U.S. Employment Law for Foreign Investors: Practical Hints on Handbooks, ADA, WARN, FMLA and FLSA

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Anyone who opens a production site in the U.S. encounters a dense network of employment protection rules – an overview of the most important federal statutes

Foreign companies that open a production site in the U.S. encounter extensive employment law. The widespread belief in an outdated principle of “hire and fire” is mistaken: numerous statutes, standards, court decisions and agency guidelines give employees in the U.S. strong legal protection. Some points are particularly surprising to German companies. Employers are not required to promise retirement benefits; if they do, however, numerous statutes apply to them. Severance pay is not required by statute, but may arise from contract, company policies or established practice, and plant closures may trigger payment obligations under the federal Worker Adjustment and Retraining Notification Act (WARN) or under state laws. It is also common, but impermissible, to compensate overtime at a ratio of 1.5 : 1 by time off instead of prompt cash pay: for private employers this violates the Fair Labor Standards Act (FLSA).

The following overview of five federal statutes is intended to raise awareness of the risks that can represent a considerable financial exposure where operations and personnel are poorly organised. It is also intended to indicate the questions to be put to the local attorney when he or she prepares an employee handbook. Because the statutes change and differ from state to state, advice from a local U.S. attorney is indispensable.

The employee handbook

When preparing the handbook, the following points in particular should be borne in mind:

The handbook must not create a contract merely by being handed out.
Employment should remain “at will”, and probationary periods should be avoided.
Benefits must be clearly defined; work rules, procedures and mandatory policies are to be laid down.
Supervisors are to be instructed in the application of the handbook and its procedures.
Possible conflicts with collective agreements (union contracts) must be considered.
It must be determined who alone may change the rules set out in the handbook, and compliance by all employees must be ensured.

Americans with Disabilities Act (ADA)

The ADA protects persons with disabilities in employment, public services, transportation, public accommodations and telecommunications. The provisions on employment apply to all businesses with 15 or more employees (42 U.S.C. § 12111(5)(A)); enforcement lies with the Equal Employment Opportunity Commission (EEOC). A “disability” is a physical or mental impairment that substantially limits one or more major life activities, a record of such an impairment, or being regarded as having one. Persons currently using illegal drugs are not protected; applicants may be tested for drug use, but a person who has successfully completed a supervised rehabilitation programme and no longer uses illegal drugs must not be disadvantaged.

The ADA prohibits discrimination against a “qualified individual with a disability” because of the disability in almost all areas of employment: application, hiring, promotion and dismissal, compensation, training and other terms and privileges of employment. A person is protected who can perform the essential functions of the position with or without reasonable accommodation. The employer’s judgment as to which functions are essential is taken into account; a written job description prepared before the position is advertised can serve as evidence. It must describe the essential functions, particularly for physically demanding positions, and correspond to the actual work of comparable employees. To comply with the ADA, the employer should:

draw up a non-discrimination policy,
prepare job descriptions for all positions,
use an ADA-compliant application form,
train hiring personnel on what is and is not permissible in job interviews,
introduce a rule on medical examinations after an offer has been made, and
base the final decision on hiring or on withdrawing a conditional offer on the application form, the interview and the medical examination.

Plant closures and mass layoffs: WARN

The Worker Adjustment and Retraining Notification Act (WARN, 29 U.S.C. § 2101 et seq.) requires advance notice of plant closings and mass layoffs. It applies in principle to employers with 100 or more employees; employees who have worked less than six months in the last twelve months or an average of less than 20 hours per week are not counted. Hourly and salaried employees, including managers, are entitled to notice.

Notice must be given 60 days in advance to the affected employees or their representatives (for example the union), to the competent state agency and to the local government body. A plant closing exists where a facility or operating unit is shut down for more than six months and at least 50 employees lose their jobs within 30 days as a result. A mass layoff exists where, in a layoff of six months or longer, at least 500 employees are affected or, where 50 to 499 employees are affected, at least 33% of the workforce. WARN does not apply to temporary facilities or to activities for whose duration the employees were hired; a shorter notice period is permissible, among other things, for a faltering company, in the case of unforeseeable business circumstances and in the case of natural disasters.

If the employer violates the Act, it owes each employee pay and benefits for the period of the violation, up to a maximum of 60 days; partial notice given and voluntary payments are credited. If notice to the local government body is missing, a civil penalty of up to USD 500 per day is threatened, which can be avoided if the employer satisfies the employees’ claims within three weeks after the closing or layoff. WARN is enforced in the federal district courts, including by way of class action. WARN does not affect other federal, state and local rules or contractual arrangements.

Family and Medical Leave Act (FMLA)

The FMLA (29 U.S.C. § 2601 et seq.) applies to employers who employ 50 or more employees on each working day in at least 20 calendar weeks of the current or the preceding calendar year. An employee is eligible who has worked for such an employer for at least twelve months (not necessarily consecutively) and at least 1,250 hours in the twelve months before the leave begins, and who is employed at a worksite at which at least 50 employees work within a 75-mile radius.

The FMLA grants up to twelve weeks of unpaid leave within twelve months for the birth or the placement of a child for adoption or foster care, for the care of a spouse, child or parent with a serious health condition and for the employee’s own serious health condition. During the leave the employer must continue group health insurance to the same extent. The leave may be taken in parts; in the case of birth or adoption this requires the employer’s consent. If the leave is foreseeable, the employee must give 30 days’ notice, otherwise as soon as possible. The employer may require a medical certificate. On return, the employee is entitled to the same or an equivalent position with the same pay and benefits. Employers must post a notice of the essential provisions of the FMLA, must not disadvantage or obstruct employees for taking leave, and must expect a fine in the case of wilful violation. Employees can pursue their rights directly in court. More favourable state rules take precedence.

Fair Labor Standards Act (FLSA)

The FLSA (29 U.S.C. § 201 et seq.) regulates minimum wage, overtime pay and record-keeping obligations for most private and public employment relationships. The federal minimum wage is USD 7.25 per hour (29 U.S.C. § 206(a)(1)(C)). State minimum wages may be higher; they are available on the website of the U.S. Department of Labor (www.dol.gov). For all hours worked in excess of 40 per week, non-exempt employees must be paid one and a half times the regular rate (29 U.S.C. § 207(a)(1)). The overtime premium cannot be waived by agreement. Nor does an agreement that only eight hours a day or 40 hours a week count as working time help the employer, and an instruction that overtime is not permitted or is to be paid only after prior approval does not affect the entitlement to pay for overtime actually worked.

Executive employees are exempt from overtime pay only if all requirements are met; otherwise the company owes overtime pay. This requires that the statutory salary and duties requirements are met as a whole (29 C.F.R. Part 541). For the executive exemption, this includes, under the duties test (29 C.F.R. § 541.100), that the primary duty is the management of the enterprise or of a department, that at least two employees are regularly directed and that the employee has the authority to hire and fire or that his or her recommendations on this are given particular weight.

Employees’ rights vis-à-vis unions: LMRDA

The Labor-Management Reporting and Disclosure Act (also the Landrum-Griffin Act, LMRDA, 29 U.S.C. § 401 et seq.) governs the relationship between union and members. It requires the protection of union assets and the disclosure of the financial dealings and administrative practices of union officials, labour relations consultants and others.

Conclusion

Anyone who employs staff in the U.S. should coordinate personnel organisation, handbook and compensation system with a U.S. legal adviser at an early stage. Mistakes such as impermissible time off in lieu of overtime pay, missing notices in the case of job cuts or inadequate job descriptions can trigger considerable payment obligations. Please feel free to contact us if you have any questions.

Status: 23 October 2026

NIETZER Rechtsanwälte · Attorneys at Law (USA) · Heilbronn · www.unternehmensrecht.com

This article is for general information only and does not replace legal advice in an individual case.