The Employment Relationship

Reading
Assignment
Chapter 1:
Employment Relationship
Chapter 4:
Privacy, Theft, and
Whistle-Blowing

Suggested Reading
See information below.

Key Terms
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.

Agency
Defamation
Employee
Employee privacy
Employment at will
Employment contract
Independent
contractor
Injunction
Invasion of privacy
Noncompete
agreement
Nondisclosure
agreement
Scope of employment
Whistle-blowing

BHR 3565, Employment Law

Course Learning Outcomes for Unit I
Upon completion of this unit, students should be able to:
1. Explain the substance of the relationship between employers, employees, and
independent contractors.
1.1 Identify the consequences of an employment-at-will relationship.
1.2 Distinguish between employees and independent contractors.
1.3 Describe why employers may need to interfere with employees’ privacy
in the workplace.
2. Identify the duties and rights of the parties in an employment contract as well
as the liabilities of each in the event of non-compliance.
2.1 Determine the enforceability of non-compete and non-disclosure
agreements in employment situations.

Unit Lesson
The traditional employer-employee relationship is described as employment-at-will,
which simply means that the relationship exists as long as both the employer and the
employee want it to exist. That is, employment-at-will means that an employee can
resign whenever he or she wants to resign for any reason or for no reason. It is often
said that an employee must give notice to an employer before the employee resigns,
but that idea arises out of the employee hoping for a positive reference from the
employer rather than a legal requirement. Employment-at-will also means that an
employer can discharge an employee at any time and for any reason or for no reason,
as long as the discharge does not constitute discrimination under federal or state law.
This traditional employment relationship is sometimes modified by employment
contracts. Employment contracts are contracts whose subject is employment and are
governed by the rules that apply to contracts in general. That means that an
employment contract must be based on an agreement between the employer and the
employee, express consideration (the employee promises to work for the employer for
a specified period of time and the employer agrees to pay the employee a specified
amount of compensation), be made between parties that have the legal capacity to
enter into a contract, and be for a legal purpose. The basic difference between an
employment relationship based on the employment-at-will doctrine and one based on
an employment contract is that the employment relationship based on the
employment-at-will doctrine can be terminated by either party at any time and for any
legal reason, whereas the employment relationship based on an employment contract
can only be terminated according to the provisions of the contract. As with any other
contract, the breach of an employment contract entitles the non-breaching party to
recover damages that arise because of the breach of the contract. For an employee
who is fired in violation of an employment contract, that means the employee can
recover any compensation due under the contract that has not been paid. For an
employer, that means that an employee who quits in violation of an employment

1

contract may be able to recover the costs of finding, hiring, and training a replacement
and even some of the compensation that has already been paid to the employee who
breached the employment contract.
Most employees do not have the option of working under an employment contract, but
there are many high profile examples of employment contracts. Most professional
athletes have employment contracts. For instance, in the year that Babe Ruth made
the most money for playing professional baseball, 1931, he played under an
employment contract with the New York Yankees that paid him a total of $80,000.
More recently, until he was suspended, Alex Rodriguez earned $28,000,000 a year
under his employment contract with the New York Yankees (Larson, 2013).
One of the most important issues that arises in the employment relationship is
determining whether a person who works for an employer is actually an employee or
whether he or she is an independent contractor. That distinction makes a difference in
two important areas:
1. The liability of an employer for the acts of someone who is performing work for
the employer may depend on whether the person is an employee or an
independent contractor.
2. An employer’s responsibility for withholding and paying income taxes depends
on whether the employer is dealing with an employee or an independent
contractor (Moran, 2014).
The determination of whether someone working for an employer is an employee or an
independent contract is really a question of control. That is, the more control that the
employer has over the person doing the work, the more likely that the person doing
the work will be classified as an employee rather than an independent contractor. For
instance, if the employer can require the person doing the work to be on the job at a
certain time or for a specified amount of time, that person is likely to be considered to
be an employee. If the employer provides the tools that the person doing the work
needs to do the job and establishes the procedures for doing the job, the person doing
the work will likely be considered to be an employee. Also, the closer the connection
between the kind of business that the employer operates and the job that the person is
doing, the more likely that person will be considered to be an employee (Moran,
2014).
For example, if you own an accounting firm and hire an accountant to prepare tax
returns, and you provide the computer and software necessary to prepare tax returns
and specify when the person will come to work, when he or she can go to lunch, and
when the workday ends, it is pretty clear that the accountant is an employee. On the
other hand, if there is an electrical problem in the building where you have your
accounting firm and you call an electrician to fix the problem, the electrician will tell
you when he or she can come to the office to fix the problem, and the electrician will
bring the tools necessary to do the work. In that case, it is clear that the electrician is
not one of your employees, but an independent contractor. Of course, the
determination of employee or independent contractor can be a more difficult question.
For instance, if you hire an accountant on a temporary basis to prepare tax returns
during tax season and that accountant works at home and is paid for each tax return
prepared rather than on a salary basis or an hourly basis, the determination of
whether the accountant is an employee or an independent contractor will have to be
determined by considering other factors that indicate the degree of control that you
exercise over that accountant.
Most employees acquire information about their employers during the course of their
employment that might be of benefit to competitors of the employer. Therefore, it is not
unusual for employers to have employees sign non-compete and non-disclosure

BHR 3565, Employment Law

2

agreements even if the employees are not employed under an employment contract
and are employees-at-will (Moran, 2014).
A non-compete agreement provides that if an employee voluntarily leaves
employment with the employer, that employee cannot go to work for a competitor.
These non-compete agreements are generally enforceable if the restrictions on going
to work for a competitor are reasonable. What is reasonable depends on the particular
circumstance, but it generally means that the geographical areas in which the
employee cannot work and the amount of time that the employee cannot work in that
geographical area have to have a reasonable relationship to the job that the employee
is leaving. For instance, if someone is the news anchor on a local television station
and leaves that station, he might reasonably be prohibited from working for another
television station in the same market for a year or two by a non-compete agreement
(Moran, 2014).
A non-disclosure agreement is also not unusual, though it is different from a noncompete agreement. An employee is likely to legitimately acquire information about
his or her employer in the course of their employment. A non-disclosure agreement
prohibits an employee from disclosing any of that information to another employer
when the employee leaves the original employer (Moran, 2014). For example, a few
years ago, an executive at Volkswagen left Volkswagen and went to work for Chrysler
in a similar position. That executive had signed a non-disclosure agreement when he
was an employee of Volkswagen, and Volkswagen, concerned that he would violate
the non-disclosure agreement and disclose internal information about Volkswagen to
Chrysler, filed a suit asking a court to monitor what the executive did at Chrysler so
that Volkswagen could be sure that the executive did not disclose information about
Volkswagen. Though courts do not usually undertake to monitor situations for an
extended period of time, this court entered an order that the executive could not
disclose any information to Chrysler that he had acquired a Volkswagen and set up a
program that monitored the activities of the executive for approximately a year.
One of the relatively recent issues that has arisen in the employment relationship is
the issue of privacy. While employees, like most everyone, have some expectation
that they will have a certain amount of privacy, there are legitimate reasons for an
employer needing to inquire into some areas that employees might consider to be
private. For instance, in hiring employees, employers sometimes require that potential
employees allow the employer to conduct a credit check and a background check.
Courts have generally said that as long as the credit checks and background checks
are reasonably related to the position that a potential employee is applying for and as
long as the potential employee agrees to allow the checks, the credit checks and
background checks are not an invasion of the potential employee’s privacy (Moran,
2014).
Other invasion of employees’ privacy issues can arise once an employee has been
hired. For instance, employers often monitor employee telephone calls and email, and
sometimes employers conduct surveillance of employees and even search employee
work areas. Whether these actions constitute an invasion of employees’ privacy
depends on the particular circumstances, but in most cases if the employer’s actions
are reasonably related to the employees’ job and if the employer discloses these
actions to employees ahead of time (as in the policies provided in an employee
handbook), these actions are usually approved by the courts (Moran, 2014).
Another relatively recent issue that has arisen in the employment relationship is
whistle-blowing. Whistle-blowing occurs when an employee reports to the employer or
to federal authorities the unlawful actions of other employees. It is pretty easy to see
where problems can arise when there is whistle-blowing, so there are several federal
laws that are intended to encourage employees to report unlawful activities related to

BHR 3565, Employment Law

3

employment and to protect employees who report unlawful activities, including the
following:
?
?
?

the Whistleblower Protection Act, which prohibits employers from retaliating
against employees who report wrongdoing;
the False Claims Act, which encourages employees to report activities that
defraud federal or state governments; and
the Sarbanes-Oxley Act, which encourages employees to report activities that
they reasonably believe violate federal security laws.

References
Larson, K. (2013). Players worth more today than Babe Ruth. Retrieved from
www.blecherreport.com/articles/1539955-players-worth-more-today-thanbabe-ruth
Moran, J. J. (2014). Employment law: New challenges in the business environment
(6th ed.). Upper Saddle River, NJ: Prentice Hall.

Suggested Reading
Using the CSU Online Library, read the following articles (ABI/Inform Complete):
Barbaris, D. (2014, Jan 14). Rodriguez takes fight to the courts — Suspended for all of
next season, the Yankee sues baseball and its union. Wall Street Journal,
Eastern edition. P. A. 24.
Smith, A. K. (2013, June). Unsung heroes take the heat. Kiplinger’s Personal Finance,
67(6), 48-53.

BHR 3565, Employment Law

The Employment Relationship

Reading
Assignment
Chapter 1:
Employment Relationship
Chapter 4:
Privacy, Theft, and
Whistle-Blowing

Suggested Reading
See information below.

Key Terms
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.

Agency
Defamation
Employee
Employee privacy
Employment at will
Employment contract
Independent
contractor
Injunction
Invasion of privacy
Noncompete
agreement
Nondisclosure
agreement
Scope of employment
Whistle-blowing

BHR 3565, Employment Law

Course Learning Outcomes for Unit I
Upon completion of this unit, students should be able to:
1. Explain the substance of the relationship between employers, employees, and
independent contractors.
1.1 Identify the consequences of an employment-at-will relationship.
1.2 Distinguish between employees and independent contractors.
1.3 Describe why employers may need to interfere with employees’ privacy
in the workplace.
2. Identify the duties and rights of the parties in an employment contract as well
as the liabilities of each in the event of non-compliance.
2.1 Determine the enforceability of non-compete and non-disclosure
agreements in employment situations.

Unit Lesson
The traditional employer-employee relationship is described as employment-at-will,
which simply means that the relationship exists as long as both the employer and the
employee want it to exist. That is, employment-at-will means that an employee can
resign whenever he or she wants to resign for any reason or for no reason. It is often
said that an employee must give notice to an employer before the employee resigns,
but that idea arises out of the employee hoping for a positive reference from the
employer rather than a legal requirement. Employment-at-will also means that an
employer can discharge an employee at any time and for any reason or for no reason,
as long as the discharge does not constitute discrimination under federal or state law.
This traditional employment relationship is sometimes modified by employment
contracts. Employment contracts are contracts whose subject is employment and are
governed by the rules that apply to contracts in general. That means that an
employment contract must be based on an agreement between the employer and the
employee, express consideration (the employee promises to work for the employer for
a specified period of time and the employer agrees to pay the employee a specified
amount of compensation), be made between parties that have the legal capacity to
enter into a contract, and be for a legal purpose. The basic difference between an
employment relationship based on the employment-at-will doctrine and one based on
an employment contract is that the employment relationship based on the
employment-at-will doctrine can be terminated by either party at any time and for any
legal reason, whereas the employment relationship based on an employment contract
can only be terminated according to the provisions of the contract. As with any other
contract, the breach of an employment contract entitles the non-breaching party to
recover damages that arise because of the breach of the contract. For an employee
who is fired in violation of an employment contract, that means the employee can
recover any compensation due under the contract that has not been paid. For an
employer, that means that an employee who quits in violation of an employment

1

contract may be able to recover the costs of finding, hiring, and training a replacement
and even some of the compensation that has already been paid to the employee who
breached the employment contract.
Most employees do not have the option of working under an employment contract, but
there are many high profile examples of employment contracts. Most professional
athletes have employment contracts. For instance, in the year that Babe Ruth made
the most money for playing professional baseball, 1931, he played under an
employment contract with the New York Yankees that paid him a total of $80,000.
More recently, until he was suspended, Alex Rodriguez earned $28,000,000 a year
under his employment contract with the New York Yankees (Larson, 2013).
One of the most important issues that arises in the employment relationship is
determining whether a person who works for an employer is actually an employee or
whether he or she is an independent contractor. That distinction makes a difference in
two important areas:
1. The liability of an employer for the acts of someone who is performing work for
the employer may depend on whether the person is an employee or an
independent contractor.
2. An employer’s responsibility for withholding and paying income taxes depends
on whether the employer is dealing with an employee or an independent
contractor (Moran, 2014).
The determination of whether someone working for an employer is an employee or an
independent contract is really a question of control. That is, the more control that the
employer has over the person doing the work, the more likely that the person doing
the work will be classified as an employee rather than an independent contractor. For
instance, if the employer can require the person doing the work to be on the job at a
certain time or for a specified amount of time, that person is likely to be considered to
be an employee. If the employer provides the tools that the person doing the work
needs to do the job and establishes the procedures for doing the job, the person doing
the work will likely be considered to be an employee. Also, the closer the connection
between the kind of business that the employer operates and the job that the person is
doing, the more likely that person will be considered to be an employee (Moran,
2014).
For example, if you own an accounting firm and hire an accountant to prepare tax
returns, and you provide the computer and software necessary to prepare tax returns
and specify when the person will come to work, when he or she can go to lunch, and
when the workday ends, it is pretty clear that the accountant is an employee. On the
other hand, if there is an electrical problem in the building where you have your
accounting firm and you call an electrician to fix the problem, the electrician will tell
you when he or she can come to the office to fix the problem, and the electrician will
bring the tools necessary to do the work. In that case, it is clear that the electrician is
not one of your employees, but an independent contractor. Of course, the
determination of employee or independent contractor can be a more difficult question.
For instance, if you hire an accountant on a temporary basis to prepare tax returns
during tax season and that accountant works at home and is paid for each tax return
prepared rather than on a salary basis or an hourly basis, the determination of
whether the accountant is an employee or an independent contractor will have to be
determined by considering other factors that indicate the degree of control that you
exercise over that accountant.
Most employees acquire information about their employers during the course of their
employment that might be of benefit to competitors of the employer. Therefore, it is not
unusual for employers to have employees sign non-compete and non-disclosure

BHR 3565, Employment Law

2

agreements even if the employees are not employed under an employment contract
and are employees-at-will (Moran, 2014).
A non-compete agreement provides that if an employee voluntarily leaves
employment with the employer, that employee cannot go to work for a competitor.
These non-compete agreements are generally enforceable if the restrictions on going
to work for a competitor are reasonable. What is reasonable depends on the particular
circumstance, but it generally means that the geographical areas in which the
employee cannot work and the amount of time that the employee cannot work in that
geographical area have to have a reasonable relationship to the job that the employee
is leaving. For instance, if someone is the news anchor on a local television station
and leaves that station, he might reasonably be prohibited from working for another
television station in the same market for a year or two by a non-compete agreement
(Moran, 2014).
A non-disclosure agreement is also not unusual, though it is different from a noncompete agreement. An employee is likely to legitimately acquire information about
his or her employer in the course of their employment. A non-disclosure agreement
prohibits an employee from disclosing any of that information to another employer
when the employee leaves the original employer (Moran, 2014). For example, a few
years ago, an executive at Volkswagen left Volkswagen and went to work for Chrysler
in a similar position. That executive had signed a non-disclosure agreement when he
was an employee of Volkswagen, and Volkswagen, concerned that he would violate
the non-disclosure agreement and disclose internal information about Volkswagen to
Chrysler, filed a suit asking a court to monitor what the executive did at Chrysler so
that Volkswagen could be sure that the executive did not disclose information about
Volkswagen. Though courts do not usually undertake to monitor situations for an
extended period of time, this court entered an order that the executive could not
disclose any information to Chrysler that he had acquired a Volkswagen and set up a
program that monitored the activities of the executive for approximately a year.
One of the relatively recent issues that has arisen in the employment relationship is
the issue of privacy. While employees, like most everyone, have some expectation
that they will have a certain amount of privacy, there are legitimate reasons for an
employer needing to inquire into some areas that employees might consider to be
private. For instance, in hiring employees, employers sometimes require that potential
employees allow the employer to conduct a credit check and a background check.
Courts have generally said that as long as the credit checks and background checks
are reasonably related to the position that a potential employee is applying for and as
long as the potential employee agrees to allow the checks, the credit checks and
background checks are not an invasion of the potential employee’s privacy (Moran,
2014).
Other invasion of employees’ privacy issues can arise once an employee has been
hired. For instance, employers often monitor employee telephone calls and email, and
sometimes employers conduct surveillance of employees and even search employee
work areas. Whether these actions constitute an invasion of employees’ privacy
depends on the particular circumstances, but in most cases if the employer’s actions
are reasonably related to the employees’ job and if the employer discloses these
actions to employees ahead of time (as in the policies provided in an employee
handbook), these actions are usually approved by the courts (Moran, 2014).
Another relatively recent issue that has arisen in the employment relationship is
whistle-blowing. Whistle-blowing occurs when an employee reports to the employer or
to federal authorities the unlawful actions of other employees. It is pretty easy to see
where problems can arise when there is whistle-blowing, so there are several federal
laws that are intended to encourage employees to report unlawful activities related to

BHR 3565, Employment Law

3

employment and to protect employees who report unlawful activities, including the
following:
?
?
?

the Whistleblower Protection Act, which prohibits employers from retaliating
against employees who report wrongdoing;
the False Claims Act, which encourages employees to report activities that
defraud federal or state governments; and
the Sarbanes-Oxley Act, which encourages employees to report activities that
they reasonably believe violate federal security laws.

References
Larson, K. (2013). Players worth more today than Babe Ruth. Retrieved from
www.blecherreport.com/articles/1539955-players-worth-more-today-thanbabe-ruth
Moran, J. J. (2014). Employment law: New challenges in the business environment
(6th ed.). Upper Saddle River, NJ: Prentice Hall.

Suggested Reading
Using the CSU Online Library, read the following articles (ABI/Inform Complete):
Barbaris, D. (2014, Jan 14). Rodriguez takes fight to the courts — Suspended for all of
next season, the Yankee sues baseball and its union. Wall Street Journal,
Eastern edition. P. A. 24.
Smith, A. K. (2013, June). Unsung heroes take the heat. Kiplinger’s Personal Finance,
67(6), 48-53.

BHR 3565, Employment Law