An Iowa limited liability company (LLC) is recognized as a separate legal entity with a perpetual existence under Iowa law. An LLC is dissolved upon the first to occur of the following:

1. An event or circumstance that the operating agreement states causes dissolution;
2. The consent of all members;
3. Once the company has at least one member, the passage of ninety consecutive days during which the company has no members;
4. On application by a member, the entry by a district court of an order dissolving the company on the grounds that any of the following applies:
   1. The conduct of all or substantially all of the company’s activities is unlawful.
   2. It is not reasonably practicable to carry on the company’s activities in conformity with the certificate of organization and the operating agreement.
5. On application by a member or transferee, the entry by a district court of an order dissolving the company on the grounds that the managers or those members in control of the company have done any of the following:
   1. Have acted, are acting, will act in a manner that is illegal or fraudulent
   2. Have acted or are acting in a manner that is oppressive and was, is, or will be directly harmful to the applicant.

After Dissolution

Following its dissolution, the LLC continues to exist for the purpose of winding up its activities. Members and managers retain limited authority to take the actions necessary to wind up the LLC’s affairs. A manager or other person designated in the operating agreement is usually responsible for winding up an LLC. If a dissolved limited liability company has no members, the legal representative of the last person to have been a member may be appointed to wind up the activities of the company. If this legal representative declines or fails to wind up the LLC’s activities, members holding a majority in interest may nominate such a person. In some cases, the district court may order judicial supervision of the winding up of a dissolved limited liability company, including the appointment of a person to wind up the company’s activities.

Distribution of Assets

In winding up its activities, an LLC must first use its assets to pay all debts to creditors, including members who are creditors. Once an LLC has discharged all obligations to creditors, any remaining assets must first be distributed to each person owning a transferable interest that reflects contributions made by a member and not previously returned. Generally, any assets left after that must be distributed in equal shares among members and dissociated members.

Claims Against Dissolved LLCs

An LLC may also give notice of a known claim, with the deadline of the receipt of a claim to be at least 120 days after the notice is received. It may also publish notice of its dissolution in a newspaper, with action to enforce such claim to commence within 5 years of publication.

Administrative Dissolution

Administrative dissolution is an action taken by the Secretary of State that results in the loss of a business entity’s rights, powers, and authority. In some cases, an LLC might also be subject to administrative dissolution. Administrative dissolution is an action the Secretary of State takes that results in the loss of a business entity’s rights, powers, and authority. In some cases, an LLC might also be subject to administrative dissolution. Administrative dissolution is an action the Secretary of State takes that results in the loss of a business entity’s rights, powers, and authority. In Iowa, the secretary of state may commence a proceeding to administratively dissolve an LLC for several reasons. Most of these reasons relate to not submitting necessary documents or information in a timely fashion.

A limited liability company that has been administratively dissolved continues in existence but may carry on only activities necessary to wind up its activities and liquidate its assets and notify claimants.

An administratively dissolved LLC may apply to the secretary of state for reinstatement at any time after the effective date of dissolution. Before filing for reinstatement, the LLC should solve the issues that resulted in its administrative dissolution. During the process, the secretary of state will consult the department of workforce development, and if there are any remaining delinquencies or liabilities, the LLC will most likely not be reinstated. Once the LLC reinstatement is in effect, it relates back to and takes effect as of the effective date of the administrative dissolution as if dissolution had never occurred.

Official Filings

After an LLC is dissolved and its affairs are wound up, it must file a Statement of Dissolution of a Limited Liability Company with the Iowa Secretary of State. A completed form must contain the name of the LLC and a statement that it is dissolved. The fee for filing a statement of dissolution is $5.

Tax Considerations when dissolving an LLC

Dissolving LLCs should obtain a tax clearance certificate from the Iowa Department of Revenue, as is required of dissolving corporations and LLCs. That said, a dissolving LLC is required to close its tax accounts with the Iowa Department of Revenue. A dissolving LLC in Iowa is required to cancel all of its tax permits and file tax returns through the permit cancellation date. This can be completed online on the State of Iowa’s Department of Revenue website or by completing Iowa’s Business Tax Cancellation form.

If you can’t show evidence that your LLC is a real business, you could lose the same benefits it’s supposed to confer. Therefore, you need to be able to prove to the courts or the IRS that you treat your company as a formal business, not a personal slush fund. Moreover, this loss of benefits could continue to apply should the LLC be liquidated. Fortunately, maintaining an LLC isn’t incredibly tricky.

Short-Term Maintenance of an LLC

There are several measures every LLC should take either leading up to the establishment of the organization or immediately following its inception. These measures are not only good business practices but will also contribute to the strength of an LLC.

1. Create a Separate Bank Account. While blending personal and business finances is not illegal, it is not a good idea. For example, using a personal bank account as the account for an LLC is entirely counterproductive to organizations wishing to enjoy the protections provided by the structure of LLCs. An LLC risks losing its classification as a separate legal entity by blurring the lines between personal and business finances. This loss of status could mean that members’ personal assets are liable for any liabilities or debt incurred by the LLC. Furthermore, a separate bank account simplifies recordkeeping and tax compliance, especially if the IRS audits the LLC. Here are some excellent tips for maintaining a business account:

1. Reimburse business expenses and keep the receipts

2. Record all transactions and be able to document the reason for business purchases

3. DO NOT use the business account to fund personal endeavors

4. Get a business credit card to use for only business expenses to minimize reimbursement complications

2. Create an LLC Operating Agreement. Iowa law does not mandate that an LLC have an operating agreement, but it is highly recommended. An operating agreement lays out each member’s responsibilities, what assets each person contributed to the business, how ownership is structured, how money will be raised and distributed, what your process is for adding and removing members, and under what circumstances and how your company will be dissolved.

3. Acquire Necessary Permits and Licensing. While Iowa does not have a general state business license, certain businesses may require specific licenses or permits depending on the LLC’s intended business type of business. Operating without the required permits or licenses risks the LLC status of the organization and opens the organization to fines or legal charges.

Long-Term Maintenance of an LLC

Moving onward, LLCs must complete some regular maintenance to remain in good standing. These actions intend to ensure that the LLC is neither dissolved through negligence nor weakened to the point of being ineffectual.

1. Filing the Annual Report. Limited liability companies formed, or doing business as a foreign entity, in Iowa are required to file a Biennial Report with the Iowa Secretary of State by April 1st of odd number years. The report can be filed through Iowa Secretary of State’s Fast Track Filing System. The cost for doing so is $60.

2. Amend the Certificate of Organization. An LLC may sometimes wish to amend its certificate of organization for several reasons. One such instance is if any information in the certificate is realized to be inaccurate. Accordingly, Iowa Code § 489.202(5) provides that the certificate of organization must be promptly amended, changed, or corrected when a manager of a member-managed LLC or a member of a member-managed LLC becomes aware that any information in the certificate of organization was inaccurate when filed or has become inaccurate due to changed circumstances. Luckily, amending a certificate of organization is not an onerous task. There are only three filing requirements for an amended certificate:

1. The name of the LLC

2. The date of filing its certificate of organization

3. The amendment to the certificate of organization
Iowa Code § 489.202(2)

The certificate of organization can also be restated and filed with the Iowa Secretary of State, superseding the original certificate. It must state:

a. In the heading, the LLC’s present name and former names and the date of filing the LLC’s initial certificate of organization

b. The changes made by the restatement

*The amended certificate of organization can be filed through the Iowa Secretary of State’s Fast Track Filing System and must be accompanied by a filing fee of $50.

Foreign LLCs authorized to do business in Iowa may apply for an amended certificate of authority with the Iowa Secretary of State if it changes its name (at its state of formation), corrects the state of formation, changes the duration of the LLC, changes its principal office or mailing address, or changes its registered agent. In addition, a foreign LLC may surrender its authority by filing a notice of cancellation with the secretary of state of Iowa, providing, among other things, the address to which the secretary may mail any process against the LLC.

3. Amending the LLC Agreement/Operating Agreement. Similar to a certificate of organization, an LLC may sometimes wish to amend it operating agreement. The operating agreement may be amended only with the approval of all of the members.

4. Maintain Detailed Records. Keeping records of company operations and activities is not a legal obligation, but it’s one of the most effective ways of protecting the organization. In addition, regular record keeping helps prove that the LLC is its own entity, thereby strengthening personal liability protection. Detailed record-keeping may also be necessary for those seeking to receive business loans, as most private financial institutions require comprehensive financial records before engaging in any association with another entity. Any detailed records should include the following documents:

– LLC certificate of organization
– LLC operating agreement
– EIN confirmation letter
– All financial statements and tax records
– All business licenses and permits
– All relevant member and shareholder information
– Meeting minutes
– Any records required by the operating agreement

These records should be kept at the place of business and backed up to a digital server for easy access.

5. Tax Compliance. Typically, LLC members are responsible for paying taxes rather than the LLC itself; therefore, it is critically important that members pay these taxes in full and on time. Failing to do so can put the LLC in poor standing and may even attract unwanted attention from the IRS. One such tax in Iowa that is important to remember is the state sales tax, which is a tax on gross receipts from the sale of taxable tangible personal property. Foreign LLCs may be responsible for payment of Iowa sales and use tax depending on whether the LLC’s business activities create a tax filing requirement. The safest way to avoid taxation infractions is to consult with a qualified tax professional or attorney.

Looking to the Future

While not all suggestions are required by law, they are all sound business practices that will drastically improve the short and long-term viability of an LLC. These practices allow LLC members to focus on operating the company while minimizing their risk of losing liability protection and tax advantages.

This guide is meant to provide foundational knowledge and by no means addresses every concern an LLC should have; the most effective way of protecting an organization is to consult with a qualified business attorney anytime there is confusion or whenever guidance may be beneficial.

To file for a certificate of authority, a foreign LLC must provide a foreign registration statement with an accompanying certificate of good standing or existence from the LLC’s home jurisdiction, dated within 90 days preceding the filing. A completed foreign registration statement must provide:

1. The LLC’s state of formation
2. The name of LLC* or the LLC’s DBA name (applicable if the entity’s name is not available in Iowa)
3. The name and address of the LLC’s registered agent within Iowa
4. The principal office of the LLC
5. The name and address of at least one member (if member-managed) or one manager (if manager-managed)
6. The date the LLC was formed in its home jurisdiction
7. The duration of the LLC in its home jurisdiction
8. The dated signature of an authorized person

* The name of an LLC filing to do business as a foreign LLC in Iowa must be distinguishable from the name of any other entity incorporated, organization, authorized, or reserved to transact business in Iowa. If there is a name conflict (that has not been waived), the foreign LLC may qualify/register to do business if it adopts an assumed name. The name of a foreign LLC that registers with the secretary of state must otherwise comply with Iowa Code § 489.108.

Additionally, foreign LLCs doing business in Iowa must determine if they require a specific license or permit to operate their business. They should also register with the Iowa Department of Revenue, just as if they were domestic LLCs.

Employers’ use of biometric data has been increasing in recent years as employers seek creative new ways to counteract ballooning health care costs by motivating employees to take responsibility for their health. The specific components of these programs vary widely, with employers rewarding employees with various additional employment benefits based on improvements to cholesterol levels or blood pressure, the reduction of nicotine usage, or other factors.

COLLECTING THE DATA

Participation in these programs takes time. As a result, one employer recently sought clarification from the Department of Labor (DOL) on whether their employer-sponsored programs should be considered working time under the Fair Labor Standards Act (FLSA).

On August 28, 2018, the DOL issued an opinion letter providing that FLSA does not require employers to compensate employees for their voluntary participation in employer-sponsored biometric screenings and wellness activities. The DOL determined that these activities primarily benefit the employee, not the employer, and are not considered working time under the FLSA.

The program which was reviewed by the DOL was not mandatory and was not related to the employee’s job. The tests and activities occurred both during and outside work hours and included in-person health education, participation in online health coaching and classes, participation in Weight Watchers, and voluntary fitness activities (among other activities).

The DOL concluded that the activities provided a direct benefit only to the employees. In reaching their conclusion, the DOL noted that:

• The programs are entirely voluntary and not required by the employer;
• The employee is relieved of all job duties while participating in the activities; and,
• The employer does not restrict the amount of time the employee spends participating in the activities.

However, the DOL also noted that work breaks of up to 20 minutes are ordinarily compensable, regardless of how employees spend their time during the break. If an employer provides all employees with a compensable 20-minute break, the employer must compensate the employees for that break, even if the employee chooses to participate in a biometric screening, wellness activity, or benefits during that time.

SHARING THE DATA

Meanwhile, in Chicago, Southwest Airlines has received at least some temporary relief from a lawsuit initiated by employees over Southwest’s decision to share its employees’ fingerprints without their consent.

According to the ramp agents, Southwest required all employees to scan their fingerprints on biometric devices to verify their attendance and clock in and out of work each day. However, the airline failed to comply with the Illinois Biometric Privacy Act, which provides that a company may not collect or store an Illinois resident’s biometrics without obtaining written consent from the person and informing them in writing of the specific purposes for the information and length of time the information will be stored.

Southwest shared its workers’ biometric data to unknown third-party vendors without their consent, the suit said.

In an August 23 order, U.S. District Judge Marvin E. Aspen dismissed the suit, finding the workers’ claims were not preempted by the Illinois biometric privacy law but were subject to mandatory arbitration under the terms of their collective bargaining agreement with the airline.

Stay tuned…

Creating an employee handbook can seem like a daunting task for an employer. Some employers have few, if any, written policies in place when they begin the process. Others may have adopted individual written policies in the past with little, if any, consideration given to how the policies can or should fit together in a handbook. Common questions include:

• Which policies should be included and which are optional?
• What does the law require?
• Can I use one policy for multiple states?
• How should the handbook be formatted?
• How often should the handbook be updated?
• Can and should signed acknowledgments be required?

This post highlights the key considerations for private employers seeking to create, distribute and maintain their employee handbooks. In particular, this post:

• Examines the primary reasons for creating a handbook;
• Provides guidance on creating a handbook, including drafting guidelines, considerations for employers that are creating a handbook from existing policies and tips for organizing a handbook;
• Considers steps to ensure compliance with the National Labor Relations Act (NLRA); and,
• Highlights best practices for distributing and maintaining a handbook.

KEY REASONS TO CREATE A HANDBOOK

Although there is no federal law requiring private employers to provide handbooks to their employees, there are numerous reasons for employers to do so, including:

• A handbook provides an opportunity to formally welcome new employees, introduce the organization and explain expectations;
• Grouping various employment policies together in a handbook makes it easier for an employer to ensure that each employee receives copies of all relevant policies;
• A handbook is a centralized place for employees to look for answers to common questions such as how often employees are paid; and,
• Handbooks and signed acknowledgments can assist in an employer’s legal defense.

CREATING A HANDBOOK

Most employers begin the process of creating a handbook by deciding which policies to include. Some policies are required or highly recommended. Other policies are optional and their inclusion in a handbook largely depends on the employer’s preferences. For example, although some employers may have a telecommuting policy in their handbook, others do not because not all employers permit telecommuting. Accordingly, employers seeking to create a handbook for the first time should evaluate which policies they currently have and which policies they should implement. Employers should only include policies they intend to follow because failure to follow written policies can cause employee confusion, significantly damage morale and recruitment efforts and create legal liability, including discrimination claims.

Drafting Guidelines

Although a handbook must be tailored to meet the specific needs of an employer’s workplace, employers should consider the following when creating policies for a handbook:

• Using a positive and professional tone that matches the organization’s culture;
• Eliminating unnecessary complex or legal terms. Instead, handbooks should use plain language to explain the employer’s policies and procedures;
• Avoiding overly rigid disciplinary rules and any other language that could be interpreted as creating a contractual obligation requiring just cause for termination. Instead, give the employer discretion to discipline and terminate the employment relationship. For example, a handbook should not claim to list all possible reasons for termination of employment;
• Including enough information so that the policies can be understood, but avoid providing too much detail. A handbook should not overwhelm employees, for example, by including all office procedures, such as instructions on requisitioning office equipment. Employers often have a separate manual covering workplace procedures;
• Evaluating the demographics of the workforce. For example, if employees speak a language other than English, consider providing the handbook in an alternate language;
• Using situations that are familiar to employees when providing examples;
• Including contact information for an employer representative who employees can contact if they have any questions about the policies (see Welcome Statement).

Creating a Handbook from Existing Policies

If an employer is creating a handbook from existing policies, the employer should consider conducting an audit to confirm all existing policies are up-to-date. Because policies may have been created by different departments, it is also important to ensure consistency among policies before employees read policies as a single collection in a handbook. Before finalizing its handbook, an employer should be certain all policies:

• Comply with current law. In addition to an employer’s compliance and legal obligations, policies should demonstrate an employer’s commitment to adherence to current law because the policies in a handbook often become exhibits in an employment litigation or administrative charge;
• Are current with respect to the employer’s business practices. Employers must reflect any changes to their policies or procedures;
• Are internally consistent and do not contradict each other. For example, the complaint procedures in an equal employment opportunity policy, anti-harassment policy and anti-retaliation policy should be consistent with one another.
• Use one voice and make sense when read together. Although numerous people are often involved in creating the handbook, at least one person should read the handbook in its entirety before the employer distributes it to employees.

Tips for Organizing a Handbook

Because handbooks include numerous policies covering various topics, they can become unwieldy if they are not properly organized. Best practice is to:

• Organize policies by subject matter. Use section headings to break up the policies. For example, see the second part of this Note beginning with Structuring a Handbook: Introduction.
• Create a table of contents. Employees can more easily find a policy, or group of policies, if the handbook includes a table of contents.
• Consider using individual pages for each policy instead of including multiple shorter policies on the same page. Organize the pages in a loose-leaf binder so that individual pages can be replaced easily when a policy is updated.
• For online handbooks, consider online acknowledgment and verification of having reviewed policies.
• Include the date on the first page of the handbook or if using a looseleaf binder, on each page. This makes it easier to confirm that a handbook includes the most up-to-date policies.

DISTRIBUTING OR POSTING A HANDBOOK

Employers should make handbooks available to employees either electronically or by providing a hard copy:

• When the handbook is first created;
• At hiring, such as at new employee orientations;
• Each time the handbook is updated. If an individual policy within the handbook is revised, for example, the anti-harassment policy, an employer may choose to distribute or electronically circulate only the updated policy to employees if employees have already received copies of the handbook and the remainder of the handbook has not been revised.

Employers that are making handbooks available to employees for the first time should consider scheduling a meeting to introduce the handbook to all employees. Best practice is to designate a specific person to distribute or coordinate access to them. This individual is typically someone from the organization’s Human Resources department who is able to answer any questions that employees may have regarding the employer’s policies.

After an employer makes the handbook available, it must continue to ensure that all new employees receive electronic access or a hard copy. Most employers make handbooks available to new employees during new hire orientation. Some employers set aside time during orientation for new employees to review the handbook and ask any questions they may have as they read through the policies.

Employee Handbook Acknowledgments

Employers should include an acknowledgment of receipt, review and understanding at the end of their handbook. This minimizes the potential for employees to later claim ignorance of a policy as an excuse for non-compliance, particularly when non-compliance leads to termination of employment or another kind of adverse employment action.

The acknowledgment should include a disclaimer that nothing in the handbook creates an employment contract. Additionally, in nonunion settings, the acknowledgment typically includes an acknowledgment:

• Of at-will employment. For employees who have an employment agreement, the acknowledgment can include language that the employment agreement governs to the extent there is a conflict between policies in the handbook and the employment agreement; and,
• That the employer has the right to modify or delete policies without notice.

Employers should be diligent in tracking acknowledgment forms and should conform to the following best-practices:

• Set a deadline for return or completion of signed acknowledgments. An employer should follow up with any employees who fail to submit acknowledgments;
• Keep signed acknowledgments in the respective employee’s personnel file;
• For electronically signed acknowledgments ensure that state law does not place limits on the validity of e-signatures and consider maintaining a separate manually signed acknowledgment as well;
• Identify the title and date or version of the handbook for which the employee acknowledges receipt, review and understanding. If there is a later dispute about or lawsuit involving which handbook an employee received, a signed acknowledgment that specifies the particular handbook will be helpful evidence for the employer.

What to Do if an Employee Refuses to Sign an Acknowledgment?

If an employee refuses to sign an acknowledgment, the employer should Ask the employee to write “I refuse to sign this acknowledgment” and the date in his own handwriting on the acknowledgment. If an employee later challenges receipt of the handbook, the employee’s statement is helpful evidence for the employer.

If an employee will not write that he refuses to sign the acknowledgment, the employer should have the primary contact for handbook distribution or posting write “I gave [EMPLOYEE NAME] a copy of the handbook on [DATE]. [EMPLOYEE NAME] refused to sign the acknowledgment.” Another employer representative should be present to witness the employee’s refusal and the statement from the individual who distributes the handbooks. The witness should also sign the refusal to acknowledge letter.

MAINTAINING AN EMPLOYEE HANDBOOK

Employers must review handbooks periodically to ensure that all policies are current and lawful. Some employers choose to review their handbook annually. Others designate a particular person to monitor changes in the law or in the employer’s procedure on an ongoing basis. At a minimum, a handbook must be reviewed and revised, if necessary, when:

• There is a change in the law. For example, when the Genetic Information Nondiscrimination Act of 2008 (GINA) was enacted, employers revised their equal employment opportunity policies to demonstrate compliance with GINA’s prohibition on discrimination on the basis of genetic information;
• There is a change to the employer’s policies or procedures. If, for example, an employer decides to limit outside employment and creates a policy prohibiting outside employment, the policy should be added to the employer’s handbook; and,
• The employer expands into new states. The employer’s handbook likely will need to be modified to be consistent with state law and to incorporate any additional policies required by state law.

A revised handbook should indicate that it supersedes any prior handbooks so that employees are clear about which policies are current. Employers should distribute or post revised handbooks, reissue acknowledgment forms and collect signed acknowledgments from all employees. Additionally, when an employer distributes an updated handbook, it should keep copies of any older versions. If the employer is ever involved in litigation, it should be able to point to the written policies in effect at the time of the challenged employment action. Best practice is to keep individual policies for the longest statute of limitations period applicable under federal or state law.

The risk of violating federal, state, and local employment laws is present even before an employment relationship exists. The pre-employment process, including recruiting and interviewing, exposes employers to potentially significant legal liability. This post provides an overview of the legal risks associated with recruiting and interviewing under federal law and Iowa law, and identifies practical steps to minimize those risks.

In particular, this post:

• Explains the risk of inadvertently creating a for-cause employment relationship;
• Identifies the risks and potential liability for discrimination claims at various stages of the pre-employment process;
• Identifies exceptions to the general prohibition against pre-employment discrimination; and,
• Provides practical steps for employers at each stage of the pre-employment process.

RISK OF CREATING FOR-CAUSE EMPLOYMENT RELATIONSHIPS

In Iowa, employees are generally presumed to be at-will; although employers may inadvertently convert an at-will employment relationship into a for-cause employment relationship during the interviewing and recruiting process.

At-will employment means that either the employee or employer may terminate the relationship at any time, for any reason, unless the reason is unlawful (such as a discriminatory reason).

For-cause employment can only be terminated for a reason specified in an employment contract as grounds for termination. Grounds for termination can include anything lawfully contracted by the parties, such as termination for “cause,” disability, breach of the agreement, or other reasons.

Common Issues

The ease with which at-will employment can be converted to for-cause varies from state to state. The three most common ways that at-will employment is converted to for-cause employment are:

• Job Security. Conversion can occur if the employer makes oral or written representations about the nature of the employment relationship to prospective employees. Oral or written statements suggesting job security, permanent employment, or that a job will be available provided that the employee performs their job, have been held to create a for-cause employment relationship.
• Introductory Periods. Representations regarding an introductory or probationary period can also alter the at-will employment relationship by suggesting heightened employment security following the introductory period. Employers should be careful not to imply any guarantee or security related to continued employment in policies describing probationary periods.
• Discipline Policies. Employers should also be careful describing progressive discipline policies (that is, policies that outline progressively more severe disciplinary steps for repeat behavior) because those policies can imply that certain steps must be taken before an employee can be terminated, negating the at-will nature of the relationship.

Practical Tips

The following tips will help protect employers from claims that an employment relationship has been converted from an at-will relationship to a for-cause employment:

• Ensure that all employees involved in recruiting, interviewing, and hiring understand the difference between at-will and for-cause employment and that they are prohibited from making statements that limit or modify the at-will status;
• Review written policies, handbooks, offer letters, and employment agreements to ensure no language could be misconstrued as a representation about the permanency of employment;
• Decide whether probationary periods and progressive discipline policies are necessary. If they are, those policies should expressly state that they are not intended to alter the individual’s at-will employment status;
• Include a stand-alone disclosure at the beginning of the employment handbook stating that the employment relationship is at-will; and,
• Make statements about the at-will employment relationship as conspicuous as possible, including using bold and underlined text in all written material where that language appears.

RISK OF DISCRIMINATION CLAIMS

Discrimination claims can arise at any point during the pre-employment process, from advertising and describing a vacancy, to making an offer of employment. Employers should be aware of the possibility for discrimination claims and ensure that employees involved in the pre-employment process are trained to avoid potentially discriminatory practices.

In addition, the Equal Employment Opportunity Commission (EEOC) regularly sends testers through recruiting and interviewing processes to ensure compliance with federal employment anti-discrimination laws. The EEOC can bring independent claims against an organization it believes has engaged in discriminatory practices.

Protected Classes Under Federal Law

Federal anti-discrimination laws prohibit employment discrimination on several bases, including:

• Race
• Color
• Religion
• Sex (including pregnancy)
• National origin and citizenship
• Age (40 and over)
• Disability (including perceived disability)
• Genetic information
• Past, current, or prospective military service

Most states and some municipalities also have anti-discrimination laws that cover various protected classes. Some state and local laws extend greater rights and protections to employees and applicants, such as by treating marital status, sexual orientation, and smokers as protected classes.

Iowa law expands the Federal anti-discrimination laws by also prohibiting employment discrimination on:

• Creed
• Disabiliy (including HIV-positive status)
• Pregnancy
• Sexual orientation

Multi-state employers should consider using policies, forms, and other materials that are specific to a particular state or municipality to ensure compliance across all jurisdictions. Employers may also consider adopting policies prohibiting discrimination against generally recognized protected classes, even if not all are protected in each state where the employer operates.

The Mechanics of Discrimination Claims: Disparate Treatment and Disparate Impact

Discrimination takes two basic forms:

• Disparate treatment. Disparate treatment is the most blatant and obvious form of discrimination against applicants and employees based on their protected class. Disparate treatment discrimination occurs when an employer treats one applicant or employee differently than a similarly situated applicant or employee because of that individual’s race, color, religion, sex, or membership in another protected class.
• Disparate impact. Disparate impact discrimination is a more subtle form of unlawful conduct that occurs when a seemingly neutral policy or practice unduly disadvantages individuals on the basis of their protected class. For example, minimum height requirements and physical strength tests are facially neutral but may have a disparate impact on women.

The “BFOQ” Exception

Federal law provides for a limited exception to the prohibition against discrimination for a “bona fide occupational qualification” or “BFOQ.” The BFOQ exception applies where an employer can show that its preference for a particular characteristic, such as religion or sex, is reasonably necessary to the normal operation of that particular business or enterprise. The EEOC and federal courts construe the BFOQ exception narrowly. Before relying on a BFOQ defense, employers must consider if the trait is necessary for the position or business operations.

Common Issues

Discriminatory conduct during the pre-employment process can include, for example:

• Failure to hire;
• Discriminatory compensation;
• Discriminatory terms and conditions of employment (such as access to training);
• Discriminatory classification or segregation of employees or applicants;
• Discriminatory preferences in job postings or advertisements;
• Failure to provide reasonable accommodation in the application process under the Americans with Disabilities Act (ADA);
• Failure to provide reasonable accommodation for an employee’s sincerely held religious belief; and,
• Retaliation.

Iowa law explicitly prohibits the following conduct:

• Any person to refuse to hire, discharge, or otherwise discriminate in employment against any applicant or employee because of that employee’s or applicant’s protected class (Iowa Code § 216.6(1)(a)).
• An employer to advertise or publicize that individuals of any protected class are unwelcome, objectionable or otherwise unacceptable for employment, unless the exclusion is based on the nature of the occupation (Iowa Code § 216.6(1)(c)).
• Any person to request or require an HIV test as a condition of employment, or to terminate or affect the terms, conditions, or privileges of employment of any employee solely as a result of the employee obtaining an HIV test (Iowa Code § 216.6(1)(d)).
• An employer and an employee or prospective employee to make an agreement concerning employment, pay, or benefits in return for taking an HIV test (Iowa Code § 216.6(1)(d)).
• An employer to pay wages to an employee in any protected class at a rate less than the rate paid to other employees who are employed within the same establishment for equal work on equivalent jobs (Iowa Code § 216.6A(2)(a)).
• An employer to have a formal or informal policy excluding persons from employment or application for employment because of pregnancy (Iowa Code § 216.6(2)(a)).

Practical Tips

• Consider whether individuals lacking a particular qualification could perform the job in question;
• Ask a qualified human resources professional or attorney to examine job descriptions to ensure that they comply with anti-discrimination laws;
• Consider stating in the job description that the organization considers the particular requirement to be a BFOQ and cite the statutory section on BFOQs to minimize risk of discrimination claims;
• Apply the BFOQ consistently.

WHERE DISCRIMINATION CAN OCCUR

Claims of discrimination can arise throughout the recruiting and interview process. Areas that require special attention by employers include: the method of advertising openings, the language used in job descriptions, the questions on employment applications, the selection of interviewees, the timing of interviews, the questions asked during an interview, and pre-employment tests.

Advertising

Advertising is generally targeted to a particular audience and where a company advertises job openings may exclude certain groups. Limited or targeted placement can form the basis of a discrimination claim, particularly if the same limitation continues over time. For example, if an employer only advertises job openings in publications with audiences that typically exclude a particular protected class, such as an ethnic or age group, the employer may be subject to a claim that it disproportionately excluded a particular group.

Similarly, an employer that only advertises positions by word of mouth can be subject to a discrimination claim where its current workforce is predominantly or exclusively members of a particular class. A plaintiff may allege that the employer is intentionally perpetuating the current limited makeup of the workforce by only advertising the position by word of mouth.

Practical Tips

• Consider the methods and locations of job opening advertisements to ensure coverage across protected classes;
• Request statistics about the target and actual audience of particular media to ensure protected classes are not excluded;
• Advertise job openings in a variety of media designed to reach separate audiences; and,
• Consider whether the existing workforce is homogenous and if so, whether advertising strategies contributed to that result. Diversify those strategies to reach a broader audience.

Language of Job Descriptions

Employers should consider the skills and experience actually required for the job to ensure that each requirement is defensible. For example, a job description requiring that the individual must be able to lift up to 50 pounds may have a disparate impact on women. Where a job requirement tends to discriminate against or is biased in favor of a particular class, employers should ensure they can justify that requirement as a BFOQ.

A job description should never suggest a non-BFOQ preference for or bias against any particular protected class, whether explicit or implicit. For example, a job description should not use gender-specific terms, such as “he” or “she” or “waiter” or “waitress,” or express a preference for a characteristic that may indicate a violation of any other protected class, such as “young and energetic.”

A job description should also identify the essential functions of the position. These are the basic duties that an individual must be able to perform, with or without reasonable accommodation, to be qualified for the job. The EEOC and courts will generally consider these written requirements as evidence of the actual essential functions of the job. Essential functions can protect employers from discrimination claims by individuals who cannot perform these job duties even with reasonable accommodation. Employers should be able to justify any essential functions identified for a particular position.

Employment Applications

Employment applications should be designed to gather standardized information about applicants and provide employers with the opportunity to use objective information to screen unqualified applicants. Employment applications also allow prospective employers and employees to share information in a consistent format, which helps deter discrimination claims.

As with job opening advertisements, applications should be accessible in a variety of media and locations to avoid claims of disparate impact. For example, applications should not be available only online because potential applicants may have limited access to the internet or require assistance with the application. Reasonable accommodation by the employer, such as making applications available in large print, audio file, or braille, or providing assistance to individuals filling out the application, may be required.

Federal, state, and local law prohibits the use of employment applications that express a preference or limitation with regard to a protected class unless based on a BFOQ or other lawful exception. Employers should review all application forms to ensure that they do not express an unlawful preference or limitation or request information about a protected category. Questions on applications should be limited to those that reasonably relate to the job for which the applicant is applying.

Areas of inquiry employers should avoid on employment applications may include, for example:

• Age
• Religion
• National origin
• Marital status
• Childcare plans and plans to have children in the future
• Criminal history
• US citizenship (as opposed to the right to work legally in the US)
• Medical history or disability
• Workers’ compensation history
• Bankruptcy

Employers should also include in employment applications a statement that the employer is an equal opportunity employer and that any information collected is solely to:

• Determine suitability for the position.
• Verify identity.
• Maintain employment statistics of applicants.

Employers should also be aware that notations on applications or resumes may suggest that the employer unlawfully considered a protected characteristic in the hiring decision.

Selecting Interviewees

To avoid actual or perceived discrimination in the selection of interviewees employers should:

• Ensure that only those individuals whose qualifications are best matched to the written job requirements are selected for interviews;
• Consider documenting the reasons for selection or non-selection to minimize the risk of discrimination claims; and,
• Use multiple decision makers to ensure that no one person’s biases, explicit or implicit, are allowed to affect the hiring process.

Location and Timing of the Interview

Employers should accommodate reasonable requests to modify interview locations and timing, such as by providing wheelchair access or an accommodation for sight or hearing impairments. Federal law requires covered employers to provide reasonable accommodation to qualified individuals with disabilities, including both applicants and employees, unless doing so would cause an undue hardship. Examples of undue hardship include excessive cost and major disruption.

Interview Questions

Inappropriate interview questions create a risk of discrimination claims. Although polite personal conversation often accompanies an interview, even indirect or inadvertent questions about a protected class characteristic can provide grounds for discrimination claims. For example, asking an applicant when they attended a particular college or asking a woman if she has children can suggest an age bias or a bias against marital or family status. Interview questions should be limited to those that reasonably relate to the job for which the applicant is applying.

Pre-Employment Tests

Employers may require applicants to take pre-employment tests to demonstrate various skills and traits, such as:

• Computer, typing, and other work skills;
• Cognitive and physical abilities;
• Personality traits;
• Emotional intelligence; and,
• Language proficiency.

While pre-employment tests can help the employer screen and select applicants for a job, they also present liability risks if the tests are not valid, accurate, or properly implemented. Before performing any kind of pre-employment testing, employers should consider whether the test is absolutely necessary to evaluate candidates. Where it is not, employers should consider eliminating the test to avoid the associated potential liability.

Employers should ensure that accurate validity studies are available in the event of a challenge by the EEOC or other enforcement authorities. The validity of pre-employment testing is measured using jurisdiction-specific standards. For example, the EEOC has developed the Uniform Guidelines on Employee Selection Procedures (UGESP), a set of guidelines to help employers comply with Title VII and federal equal employment opportunity requirements. The UGESP apply only to those protected classes recognized under Title VII (race, color, religion, sex, and national origin). The guidelines are somewhat complicated, dividing testing into three different categories (criterion-related, content-validation, and construct) and outlining validation studies for each.

Employers are not strictly bound to comply with the UGESP, but courts give the guidelines weight in assessing the validity of various employment tests. Courts are also mindful of the cost that can be associated with UGESP compliance and have suggested that deviating from the guidelines may be acceptable for valid reasons, including the cost of strict compliance. The employer has the burden to demonstrate a test’s validity, however, and may not solely rely on the assurances of the vendor providing the test.

Pre-employment tests should be applied uniformly. For example, employers may test language skills where proficiency in a particular language is an objective job requirement but should ensure testing is uniform and that no assumptions about language proficiency are made based on national origin or citizenship.

Finally, the Employee Polygraph Protection Act prohibits most private employers from using lie detector tests either for pre-employment screening or during the course of employment.

Practical Tips

Carefully consider whether a test is absolutely necessary to evaluate candidates. If not, consider eliminating the test to avoid the associated potential liability.

• Evaluate the test’s potential for disparate impact;
• Consider if the test invades an applicant’s privacy;
• Understand how feedback is given and how data is stored;
• Ensure that accurate validity studies are available to support the test should it be questioned by the EEOC or other enforcement authorities;
• Ensure the test can be appropriately administered and scored;
• Apply the test uniformly to all applicants for the relevant position;
• Provide reasonable accommodation for individuals with a disability;
• Understand federal, state, and local restrictions on the type of test considered. Separate requirement apply to different types of tests, such as drug and alcohol testing and medical screening;
• Monitor changes in job requirements and update pre-employment tests if necessary;
• Ensure that managers understand the effectiveness, limitations, and appropriateness of tests for specific jobs; and,
• Consider hiring an expert to assist in measuring the validity of any pre-employment test.

Candidate Selection

Candidate selection is an obvious target of employment discrimination claims. To avoid the influence of explicit or implicit discriminatory bias in hiring, candidate selection decisions should be:

• Made by committee.
• Based on job-relevant criteria.

Additionally, employers should document the reasons for both candidate selection and non-selection. Documentation of final hiring decisions can support an employer’s defense if those decisions are later challenged.

Social media usage has revolutionized the way in which companies communicate with consumers. This Hartung Schroeder Practice Series is presented in five parts and provides practical guidance on the potential risks to a company attributable to the use of social media tools by the company and its employees. The Series explains:

• Part One: How Companies Use Social Media.
• Part Two: The Four Main Risks of Social Media Faced By Companies and Employers
• Part Three: The Use of Social Media in Employment Practices.
• Part Four: Issues Associated with Employee Use.
• Part Five: How to Create and Implement a Social Media Policy.

HOW COMPANIES USE SOCIAL MEDIA

Companies are taking advantage of social media in a variety of ways to promote brand awareness and to interact and communicate with customers. Common practices include:

• Use of branded pages. Branded social media pages created and hosted using a third-party service, such as Facebook or Instagram, allow companies to quickly and easily establish a social media presence. The official Starbucks fan page on Facebook has over 36 million fans and counting. The Starbucks YouTube channel has over 116,000 subscribers and over 45 million upload views of videos. On Instagram, Starbucks has over 12.5 million followers. And almost 12 million people are following Starbucks on Twitter and over 280,000 on Pinterest. Although these statistics fluctuate, they are a reminder of the importance of social media in the economy.
• Promotions and contests. Many companies are using their social media presence as a platform for promotions, by offering sweepstakes and contests within or founded on social media and user networks.
• User-generated content (UGC). Companies frequently and increasingly create promotions centered around UGC, for example by urging consumers to submit content-rich descriptions of why they love a certain product or service.
• Word-of-mouth marketing via blogs and influencers. Word-of-mouth marketing typically refers to endorsement messaging. Specifically, an endorsement is an advertising message that consumers are likely to believe is a reflection of the opinions and beliefs of the endorser rather than the sponsoring advertiser. Examples include providing products to third-party bloggers to create (hopefully favorable) product reviews, offering giveaways on third-party blogs, or creating a company-sponsored blog. Many companies are using amplified word-of-mouth marketing, by actively engaging in activities designed to accelerate the conversations consumers are having with brands, including the creation of Facebook applications based on a company or its product.
• Customer service and feedback. Social media can also foster customer feedback and engagement with a brand. Companies are using social media, such as Twitter, to receive customer feedback and provide nearly instantaneous customer service, which many consumers have come to expect.
• Responding to rumors and negative publicity. Companies can use social media to quickly respond to rumors or other negative publicity. For example, after two employees of Domino’s Pizza posted a video on YouTube in which they adulterated the chain’s food, the CEO of Domino’s Pizza responded by posting his own video, apologizing for what consumers saw and assuring them that such things were neither condoned nor practiced at the company. Both traditional media and the blogosphere applauded his open communication and willingness to engage in a conversation about the problem.
• Disclosure of information to the public. Social media can provide companies with the ability to more effectively reach more actual or potential customers, investors and/or shareholders. Notably, the SEC now recognizes social media channels of distribution for required and other public information disclosures (either to meet regulatory obligations or in connection with individual securities transactions).
• Employment practices. Human resources departments are increasingly using social media as a research tool to gather information for important staffing decisions, such as hiring new talent and terminating employment.

Continue to Part Two: The Four Main Risks of Social Media Faced By Companies and Employers.