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Employment Law Basics for US Employers

US employment law is layered: federal statutes set a floor, state laws layer on top with broader protections, and local ordinances (cities and counties) add more. Federal compliance covers the basics; state and local compliance is where most enforcement happens. This guide covers what every US employer has to understand.

At-will employment

Every US state except Montana follows the at-will employment doctrine: either the employer or the employee can terminate the employment at any time, for any reason or no reason, with or without notice — subject to exceptions. The exceptions are where the law actually operates:

Montana's Wrongful Discharge from Employment Act requires "good cause" after a probationary period. For all other states, at-will is the rule and the practical question is whether a termination falls into one of the exceptions.

FLSA: wage and hour

The federal Fair Labor Standards Act sets the floor for minimum wage, overtime, recordkeeping, and youth employment. Key requirements:

State wage-and-hour laws are often stricter. California, New York, Washington, Oregon, and Massachusetts have particularly aggressive state requirements (meal and rest breaks, daily overtime, prompt payment, pay statement detail).

Exempt vs non-exempt classification

Non-exempt employees are entitled to overtime; exempt employees are not. Misclassification — treating someone as exempt who legally isn't — is the most common and expensive FLSA violation.

To qualify as exempt under the most common (white-collar) exemptions, the employee must satisfy both:

  1. Salary basis test. Paid a predetermined salary that doesn't vary with quantity or quality of work, above the FLSA threshold (set by DOL regulation; check the current threshold at dol.gov before relying on a specific number, as it has been litigated and revised). Some states have higher salary thresholds.
  2. Duties test. Primary duties match one of the recognized exemptions: executive (manages two or more full-time employees, hires/fires authority), administrative (office or non-manual work directly related to business operations, exercises discretion on significant matters), professional (advanced knowledge in a field of science or learning), computer (specific technical roles), outside sales (regularly works away from employer's place of business).

Common misclassification pitfalls: paying salary doesn't make someone exempt (must also pass duties test); calling someone a "manager" doesn't make them exempt if they don't actually manage; assistant managers in retail/food service rarely pass the duties test; lower-paid IT roles often don't qualify under the computer exemption.

Misclassification penalties include back wages (often two years, three if willful) plus liquidated damages doubling the amount, plus attorneys' fees. Class actions and DOL audits compound exposure.

Anti-discrimination laws

Federal protections, with employer-size thresholds:

State laws often extend protections (sexual orientation, gender identity were widely protected at state level before the Supreme Court's 2020 Bostock decision extended Title VII), cover smaller employers, or add categories (marital status, political affiliation, off-duty conduct, salary history). Local ordinances add further (some cities prohibit criminal-history inquiries pre-offer — "ban the box").

Harassment

Harassment based on a protected characteristic is a form of discrimination under Title VII and related state laws. Two recognized theories:

Employer liability depends on the harasser. For supervisor harassment resulting in a tangible employment action (termination, demotion), the employer is strictly liable. For supervisor harassment without tangible action, the employer can assert an affirmative defense (Faragher/Ellerth) showing it had effective anti-harassment policies and the complainant unreasonably failed to use them. For co-worker or third-party harassment, the employer is liable if it knew or should have known and failed to take prompt remedial action.

Practical compliance: written anti-harassment policy with reporting mechanism, periodic training (required in some states for all employees, others only for supervisors, others not at all), prompt investigation of complaints, documented remedial action when warranted. California, New York, Connecticut, Delaware, Illinois, and Maine require harassment training for most employers.

Leave laws

FMLA (Family and Medical Leave Act). Federal. 50+ employees within 75 miles. Eligible employees (12 months of service, 1,250 hours in the prior 12 months) get up to 12 weeks unpaid leave per year for serious health condition (self or family), birth/adoption, or military exigency. Employer must maintain health benefits and reinstate to same or equivalent position.

State family/medical leave. Many states have their own laws with broader coverage, paid benefits, or both. California, New York, New Jersey, Massachusetts, Washington, Connecticut, Colorado, Oregon, Maryland, and others have or are implementing state paid family and medical leave programs.

Sick leave. No federal requirement. Many states and cities require paid sick leave accrual (typically 1 hour per 30-40 hours worked).

Pregnancy. Pregnancy Discrimination Act prohibits discrimination; Pregnant Workers Fairness Act (2023) requires reasonable accommodation for pregnancy-related conditions.

Bereavement, jury duty, voting, military. Some required by state law; otherwise governed by company policy.

I-9 verification and work authorization

Federal law (IRCA) requires every US employer to verify each new hire's identity and authorization to work in the United States. Form I-9 must be completed within three business days of hire. Employee provides documentation from List A (proves both identity and work authorization, e.g., US passport) or one from List B plus one from List C (identity plus work authorization).

The employer must examine the original documents (or for remote hire under current rules, follow the alternative procedure if eligible — check current USCIS guidance), record document information on the I-9, and retain the form for the longer of three years after hire or one year after termination.

E-Verify is a voluntary federal program (mandatory for federal contractors and in some states) that confirms work authorization against government databases. Enrollment is at e-verify.gov.

I-9 audits are conducted by ICE. Penalties for I-9 violations range from hundreds to thousands of dollars per form per violation, plus knowing-hire penalties for unauthorized workers.

Required posters and notices

Federal law requires specific posters in conspicuous locations at every worksite. Common required posters (downloads at dol.gov/agencies/whd/posters): FLSA minimum wage, OSHA "It's the Law", FMLA, EEO is the Law, USERRA, polygraph protection, employee polygraph protection. Posters must be in English; in some workplaces, Spanish or other-language versions are also required.

State labor departments require additional posters — workers' compensation, state minimum wage, state unemployment insurance, paid sick leave (where applicable). Most state labor agencies publish required posters on their websites.

For remote workers, "conspicuous location" requirements are typically satisfied by electronic distribution (intranet, email, employee portal).

Employee handbook

An employee handbook is not legally required but is the cheapest risk-management document an employer can have. Core sections:

Update the handbook annually and any time material law changes. Reissue with acknowledgment to all employees after significant updates.

Terminations

Termination is the single highest-litigation-risk event in employment law. The basics:

Unemployment and workers' comp

Unemployment insurance is a state-administered program funded by employer payroll taxes (federal FUTA plus state). When a former employee files a claim, the employer responds with information about the separation; the state agency decides eligibility. Terminations for misconduct typically disqualify; layoffs and lack-of-work separations qualify. Each successful claim increases the employer's state unemployment tax rate.

Workers' compensation is mandatory in nearly every state for nearly every employer with employees. It's a no-fault system: workers injured on the job receive medical care and partial wage replacement regardless of fault; in exchange, employees generally cannot sue the employer in tort. Premiums depend on payroll, industry classification, and experience modifier. Failure to carry workers' comp where required is one of the few employment violations that can produce criminal liability for the owner.

Key federal agencies

Common mistakes

FAQ

How many employees before federal employment laws apply? Varies: ADEA at 20, Title VII/ADA at 15, FMLA at 50 (within 75 miles), FLSA wage-and-hour at one. Some state laws cover smaller employers.

Can I terminate someone for any reason in an at-will state? Almost. Not for a protected reason (discrimination, retaliation, public policy) and not in breach of a contract.

Do I have to give a reason for termination? Not legally required in at-will states (except where contract provides otherwise). Practically, vague or shifting reasons strengthen wrongful termination claims; document the actual reason and stick to it.

Are exit interviews required? No, anywhere. Optional management practice.

Can I require references be in writing? Yes, and most lawyers recommend providing only dates of employment and position, declining to give substantive references, to limit defamation exposure.

Are non-competes enforceable? Depends heavily on state. California voids most employee non-competes; many states limit by judicial reasonableness review; federal FTC regulation has been litigated. Always check current state law and federal status before relying.