Employment Law for Employers

The short version

This lesson explains key parts of employment law for employers, focusing on how businesses are formed and what rules apply to hiring and firing workers. You'll learn about different types of business structures and basic rules for how you deal with employees. Understanding these rules helps you avoid legal problems and run your business smoothly.

The law this is built on

Every point below comes from the authority named next to it. Verify the current text before relying on it.

• State Business Corporation Acts (e.g., Delaware General Corporation Law, New York Business Corporation Law)

  These laws define how a corporation is formed, how it operates, and the roles and responsibilities of its officers and directors. They also establish that a corporation is a separate legal entity from its owners.

  Why it matters: Choosing to form a corporation impacts how you hire, fire, and manage employees, as the corporation is legally the employer, not you personally.

• State Limited Liability Company (LLC) Acts (e.g., California Revised Uniform Limited Liability Company Act, Texas Business Organizations Code)

  These laws outline the process for forming an LLC, its operational structure, and the liability protection it offers to its members. They allow an LLC to be managed by its members or by appointed managers.

  Why it matters: Forming an LLC can affect how you, as a business owner, are personally shielded from employment-related lawsuits and how your business handles employment contracts.

• 15 U.S.C. § 1 (Sherman Act)

  This federal law makes it illegal for businesses to form agreements or conspiracies that restrain trade or commerce. This includes agreements among competitors regarding hiring, wages, or employee benefits.

  Why it matters: You cannot collude with other employers on hiring practices, such as agreeing not to hire each other's employees or fixing wages, as this violates antitrust law.

Words you need to know

Corporation

A legal entity separate from its owners, created under state law. It can enter into contracts, sue, and be sued, which means it, not the owners, is typically the employer.

Limited Liability Company (LLC)

A business structure that protects its owners from personal liability for company debts or lawsuits. Like a corporation, the LLC itself is typically the employer.

At-Will Employment

Most employment in the U.S. is 'at-will,' meaning an employer can fire an employee for any reason, or no reason, as long as it's not an illegal reason (like discrimination), and an employee can quit for any reason. This is a common state law principle.

Antitrust Laws (e.g., Sherman Act)

Laws designed to prevent monopolies and promote competition in the market. They apply to employment by preventing employers from colluding on hiring, wages, or other terms of employment.

Fiduciary Duty

A legal obligation of one party to act in the best interest of another. For a corporation, directors and officers owe fiduciary duties to the corporation and its shareholders.

Independent Contractor

A self-employed person or business that provides services to another entity under a contract. Employers often misclassify employees as independent contractors, which can lead to legal penalties.

Your rights

• ✓You have the right to choose the legal structure (e.g., Corporation, LLC) for your business, subject to state law requirements.
• ✓You have the right to hire and fire employees based on legitimate business reasons, as long as it does not violate anti-discrimination laws or employment contracts.
• ✓You have the right to establish employment policies and procedures for your workplace.
• ✓You have the right to set wages and benefits for your employees, provided they meet minimum wage laws and other applicable regulations.
• ✓You have the right to protect your business from unfair competition, but not through illegal agreements with other employers (15 U.S.C. § 1).

How the process actually works

1. 1
   Choose Business Structure

   Before hiring any employees.

   First, you decide whether to form a sole proprietorship, partnership, corporation, or LLC. This decision impacts your liability, taxes, and how you manage employment. State Business Corporation and LLC Acts govern this.

2. 2
   Register Your Business

   Before commencing business operations.

   You must register your chosen business entity with the appropriate state agency, usually the Secretary of State. This creates the legal entity that will become the employer.

3. 3
   Develop Job Descriptions & Policies

   Before beginning the hiring process for a new role.

   Create clear job descriptions for roles you need to fill. Also, develop written policies for hiring, firing, conduct, and other workplace rules to ensure consistency and compliance.

4. 4
   Recruit & Hire

   As needed, to fill open positions.

   Advertise job openings, interview candidates, and make hiring decisions. Ensure your hiring practices comply with anti-discrimination laws and avoid any agreements with competitors about not poaching employees (15 U.S.C. § 1).

5. 5
   Onboard Employees

   Immediately after an offer of employment is accepted.

   Complete necessary paperwork (e.g., I-9 forms, tax forms), provide job training, and explain company policies. Establish clear reporting structures and expectations.

6. 6
   Manage & Supervise

   Continuously throughout employment.

   Oversee employee performance, provide feedback, and address workplace issues. Ensure compliance with all applicable labor laws, including wage and hour rules (which vary by state and federal law).

7. 7
   Termination of Employment

   As needed, when employment relationships end.

   When an employee leaves, follow legal procedures for termination, including providing final paychecks and any required notices. Ensure the termination is for a legal reason and not discriminatory, especially under 'at-will' employment principles.

Deadlines that can end your case

• Business Entity Filing
  Varies by state (usually before starting business)

  Failure to properly file could mean you lose personal liability protection and face penalties.

• Collusion on Hiring/Wages
  Always (ongoing legal obligation)

  There is no 'deadline' to stop; such agreements are illegal at all times under 15 U.S.C. § 1, and violations can lead to severe fines and imprisonment.

Common questions

How this changes by state

Employment law varies significantly from state to state. While federal laws like the Sherman Act apply nationwide, core principles such as 'at-will' employment, specific rules for business formation (Corporation, LLC), and requirements for employee classification (employee vs. independent contractor) are often governed by state statutes. You can find your state's specific rules by looking up your state's business corporation or LLC acts, often available through your state's Secretary of State website or legislative branch website.

When you need a lawyer

You should consult a lawyer when forming your business entity to ensure proper compliance with state law, when drafting employment contracts or policies, or if you face any accusations of illegal hiring or firing practices. You also need a lawyer immediately if you are contacted by regulators or receive a subpoena related to antitrust violations (like 'no-poach' agreements) or employee misclassification.

Do this today

• →Review your business's current legal structure and ensure it's properly registered with your state.
• →Develop or update your company's employee handbook and employment policies.
• →Educate yourself and your managers on legal hiring, management, and firing practices.
• →Ensure you are not engaging in any discussions or agreements with competitors regarding hiring, wages, or benefits.