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Chicago, IL 60606-1605
Keeley, Kuenn & Reid Telephone: (312) 782-1829
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E-Mail: kkrlaw@kkrlaw.com
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What Every Business Should Know About Employment Law


With the explosion of state and federal legislation and litigation, significant aspects of employment law must be addressed and understood by all employers. What follows is a summary of the law in significant employment matters.

This booklet is not a substitute for sound legal advice based on individual circumstances. It is not intended and should not be used in place of advice and guidance from legal counsel to address specific fact situations, the applicable federal, state, and local laws, and, where applicable the terms of a collective bargaining agreement.

In addition, state and local laws may be applicable in situations not covered by federal law. State fair employment practices laws often afford protected status to groups not expressly cited by federal law. Various states prohibit employers from discriminating against employees who are smokers, or based on marital status, sexual orientation, arrest records, receipt of public assistance and other categories.

State law may also be more liberal on recoverable damages, the right to sue without prior administrative review and the jurisdictional minimum number of employees for the law to cover an employer. The clear message to employers is that state law must be considered because it may create "protected" classifications in addition to those traditionally found under federal law.

Employee Screening

Employers have a bona fide interest in attracting the best employees possible, so employee screening is both sensible and in some circumstances absolutely necessary. However, screening methods may not be used as a means to unlawfully discriminate or invade an individual's privacy.

  1. Application Forms
    Applications can pose problems for employers. Obvious questions that should not be asked include an applicant's age, race, sex, marital status, disabilities, religion and national origin.

    Information that may constitute evidence of discrimination can be deduced from other answers on the application. Employers should be able to document why an application was disregarded and not considered.

    It is sound policy for the employer to include in the application an affirmative statement that the information supplied by the applicant is accurate and complete. Moreover, the statement should clearly set forth that misstatements or omissions are grounds for denial of employment or subsequent discharge.

  2. Interviews
    Prior to conducting an interview with new job candidates or existing employees, those responsible should be trained in proper interviewing chniques and know the laws that apply to the interview process. The Americans with Disabilities Act has limited the areas of inquiry during interviews. The interviewer must remain focused on the actual duties of the job and not on any disability the applicant may have.

    Also, many impermissible areas of inquiry appear to be directed at female applicants. Employers often want to know a woman's plans for childbearing and child-care, both unlawful inquiries. Such issues should never be discussed at the prompting of the employer.

  3. Honesty Testing
    Employee dishonesty is a constant concern for employers due to employee theft or liability exposure if an employee handles the funds or belongings of others. employers have used a variety of methods to try to identify dishonest workers.

    A widely known device for testing employees is the so-called "lie detector" or polygraph machine. However, federal law and various state laws have eliminated the polygraph as an effective tool in the pre-employment screening of job applicants in most private sector industries. In some instances private employers may test employees suspected of wrongdoing, but such tests must be conducted in accordance with very strict and cumbersome rules.

  4. Psychological Testing
    These tests are used to screen job applicants for honesty or aptitude in the performance of certain jobs. Employment decisions based upon the result of psychological tests may be subject to challenge on the grounds that the test adversely impacts and discriminates against legally protected groups on the basis of gender, race, religion, color, national origin, age or disability. In utilizing such tests, it is imperative that an employer deal only with reputable testing companies with an established track record showing that the tests are accurate, fair and non-discriminatory.

  5. Credit Reports
    Credit records are often utilized as a form of background check. Such information should not be collected unless it is relevant to the job. Indiscriminate checks should not be done without this consideration and all applicants for a given job should be subjected to the same screening procedure.

    The federal Fair Credit Reporting Act requires employers to provide notification to potential employees before obtaining a credit report. The notice must be in writing and must be a separate document that consists solely of the disclosure. The applicant must authorize the procurement of the report by signing the disclosure.

    If the employer declines to hire a job applicant because of an unfavorable credit report, the rejected applicant must be notified of the reason why employment was denied. The employer must also provide a copy of the report to the applicant and a description in writing of the individual's rights under the law.

  6. Reference Checks
    Thorough reference checks help employers avoid hiring inept or dangerous individuals and the resultant potential liability for negligent hiring. On the other hand, prospective and former employers may be subject to liability if the information exchanged harms the applicant. Employers face significant liability for providing false or misleading information about a former employee.

    It is sound practice for a company to obtain the written permission of a prospective employee, allowing former employers and others to release information about the applicant. This consent language is generally incorporated into the employment application that is signed by the prospective employee. Former employers should also insist on receiving a suitable release from a former employee authorizing release of employment information.

Family and Medical Leave Act

The Family and Medical Leave Act requires employers with 50 or more employees during specified time periods to provide up to 12 weeks of unpaid, job-protected leave per year to qualified employees. The Act also requires employers to continue providing group health benefits during the leave period and to restore employees to the same or an equivalent position upon their timely return.

Generally, eligible employees of covered employers are entitled to FMLA under several circumstances: the birth of a child; the adoption of a child or placement of a foster child; the care of a spouse, parent, or child with a serious health condition; or recovery from an employee's own serious health condition.

The FMLA has created rights of employees to be allowed leave to accomplish necessary family and medical obligations. However, not all employers are subject to the Act. Moreover, even if the employer is covered, not every employee is necessarily eligible to take leave under the Act. Thus, employers must seek out legal counsel to understand the detailed rules involved in complying with the Act's specific requirements.

Discrimination in Hiring

Title VII of the Civil Rights Act of 1964 was the first comprehensive federal statute to prohibit discrimination in the private workplace. The Act makes it unlawful for a covered employer to discriminate against an individual based on that person's race, color, sex, religion or national origin. Its protections were later extended to other classes of persons - workers over 40 and the disabled. Although Title VII only applies to employers with 15 or more employees, most states have discrimination laws that affect smaller employers.

Title VII's primary purpose is to assure that all persons in the protected classes be afforded equal opportunity in all employment matters. Objectivity and job-related criterion are absolute requirements when hiring, promoting or evaluating job performance.

  1. Gender Discrimination
    Race discrimination and sex (or gender) discrimination generally share the same legal doctrine, but there are some special issues associated with sex discrimination.

    • Pregnancy
      Title VII does not permit employers to burden female employees and deprive them of employment opportunities because of their sex; one component is the woman's role in childbearing. In 1978, Congress passed the Pregnancy Discrimination Act that amended Title VII to make discrimination on the basis of pregnancy a form of illegal gender discrimination.

      The 1978 amendment also provided that it is discriminatory to treat pregnancy-related conditions less favorably than other medical conditions. Employers may not discriminate in their fringe benefit programs on the basis of pregnancy, childbirth and related medical conditions.

      It is gender discrimination for an employer to terminate an unmarried female employee because the employee becomes pregnant. Such a policy is seen as discriminatory if men who engage in the same kind of conduct are not treated similarly.

    • Sexual Harassment
      Sexual harassment is considered unlawful gender discrimination. Title VII prohibits unfavorable treatment of both men and women in the workplace based upon their sex. Such offensive conduct includes having to work in a discriminatory, hostile, or abusive work environment.

      Sexual harassment may be found in cases where an employee must submit to sexual demands to achieve a tangible employment benefit ("quid pro quo"). However, threatened on-the-job retaliation for failure to submit to sexual advances may still constitute sexual harassment even if such adverse action never materializes. Empty threats of retaliation can still be a hostile-environment form of harassment ("hostile environment") even if the employer is unaware of the supervisor's harassing conduct.

      A sexual harassment claim based on hostile environment is created in instances where the workplace contains discriminatory intimidation, ridicule, and insult. In such cases, the abusive working environment may be supplied by fellow workers or higher-ups. In either case, the employer may be liable.

      Sexual harassment may exist between opposite sex or same sex parties. The determining factor is whether the harassing conduct is directed at an individual or individuals because of their sex, regardless of the harasser's motivations.

      Even if the employer is unaware of the harassment, it may be liable. Employers should adopt and enforce a written antiharassment policy. The policy should be communicated to employees so they clearly understand the company's prohibition of such conduct and the consequences for a violation. The policy should include an impartial procedure to investigate complaints and take appropriate remedial action. Finally, reasonable care should be exercised by management to monitor and control the conduct of supervisory personnel.

    • Wage Disparity
      Another form of gender discrimination is disparity in wages between men and women. The Equal Pay Act of 1963 prohibits sex-based wage discrimination. It requires "equal pay for equal work" within the same establishment regardless of sex. Employee benefits are also considered compensation under the Act.

      To avoid liability, employers should be conscious of the average wages for comparable jobs and attempt to avoid an over concentration of one sex or another in certain positions.

  2. Religious Discrimination
    Title VII defines discrimination on account of "religion" to include "all aspects of religious observance and practice, as well as belief". Employers are required to make reasonable accommodation of an employee's or applicant's religious observance or practice.

    The Supreme Court has generally construed the employer's obligation to make reasonable accommodation narrowly. Employers are not required to bear more than a de minimis cost to accommodate an employee. Anything more could impose an undue hardship on the employer.

  3. Age Discrimination
    The federal Age Discrimination in Employment Act ("ADEA") prohibits age discrimination in employment, discharge, promotion or treatment of persons over the age of 40. When age is used as a determining factor to make employment choices without consideration of individual capabilities, it is a form of unlawful discrimination. ADEA generally applies to employers with 20 or more employees (including part time and seasonal workers) during specified time periods.

    An employer should always be prepared to substantiate a lawful, nondiscriminatory reason for adverse treatment of a job applicant or employee over 40. Older employees whose skills have diminished are not protected by the ADEA. The Act allows employers to make decisions based on performance. Such a determination is not forbidden, but it must be supported by bona fide business reasons unrelated to the individual's age.

    In ADEA cases, there is often written or spoken evidence that suggests age motivation. Some words or descriptive references carry no inference of age motivation: "seems like a nice young man." However, evaluative references, such as "we need young blood", do carry an inference of age motivation. Even though such comments may be mere stray remarks, they can be used as evidence to support a finding of age discrimination.

    Employers seeking a release of possible age discrimination claims in exchange for severance pay must ensure that the release complies with requirements of the Older Workers Benefit Protection Act. The Act sets forth certain provisions that must be included within the release in order for it to be effective. Failure to do so will render the release invalid despite the payment of additional monies.

  4. Disability Discrimination
    The amount of protection afforded disabled employees has been greatly expanded with the passage of the Americans With Disabilities Act ("ADA"). The Act establishes federal protection against disability discrimination by covered employers.

    A "disability" is broadly defined as a physical or mental impairment that substantially limits one or more major life activities (walking, seeing, talking, etc.). Key provisions in the Act have received varied and sometimes conflicting interpretations by the federal courts. As a result there is considerable uncertainty as to the employer's responsibilities and potential liability under the Act.

    • Qualified Individual with a Disability
      The EEOC regulations implementing the ADA describe two steps in determining whether an individual with a disability is "qualified" for employment. The first step is to discover whether the individual can perform the essential functions of the position with reasonable accommodation. The job function must be essential to the position. A function is considered essential if removing it would fundamentally alter the position.

      The ADA prohibits pre-employment medical exams and questionnaires asking employees about disabilities or asking about the nature or severity of a disability unless the inquiry is job-related and serves a legitimate business purpose.

    • Reasonable Accommodation
      The next step is to evaluate whether the employer can reasonably accommodate the employee. The courts are reluctant to permit the exclusion of entire groups of individuals because of certain disabilities without individual consideration of their ability to perform the job.

      By definition in the Act, a reasonable accommodation requires: 1) making facilities readily accessible and usable for a disabled employee; 2) providing suitable accommodations that will enable disabled individuals to perform the essential functions of the job; and, 3) establishing a process to determine the appropriate reasonable accommodation. Employers are not obligated to provide the best accommodation as long as an adequate job-related accommodation is made.

    • Undue Hardship
      An employer is excused from providing a reasonable accommodation to a qualified applicant or employee if the accommodation would pose an undue hardship. The ADA defines an "undue hardship" as an action requiring significant difficulty or expense.

      An accommodation that may be a small fraction of the entire budget of a large company could be considered a reasonable accommodation. However, the same accommodation could be considered an undue hardship for a small employer.

      Undue hardship on an organization is not limited to financial burden. It can also apply if an accommodation would be disruptive or if it fundamentally alters the nature or operation of the workforce. It is possible to show undue hardship under the ADA even where the cost of the proposed accommodation is low, but it would fundamentally alter the job position or the business.

    • Perceived Disability
      The ADA was drafted to protect the disabled from the attitudes of people who are unfamiliar with and insensitive to individuals with disabilities. It also extends protections to persons regarded as having a disability but who may not have an actual incapacity at all. Under the ADA, anyone whose employability is affected by the reactions of others to their impairment may be legally viewed as an "individual with a disability".

  5. National Origin
    Title VII prohibits discrimination on account of national origin but it does not bar discrimination based on lack of citizenship or legal immigration status. An employer generally may refuse to hire non-citizens who are in the U.S. illegally. National origin does not mean citizenship; it refers to where a person was born and the country from which his ancestors came.

    Title VII does prohibit discrimination on the basis of citizenship if it has the purpose or effect of discriminating on the basis of national origin. Employers may not discriminate among aliens- - hiring aliens from Europe but not from Mexico, for example.


    Legal protection of privacy claims in employment is a developing area of law. There are many different ways that company policies and practices may involve employee privacy interests so a variety of legal rights and theories are involved.

    1. Medical Examinations
      The ADA prohibits pre-employment medical examinations and questionnaires. The employer may make limited inquiries about the ability of applicant to perform job-related functions. However, the employer may require an "entrance medical examination" (pre-placement examination) after the applicant is hired that is job-related and given to all employees regardless of disability.

      The results of such exams must be stored in separate files and treated as confidential. Managers and supervisors may only be informed of the employee's work restrictions and necessary accommodations. All subsequent medical examinations and inquiries must be job-related and consistent with business necessity.

    2. Drug Testing
      Workplace drug testing has become more commonplace in the private sector. Most companies that test do so on job applicants and current employees on a "for cause" basis.

      Confirmatory tests are essential. Screen tests sometimes incorrectly identify the metabolites of other substances or human enzymes as illegal drugs. Also, "passive inhalation" may result in a positive test or the specimen may be substituted or diluted at the laboratory through poor cleaning of equipment, mislabeling, contamination or technician error. Pre-test questionnaires are also needed to inquire about medications being taken which could produce a positive result.

    3. Employment Records
      There are two main issues for employers to address regarding employee files: the rights of individuals to inspect and correct their files and any restrictions on an employer's freedom to communicate or use employment record information.

      State statutes governing employees' access to their personnel files continue to grow. Many states now give private sector employees the right to inspect their personnel records, to correct their files, to receive notice prior to the release of information in their files to third parties and to prevent employers from maintaining records about non-employment activities.

      An employer may face liability for a negligent failure to maintain accurate employment records or for failing to prevent unauthorized dissemination of the information.

    4. Searches
      The U.S. Constitution does not protect private sector employees from warrantless searches by their employer. However many employees are allowed the exclusive or primary use of certain areas like an office, desk, file, cabinet or locker.

      The key factor is whether or not the employee has any expectation of privacy in these work areas. To avoid any misunderstanding, employers often establish and communicate a policy that employees should have no expectation of privacy in these workplace areas. This is usually done through disclosure in an employee handbook or a written policy, combined with periodic notices to employees.

    5. Social Relationships
      Voluntary office romances create a dilemma for employers. An employer may be exposing itself to a claim of sexual harassment in violation of Title VII or charges that the office romance adversely affects the employment rights of the other employees.

      Sexual harassment law is fueling the movement to restrict co-worker dating. The law requires that if a company has rules and regulations that are applied to its employees, the rules must be applied consistently between men and women.

    6. E-Mail
      The federal Electronic Communications Privacy Act prohibits intercepting the contents of telephone calls and other electronic communications. There is an exception, which generally applies to equipment supplied by the employer and used in the course of business. Under the Act, E-mail gets most of the same protections as phone conversations. However, the extent of an employer's right to read employees' E-mail remains unclear.

      Users of E-mail often mistakenly assume their messages are private, will not be saved and will never be seen by anyone who was not an addressee of the original message. The messages can contain offensive, obscene or startlingly candid comments that may expose the company to significant liability.

    7. Computer Monitoring
      An emerging area of workplace privacy involves the practice of computer monitoring of employees. Employees' computers can measure how long individuals take to handle each customer, the amount of time between calls, lunch hours, coffee breaks and even trips to the bathroom. Besides monitoring work efficiency, computers can also check the telephone numbers dialed by employees at work.

      Employer use of electronic monitoring in the workplace must be done in strict compliance with applicable laws. Giving specific written notice to employees who will be the subject of workplace monitoring should be considered.

    Workplace Violence

    The law recognizes an employer's duty to provide a safe workplace, which includes the duty to exercise reasonable care in the selection of its employees.

    One important step the employer can take is to verify a prospective employee's credentials and check references. This is especially important where the nature of the job creates special risks for customers or co-workers (e.g., traveling together), or where the employee may have access to the homes of customers.

    The employer is considered negligent for placing a person with propensities toward violence that should have been discovered by reasonable investigation in a position where it was foreseeable that the person posed a threat of injury to others.


    In most cases the employer makes a decision to terminate an employment relationship that is "at will." At-will employment is generally terminable at-will by either the employer or employee, with or without cause. The at-will employee is an individual with no express or implied contractual rights vis-a-vis the employer. There are some exceptions to the general rule stated above for the termination of an at-will employment relationship.

    • Public Policy Exception
      State laws generally prohibit an employer from terminating an at-will employee if such action is contrary to public policy. The rationale for this exception is the belief that an employer's authority should not be used to retaliate against an employee for conduct which is in the public interest.

      A few examples of the public policy exception under which employers may not discharge employees are refusing to commit unlawful acts in the course of employment, exercising their statutory rights, performing public functions and reporting an employer's wrongful conduct.

    • Personnel Manuals/Employee Handbooks
      Statements made in a personnel manual or an employee handbook can be contractually enforceable. The majority of courts that have considered this question have concluded that manuals may create enforceable promises. A discharge may be held unlawful if the employer fails to follow the disciplinary system or other terms and conditions set out in the manual.

      The employer should include an appropriate disclaimer in the manual that the manual is not intended to create any binding contractual commitments on the employer or employee. It is also sound practice for the employer to include a conspicuous statement in the manual that the employer may change the terms and conditions in the manual, including employee benefits (e.g., vacation, sick pay, retirement, health, etc.), from time to time. Reserving the right to make changes helps the employer avoid misunderstandings and creating a contractual obligation to maintain existing terms and conditions of employment.

    • Oral Contracts
      Oral promises made to applicants and employees, if unequivocal, can be enforced. In order to minimize the risk of a breach of contract claim following a termination, employers are advised to avoid overselling job security at the time of initial hire.

      If the evidence shows that the comments made to the employee were less like casual remarks and more like a promise of employment, and such terms were relied upon by the employee, the oral statements will be enforced. The employee generally must show a reasonable expectation that employment would not be terminated except for good cause and that the employee refrained from accepting or pursuing other offers.

Noncompete Agreements

A noncompete agreement is a promise made by a current employee that in the future, if the employee were to leave or be terminated from the job, the employee will not compete with his former employer by doing certain work in a particular area for a specific period of time. Courts enforce such promises only when they are reasonable and necessary. Often, courts refuse enforcement or enforce only a modified version of the promised restrictions.

A noncompete agreement is enforceable if it protects the legitimate interests of the employer and imposes no undue hardship on the former employee to earn a livelihood. The duration of the noncompete obligation and its scope (geographic and type of employment activity prohibited) must be reasonable to be enforceable.


Recent events and changes in the law have created the impression that all employees are protected from being terminated. While some states have recognized several causes of action for employees, most have yet to abandon the traditional employment at-will rule.

However, the legal status of employees is in flux. Federal, state and local laws are constantly changing the rights and obligations of employers and their employees. Court decisions too continuously change the employment law landscape. Employer compliance is difficult in many cases because it is unclear what the law actually requires.

This booklet provides a brief glimpse of some of the diverse and broader aspects of work and the law. Although a separate booklet could be written on every topic covered here, our goal is to provide a basic understanding of the legal issues involved in various employment matters and to offer some guiding principles for recognizing legal problem areas.


Keeley, Kuenn & Reid, a Chicago based law firm with government relations affiliates in Washington, D.C., is engaged in the practice of business law, commercial litigation, employment law, taxation, antitrust, product liability, estate planning and legislative matters. Through its affiliates, the firm also meets its clients' needs in protecting intellectual property rights and international commercial law matters.

Keeley, Kuenn & Reid
150 North Wacker Drive
Chicago, IL 60606
Tel. No. (312) 782-1829
Fax. No. (312) 782-4868
Web: http://www.kkrlaw.com