United States: ‘Tis The Season—How To Avoid The Dangers Of Office Parties And Gifts (a/k/a The Labor And Employment Department's Annual Party Poopers' Alert)


During the holidays, many employers get in the spirit by giving non-exempt employees prizes, awards, nondiscretionary bonuses, and incentive payments.  If these payments are based on the quality, quantity, or efficiency of production or hours worked, then the value of such payments must be calculated into the employee's average hourly rate for the purpose of overtime pay.  This means that any overtime worked in the pay period during which the bonus was received would need to be recalculated to adjust for the value of the prize, award, nondiscretionary bonus or incentive pay.  If the prize is merchandise, the amount to be allocated is the actual cost to the employer.  Employers may exclude a bonus from the regular hourly rate only if the bonus was discretionary.  The bonus is discretionary and, therefore, excluded from the overtime rate, if the allocation and amount of the bonus are left to the employer's sole discretion and the payment was not made pursuant to any prior contract, agreement or promise that would lead the employee to expect the payment.

Office Parties

During the holiday season, many businesses host a company party for their employees. While these parties may have a positive impact on office moral, they also may give rise to office gossip and even litigation.  Office parties may be considered to be within the scope of employment, even when the party is optional, regardless of the time and location of the event.  Accordingly, business owners and human resources professionals should be prepared to address the following issues, if they arise:

Discrimination/Retaliation Concerns

Sexual harassment is likely the most significant risk that companies may encounter at a holiday party. Recent events have increased the likelihood of litigation.  Even conduct that is intended to be innocent or joking may create significant liability, particularly if the action is compounded by the actor's position or a perceived group dynamic. The most effective way to reduce the risk of improper fraternization is to host an alcohol-free event, or at least limit the employees' access to drinks.  Removing hard liquor from the menu, limiting the number of alcoholic beverages each employee may consume (two is standard), or providing access to a cash bar, will help reduce drunkenness. Employees should be reminded of the need for responsibility as well as enjoyment.  Furthermore, supervisors and managers should maintain professional standards to serve as examples for their subordinates, avoiding any activities that may lead to physical contact or inappropriate conversation.

In the event that any complaint or report of inappropriate behavior emerges, the complaint should be taken seriously, documented, investigated promptly, and remedial action should be taken, if necessary.  Supervisors and managers should be reminded that despite the party environment or non-office setting, the usual grievance procedures should be followed.  Any employee who reports bad behavior should be treated fairly and protected against any action that could be viewed as retaliatory.

Finally, to maintain compliance with equal employment opportunity laws, employers should take the following precautions: (1) avoid religiously themed events in order to respect the diverse beliefs of the attending individuals; (2) provide non-alcoholic drinks; (3) ensure that alternative dietary requirements are considered – for example, providing only a dish containing pork may risk a discrimination claim; (4) ensure that the party's location and activities are accessible to employees with disabilities, and (5) only give appropriate and neutral gifts to employees—gift cards are the safest bet.

Independent Contractor Status

Companies that utilize independent contractors and temporary employees should take proactive measures to avoid creating evidence that an employer-employee relationship exists — evidence the DOL, IRS, or other agencies might use against an employer.  Employers may choose to prohibit temporary employees and independent contractors from attending holiday functions.  On the other hand, if such exclusion is too harsh, the company may negotiate with the staffing agency that provided the temporary workers to have the staffing agency provide some benefit or involvement in the function to solidify its role as the true employer.  For example, the staffing agency may be required to pay a small fee to subsidize the temporary workers' attendance, send invitations through the agency, or have an agency representative on-site at the event.

Physical Injury

Recreational functions always involve the possibility of injury, especially when alcohol is involved.  Slips and falls, coffee burns, broken chairs, and automobile accidents are all-too-common occurrences at holiday parties.  These injuries can render employers liable for negligence, workers' compensation, premises liability statutes, and state laws targeted towards providers of alcohol.

Many states' workers' compensation laws consider the holiday office party to be within the scope of employment and would award workers' compensation benefits to any injured employee. Such benefits are considered to be the "exclusive remedy" for the injury, thus preventing the employee from seeking any supplemental recovery from the employer.  If the injury is considered to be outside the scope of the employment, then employers would face potential liability if the act was caused by the employer's actual or imputed negligence, or if the injury was the result of a dangerous condition, the employer knew or should have known about.  Many states have "dram shop" laws that impose a duty upon hosts to ensure that guests are not served an excessive amount of alcohol.  In these states, damages caused by an intoxicated employee who is involved in a car accident after the holiday event could be imputed to the employer. Therefore, employers should arrange taxi or ride-sharing services for their employees who have imbibed in excess to ensure they get home safely.

Employers should keep the company function safe, inclusive, and in good taste and be extremely cautious with the quantity of alcohol being served.  Control any potential adversarial situation before it escalates, document any complaints by employees, be sure managers and supervisors set a professional example, and designate a non-drinking HR representative to patrol the party.

Attendance at a Company-Sponsored Party

If an employer would rather not pay hourly wages to have employees attend a function, then attendance should not be required.  Employees may be entitled to regular or even overtime compensation for the time spent at a holiday event if attendance is mandatory.  If the event is voluntary, employers should advertise it as such in any e-mail or invitation to avoid potential liability under the Fair Labor Standards Act ("FLSA"), or the equivalent state law.

Volunteers for Charitable Activities

The holidays are known for not only giving gifts, but also giving time.  Employers and employees alike may be interested in volunteering in philanthropic pursuits, and the FLSA permits individuals to donate their time as non-employees for humanitarian, religious, charitable, or other public-service reasons.  Such services must be conducted on a voluntary basis without the contemplation of pay.  However, employees may not volunteer services to for-profit private sector employers.  Additionally, public sector employees may not volunteer services to a public sector employer without additional compensation where the employee is performing the same work for which he or she is employed.  Similarly, the Department of Labor mandates compensation to public sector employees who provide services for a charity at the employer's request, under the employer's discretion or control, or during the employee's regular work hours.  Private sector employees can volunteer their services to public agencies without limitation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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