or customer non-solicitation clauses, are permitted in the United States.  These provisions are currently governed by state and local law, although there has been speculation that a federal law concerning certain restrictive covenants such as non-compete agreements is likely in the future.

Increasingly, states are taking steps to limit the enforceability of restrictive covenants including non-compete agreements.  In some states, such as California, Colorado, and Minnesota, virtually all non-compete agreements are prohibited.  Other states, such as Washington, Oregon, and Maine, impose minimum salary or employment classification requirements such that employers cannot enter non-compete agreements with lower-level workers.

Where restrictive covenants are permitted, they should be narrowly tailored in order to protect the legitimate business interests of an employer.  Legitimate interests typically include the employer’s trade secrets, confidential information, customer goodwill, and the like.  Generally, to be considered narrowly tailored, the covenants should have a reasonable time period and geographic scope.

Discrimination, Harassment & Retaliation

Various federal, state, and local laws prohibit discrimination, harassment, and retaliation in the workplace, including Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, and the Age Discrimination in Employment Act.

These laws prohibit employers from making decisions about the terms and conditions of an employee’s employment based on certain protected characteristics, including race, color, religion, creed, sex (including pregnancy, sexual orientation, and gender identity), national origin, age, or disability status.  State and local laws may include additional protected characteristics such as gender parental status, marriage or civil partnership, immigration status, and veteran status.  Specifically, employers cannot refuse to hire, discipline, demote, or terminate employees because of these characteristics.  Employers also cannot permit harassment or a hostile working environment that is based on these characteristics.

To protect against potential employee claims, employers should have policies and practices in place prohibiting discrimination, harassment, and retaliation.  Employers should also establish an effective complaint procedure, through which an employee can complain about such conduct and have those complaints addressed.  Additionally, employers should ensure that existing employment policies, such as pay practices, do not disparately impact employees within protected groups.

In some states, like New York, employers are required to provide employee training on certain topics such as sexual harassment.  Even where this training is not required, it is recommended as best practice for employers to train all employees on the employer’s non-discrimination and anti-retaliation policies and reporting procedures.

The law also protects employees who engage in protected activity, such as opposing discrimination in the workplace, filing a legal claim of discrimination, or assisting another person in making a claim.  Employees who have engaged in protected activity cannot be adversely impacted for doing so.

Disability, Pregnancy & Religious Accommodation

Employers are required to accommodate employees who are pregnant or have a disability that substantially impacts a major life activity.  This requires the employer to engage in an interactive process with the employee to determine what reasonable accommodation the employer may offer to effectively accommodate the employee.  The requirement to engage in the interactive process may be triggered upon the employee’s notification to the employer that he or she has a disability, even if the employee does not formally request an accommodation.

Employers may not be required to accommodate employees if the accommodation would cause the employer undue hardship.  This could be because of financial hardship or because the requested accommodations are unduly extensive, substantial, or disruptive to the employer’s business.

As is the case with employees who engage in protected activity under the anti-discrimination laws described above, employees who request accommodations must not be retaliated against for doing so.

Protected Leaves of Absence

The federal Family and Medical Leave Act (FMLA) requires employers to provide up to 12 weeks of unpaid leave for employees to deal with their own serious health condition or to care for a family member with a serious health condition.  If an employee utilizes this leave, his or her job will be protected during the period of leave, and the employee must be returned to the same job or a substantially similar position upon their return.  The employee also cannot be retaliated against for having taken or requested protected leave.

Most states also have laws governing medical and other leaves of absence, some of which are more generous than the FMLA, including in some cases a requirement that some or all of the leave be paid.  Employers may also choose to offer paid leave as an employment benefit.

Some states also require employers to provide protected leave in other situations such as where an employee is required to engage in military or jury service or needs time off to address a situation of domestic violence.