The Legal Framework Human Resource Development Overview,Mandates,Strictures,AndFinancial

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Human Resource Development Review

DOI: 10.1177/15344843032512362003; 2; 26Human Resource Development Review

Alan ClardyImplications

he Legal Framework of Human Resource Development: Overview, Mandates, Strictures, and Fina

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10.1177/1534484303251236 ARTICLEHumanResourceDevelopmentRe view/March 2003Clardy/HRD LEGALFRAMEWORK

The Legal Framework of HumanResource Development: Overview,Mandates, Strictures, andFinancial Implications

ALAN CLARDYTowson University

The legal framework governing human resource development in organiza-tions can be as important as othe r human resources laws, but it is seldom

ful ly reviewed. Factors defi ning this framework are present ed, fo llowed bya model for identifyi ng the domains of HRD for which laws and regulationscan apply. Legal mandates for training, particularly in the areas of drugs,safety, and for certain occupational training, are examined. Rules govern-ing apprenticeship programs are reviewed in this context, t oo. The featuresof intellectual property law, ethics, and privacy as they relate to the prac-tice of human resource development are presented. Tax laws and regula-tions also impact human resource development; those rules are reviewed.

Laws covering employee compensat ion are then examined . Finally, theregulations that govern training in employee benefits are discussed.

Keywords: HRD laws; training mandates; tax laws training; traininglaws compensation; benefits

To both practitioners and the public alike, virtually all of the traditional

functions of human resourcesfrom staffing, recruiting and selection,

compensationand benefits, to labor relations, safety, and, to a lesser degree,

performance management and appraisaloften seem to be defined in terms

of laws andregulations. These laws and regulations serve almost as a check-

list of what must be done or avoided when it comes to such fundamental

practices as employment ads, hiring interviews, wage payments, benefit

program eligibility, or collective bargaining. Conspicuous by its absence in

this list of human resources activities is the training or human resource

development (HRD) function. This seeming oversight is not because train-

ing is free of legal regulation; indeed, as these reports will show, there are a

Theauthor wishesto thank ManuelKorn, Esq., Gregory Valenza,Esq.,Dr.JudithLombard, theedi-tors, and an anonymous reviewer for their helpful commentary on prior drafts of these articles.

Human Resource Development Review Vol. 2, No. 1 March 2003 26-53DOI: 10.1177/1534484303251236 2003 Sage Publications

Integrative Literature Reviews

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number of legal and regulatory standards with direct and indirect implica-

tions for the practice of training and development. It is more likely that thisoversight of the legal aspects of training is due to the fragmented and obscure

nature of the issues. For professionals operating in the HRD field, though,

ignorance of HRDs laws and practices carries risk; training and develop-

ment professionals as well as line managers should be knowledgeable of the

legal framework surrounding HRD practice. Likewise, HRD scholars and

educators need to be versed in this aspect of practice.

This article will provide a comprehensive and systematic review of the

legal framework governing the HRD function, beginning with a review of

the building blocks of a legal framework, followed by a general model of

how this legal framework applies to HRD. The next sections elaborate the

details and specifications of this legal framework. First, legal training man-

dates are considered, followed by morespecific practice requirements in the

areas of intellectual property, privacy, and ethics. This section concludes bylooking at the legal groundings of various financial aspects of HRD prac-

tice. This includes a review of relevant tax code stipulations, followed by an

examination of compensation and benefits laws and regulations that relate

to HRD practice.PartII of this serieslooks at HRDin lightof themoremain-

stream human resources management issue of fair employment practices.

Part II also examines the legal issues relating to negligence in HRD, begin-

ning with workers compensation and moving into a more general review of

negligence and malpractice in training. This is followed by a consideration

of HRDs role in due diligence analysis deriving from mergers or acquisi-

tions. Part II concludes with a discussion of the implications of the legal

HRD framework for practitioners and for scholars. These articles will not

consider, however, otherareas of HRD that have a legislative or adjudicative

connection, such as contracts for training products or services as might be

created between an employerand a consultant, labor union, or schoolor uni-

versity; public policies, such as the Workforce Reinvestment Act (Pantazis,

1999), that encourage HRD among private employers; and educational stan-

dards or licensing credentials that individuals (such as physicians or

accountants) must obtain prior to beginning practice or employment. These

topics are better covered either in other discipl ines (such as contract law) or

because the implications for the HRD practice are more of an incentive than

constraint or directive nature (Workforce Reinvestment) or because the

legal requirements apply to individuals prior to employment. The principal

focus will be on how various laws, regulations, and judgments direct and

channel organizations in training their employees.

Efforts to review thelegal aspects of HRD can be traced to the late 1970s.The early work at that time tended to focus on unfair employment and dis-

crimination matters (Bartlett, 1978; Holt, 1977; Russell, 1984). More com-

prehensive treatments, though, date from the early 1990s on. Typically,

these reviews apply legal principles (such as discrimination or negligence)

Clardy / HRD LEGAL FRAMEWORK 27



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28 Human Resource Development Review / March 2003

to specific HRD applications, such as safety training, adventure programs,

or violence prevention (Eyres, 1996; Eyres & Moreland, 1994; Mansfield,1987; Sample, 1997). Often, these reviews include prescriptive guidelines

for practitioners (Eyres, 1990). These same kinds of discussions also

occurred in chapters on training that were part of a larger compendium of

laws and regulations covering all aspects of human resources management

(Kahn, Brown, & Lanzarone, 1996). Occasionally, reviews in nonmain-

stream sources looked at specific issues, such as negligence (Mathiason &

Pierce, 1996) or religious discrimination (Pile, 1993). HRD textbooks have

either not addressed legal matters (Gilley, Eggland, & Gilley, 2002;

Goldstein & Ford, 2002) or have provided only cursory coverage (Noe,

1999). Two conclusions can be drawn about this literature. First, although

there are certain core issues (such as discrimination and safety) that are usu-

ally addressed, coverage of the complete domain of the legal framework

affecting HRD has in general been uneven. Some topics are rarely covered,some not at all. Second, in spite of the risks that faulty compliance poses,

there has been remarkably little coverage. A key weakness in this field is a

lack of a systematic framework for identifying the complete range of legal

issues affecting HRD that can guide both scholars and practitioners alike.

Defining the Legal Framework

The legal framework governing HRD can be defined in terms of the types

of legal strictures involved, their impact, jurisdiction, and coverage. First,

there arefive potentialtypes or levels of laws that mayapply, beginning with

Constitutional protections, found at both national and state levels that guar-

antee certain rights and procedures to all citizens. Second, the president of

the United States may issue executive orders that can create standards for

practice for certain kinds of employers, for example. A third class includes

the various laws or statutes enacted by elected legislative bodies, either at

the federal, state and/or municipal levels (where statutesare typically called

ordinances). Fourth, one possible outcome of a public law is the creation of

an administrative agency. These agencies may produce regulations that can

carry the force of law. Finally, there is the common law that emerges from

the cumulative history of judicial decisions.1 Compared to the enacted laws

and statutes of legislative bodies and the regulatory standards issued by

appointed agencies, case law evolves over time through the interpretations

andrulingsof thejudicial process in specific cases.Thesevarioussourcesof

laws and regulations interact, as seen in the example of the legal history of

sexual harassment. The foundation for sexual harassment was establishedby statute in 1964 with the Civil Rights Act, which outlawed employment

discrimination based on sex. More than a decade later, the Equal Employ-

ment Opportunity Commission (EEOC) produced regulations under which

sexual harassment was defined as a form of sexual discr imination. With this



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basis, a series of court cases dealing with sexual harassment soon emerged,

resulting in a clarification and specification on the law on sexual harass-ment. It is this dynamic tension between these various sources that adds to

the complexity in understanding the law over time.

The second defining factor for the legal environment is called impact, or

how clearly and specifically the various legal laws, regulations, and rulings

affect HRD. For example, some laws and regulations directly require

employee training or mandate minimum levels of training. Other laws and

regulations, such as those dealing with fair employment, have a more indi-

rect effect on HRD. Finally, as in thecase of negligence,the impactis poten-

tial and derivative, only possibly coming into play after training events have

occurred under certain conditions. The third major factor useful in defining

the legal framework for HRD is jurisdiction (Bland & Walsh, 2000). Each

governmental authority in the United States is capable of making rules for

its domain. Trial court districts may subdivide state and local governments,whereas circuit or appeal court systems can span them. The result is a patch-

work of jurisdiction in which, for example, laws or judicial rulings made in

one state (say, California) may not apply to others (such as New York).

The fourth major factor is calledcoverage. Some laws only apply to orga-

nizations of a certain size or that are involved in certain kinds of operations.

The various civil rights laws generally apply to employers with 15 or more

employees; the Fair Labor Standards Act applies to businesses involved in

interstate commerce. Furthermore, some laws and regulations apply differ-

ently to public and private employers. This is especially true in the case of

federal employees, where there is a rather extensive set of legally mandated

statutes and procedures for HRD.2 Coverage is also a factor that exists inde-

pendently of whether an organization has a full-time, formally designated

trainer or HRD department. That is, coverage applies to an HRD function

regardless of whether a specific training department, office, or trainer posi-

tion exists. For legal purposes, the HRD function is often defined in educa-

tional terms. Some situations, for example, laws or regulations, require that

some kinds of knowledge and skills be formally and systematically commu-

nicated to employees in what can only be descr ibed as a training venue. For

this review, HRD will be treated here as a process for providing knowledge

to and building skills among employees through learning experiences that

are typically formally planned, organized, and delivered.

In short, the legal framework for HRD is far from a universal, all-inclusive

monolith. Rather, any particular organization may or may not be subject to

specific laws, regulations, or judicial rulings, depending on their location,

size, or nature of operations. In some matters, laws may directly mandatewhat kinds of training areto be provided and/orhow. Otherwise, legal impli-

cations may not be so obvious or direct. When legal matters do arise, they

apply regardless of whether theorganizationhas a full-time trainer or not. In

practice, then, the specific and complete legal framework for any organiza-



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tion will be relatively unique, depending on where it is located, the kind of

business it is in, and the size and scope of its operations.

Modeling the Legal Framework for HRD

Because the literature describing the legal issues surrounding HRD in the

workplace is somewhat unsystematic, and because the governmental frame-

work is fragmented, both HRD practitioners and scholars alike are disad-

vantaged in understanding and informing their practices. These handicaps

are reinforced by several other conditions. For example, developments in

the common law are driven by case decisions that are embedded in court

reports, a literature typically not monitored by HRD professionals. News

reports in the popular and technical press tend to highlight unusual or

extreme situations but without providing sufficient perspective for explain-

ing what that situation means for practice. More scholarly oriented reviewsoften either lack a comprehensive framework for isolating all the possible

areas of concern or tend to be written from a purely legalis tic point of view.

Greater coherence to the legal HRD framework will assist scholars in

enriching the knowledge base of the discipline, will aide educators in better

preparing students, and will help practitioners in avoiding unnecessary risk

to their organizations. To move toward these objectives, what is needed is a

model that systematically spotlights the legal issues affecting HRD, that

identifies the relevant legal standards for practice, and that specifies atten-

dant risks and liabilities. Table 1 summarizes the major components that

make up thelegal framework forHRD. Figure1 translates these components

into the underlying model of the legal framework for HRD. Although not

necessarily final and complete, this model suggests the comprehensive sets

of issues withwhich scholars, educators, and practitionersshould be aware.

By statute, regulation, and/or ruling, enforceable obligations may be

placed on the HRD function; failure to comply with those obligations can

create risk of legal action against the organization. As shown in Figure 1,

HRDs legalobligations andattendant risksmay be grouped into thefollow-

ingthreemain sets: thetreatment of participants, thevariouselementsof the

training production function, and the administration of the HRD function.

The model of the HRD framework presented here serves as an orientation

and organizing device for both scholars and practitioners. Scholars should

be betterable to locatethe legal issues that need to be considered when theo-

rizing about HRD, whereas practitioners should be advantaged in identify-

ing what kinds of legal matters they should attend to in managing and pro-

viding HRD services.In this model,the HRD function is treated as an open systemthatinteracts

with an organizations larger management systems, both human resources

and otherwise. The primary input is people (primarily as trainees but also as

job applicants, customers, suppliers, and so on) who flow through training



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31

TABLE 1: The Components of the Legal Framework of HRD

Legal Component Risk Practice Guid

I. Mandatory training:

Federal, state

Occupational, industry

Failure to provide required training invites punish-

ments in fines, penalties, losses, and so forth.

Know of all required

make sure it is pro

required.

II. Minimum Operating conditions:

phones, privacy

Overhearing private communications. Comments

made during training used against employer.

Provide adequate not

privacy.

III. Minimum organization and

structure:Apprenticeship training

Vocational schools

Apprenticeship program not certified. Trainees are

really employees and must be paid accordingly.

Structure programs t

requirements.

IV. Training for legal credit:

sexual harassment, ethics

Absence of meaningful training eliminates potential

defense.

Provide meaningful t

harassment and et

V. Budgeting and funding:

In-house HRD

Educational assistance

Expenditures on training are disallowed and carry tax

implications for organization or employees.

Rules and procedure

with tax code.

VI. Training materials:

A. Instructional and learning

materials and supports

B. Ownership

Violating intellectual property rights. Not securing

appropriate ownership of produced materials.

Obtain permissions t

materials. Make s

contracts are prop

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VII. Fair employment

A. Trainee flow in admissions, pro-

cessing, and completion

B. Curricular compliance with other

laws (Dennys)

C. Accommodating trainees

D. Nontraditional curriculum

A. Illegal discriminatory treatment of participants

B. Teaching violations of other laws

C. Discriminatory treatment of individuals with dis-

abilities

D. Religious discrimination

Monitor trainee flow

impact. Admissio

and graduation st

job related. Valid

tent and procedur

vide reasonable a

Offer alternatives

criminatory traini

dice.

VIII. Compensation

A. Proper payment

B. Recovery

Violating minimum wage and overtime rules.

Restraint of trade.

Pay nonexempts for r

time. Construct tr

ery agreements ca

IX. Benefits Providing improper pension investment advice. Follow safe-harbor ru

X. Negligence

A. Workers compensation

B. Negligent training

C. Malpractice

D. Due diligence

No or poorly conducted training is cause of injury to

employees or others. Training does not meet

accepted standards in development or delivery.

HRD issues in merger or acquisition not

addressed.

Provide training to ad

work or in terms o

low accepted proc

and development

integration and H

posed mergers.

TABLE 1 (continued)

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programs and planned developmental experiences in varying degrees, mak-ing the treatment of people a key element in the legal framework of HRD.

For example, theprocessingof employees into, through, andfrom these pro-

grams and experiences creates the potential for unfair employment actions.

Discriminatory effectsin admissions to and graduation fromHRD programs

raise red flags, particularly if those actions are directly related to other per-

sonnel decisions, such as hiring, firing, or promotion. While in a training

mode, all trainees should be given the same level and quality of training. In

general, although there are some specified exceptions, employeesqua train-

ees must be paid the same as if they are on the job. The training that is

required by law, regulation, or ruling more often than not is intended to

impact the working conditions of employees; mandatedtrainingis lessoften

directedat job performance. Either way, bothdiscrimination and negligence

arepotential risks. A second key element in HRDs legalframeworkfocuses

on the training production function, which includes such factors as the

trainer(s), materials, the content or curriculum of what is taught, and the

instructional and learningprocesses used. The mostlikely liabilities in these

Compliance with

Mandatory Training

(1, 4)

Minimum organizational

& operating conditions

(2, 3)

Recordkeeping *

Trainee flow analysis (7)

Validation

HRD assessments (10)

Fair employment (7) Compensation (5, 8)

Applicants,Working conditions (7, 10)

Trainees,

Employees (7)Job performance (7, 10)

Training Production Functions

Trainer (7,10) Materials (6,10) Curriculum (6, 7, 10) Training Process (7, 10)

HRD Program:

Design and Delivery

(2, 7, 9, 10)

Budgeting &

Funding (5)

Treatment of Participants:

Administration of the HRD Function

FIGURE 1: Modeling the Legal Framework of HRD

NOTE:Although record keeping is not immediately required per se, clearly good records of HRD

programs,policies, and practices are an implicit and derived element of compliance with the HRD

legal framework.Likely attendant risks are identified in parentheses.1 = failure to provide manda-

tory training. 2 = lack of minimum operating conditions.3 = inadequate minimum organization and

structure.4 = notproviding meaningful defensive training.5 = faultybudgeting andfunding proce-

dures.6 = violating intellectual property rights.7 = illegal discrimination. 8 = improper payment.9 =

providing improper benefits training. 10 = negligence.



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areas arise from violations of intellectual property rights, fair employment

standards, and negligence.The third element centers on theadministration of theHRD function. In a

relatively limited number of situations (illegal drug abuse and safety), many

organizations are required by law or regulation to provide some training to

their employees. That is, in these applicable areas, the legal framework

establishes what kind of training should be provided. The actual nature and

type of required training depends in part on the political or judicial jurisdic-

tion in which the employer operates; it also depends in part on the type of

industry in which the organization operates. Failure to provide any man-

dated training can create risk and liability to the employer in the following

two ways: first, by violating legal or regulatory requirements, and second,

by failing to provide training, there could be problems with negligence.

More generally, laws and regulations define minimum training conditions

(almost akin to a minimum wage) about how training should be provided.This can be seen most comprehensively in apprenticeship training, in which

the minimumsof what constitutes an acceptable apprenticeship program are

detailed. Also involved here are privacy protections.

Given the requirements for training whats and hows as well as the poten-

tial for unfair treatment, having effective administrative oversight to the

HRD function becomes important. Administrative capability is necessary to

plan and structure training and development activities in terms of compli-

ance with training mandates. The administrative function should make sure

trainers are appropriately qualified and tests meet minimum psychometric

standards of validity and reliability. In addition, the administrative function

should critically evaluate training plans and designs so as to avoid discrimi-

natory or negligent practices. This means examining such things as whether

there are any selection biases in admitting employees into training, or in the

graduation rates of employees from training, as well as looking at what

potential physical or psychological risks might arise in a training program

and how well those risks are being managed. The administrative function

should also be able to accurately advise on funding and budgeting options.

Finally, the administrative function should monitor various training indica-

tors, such as trainee flow, for adverse impact and maintain needed records

and documents. In effect, trainingadministration should operate as an audit-

ing function (Clardy, 1997). The particulars of this model will be examined

more fully in the remainder of these articles.

Training Mandated Directly by Statute or Regulation

For private employers, federal law or regulation may require employers

to provide some training to its employees. The most direct obligation for

specific training is created through the Drug-Free Workplace Act, and



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relatedly, by Department of Transportation regulations for substance abuse.

A more extensive framework for specialized training rests on various Occu-pational Safety and Health Administration (OSHA) standards for safety

training. More generalized occupational training requirements for employ-

ees also exist, for example, for airline crew members. Laws governing

apprenticeship trainingprograms apply here, too.Each state may alsocreate

specific training obligations for employers in their jurisdiction. This addi-

tional level of direct influence on the employeedevelopment functioncan be

illustrated in the area of sexual harassment. In short, employee training may

be mandated in specific skills for employees in selected industries and/or

occupations.

The Drug-Free Workplace Act (enacted in 1988) covers primary contrac-

tors who do $25,000 or more in business with the federal government. Such

contractors mustcertify that they maintaina drug-free workplace by, in part,

providingeducation to their employees that warns about the dangers of drugabuse as well as indicates the availability of counseling and rehabilitation

services (Kahn et al., 1996; Ledvinka & Scarpello, 1992). In this same

domain are the Department of Transportation antidrugprogram regulations.

These regulations apply to any employer who provides mass transportation

services (as defined by the statute). In addition to otherenforcement stipula-

tions, the Federal Motor Carrier Safety Regulation (Prevention of Pro-

hibited Drug Use, 1998) also requires that employees in safety-sensitive

functions (such as vehicle operators, dispatchers, certain maintenance per-

sonnel, and security personnel who carry firearms) must receive at least 1

hour of training on substance-abuse effects and consequences. In addition,

supervisors must receive up to 2 hours of training in spotting substance

abuseand in working with troubled employees. Records of thetrainingmust

be kept.

The general duty clause of the Occupational Safety and Health Act of

1970 obligates employers to provide a safe and healthy workplace. Even

though the statute itself does not establish specific training requirements, it

does require employers to comply withstandards and regulations developed

to implement the provisions of this act. And according to OSHA (1992),

more than 100 safety standards have been established that have training

requirements. Some of these standards, covering topics such as fire and

disasterplans, personal protective gear(such as for hearing protection), first

aid, and hazardous waste, apply to most any employer. Perhaps the best

known safety training requirement occurs through the Hazardous Chemi-

cals Communications (HazCom) standards. Under HazCom, employers are

obligated to inform employees about any hazardous chemicals in the work-place and to train and prepare them in how to protect themselves. Further-

more, the trainers who conduct the training should be qualified to do the

training based on adequate preparation and/or possessing appropriate cre-




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dentials. In addition to training requirements that apply to industry in gen-

eral, there are also more specific standards that apply to maritime, construc-tion, and agricultural segments of the economy.

Safety training may be mandated not only by federal law and regulation

but also at thestate level. California requiresemployers to establishand pro-

vide an injury prevention program (Workplace Safety, 1999). This applies

most fully to employers with 20 or more employees in high hazard indus-

tries. As part of this requirement, employers should include an occupational

health and safety training program. Employers should provide the training

to all employees when the program is established, then to new employees

hired or promoted into applicable positions, as well as whenever there are

significant new materials or equipment introduced into the work.

State-level laws and regulations mandating training can also be seen in

the area of sexual harassment. Even though training in sexual harassment is

not required either by federal law or regulation, several states have enactedlaws that do require some form of sexual harassment training. For example,

state agencies in Illinois are required to carry out training programs on sex-

ual harassment; this includes providing training on the agencys sexual

harassment policy as part of new employee training (Employment, 1999).

Similar laws can be found that apply to private employers. Maine is a lead-

ing example (Sexual Harassment, 2001). That states code requires that

employees be notified in writing annually with specific information about

sexual harassment, including its illegality, definitions and examples of such

harassment, the internal complaint procedures available to the employee,

and instructionson the complaint procedures available through public agen-

cies andchannels, as well as what kind of protections there areagainstretali-

ation. In addition, the law requires that employers with 15 or more employ-

ees conduct an educational and training program for all new employees

within one year of commencement of employment (Sexual Harassment,

2001, Title 26, chap. 7, subchap. IV-B). This training is to include much of

the same information provided in the annual dissemination. Furthermore,

management and supervisory personnel must also be given training in their

specific obligations in preventing sexual harassment within 1 year of

appointment.

Legally enforceable obligations for employer-provided training may

arise not by statute or regulation but also from settlements of lawsuits. For

example, in 2001, theEEOC settled a lawsuit with theGeorgia-Pacific com-

panyover racial harassment (EEOCSettlesRacial Harassment, 2001). At its

Butner, North Carolina, facility, four African American employees were

subjected to repeated and pervasive racial slurs, comments, and graffiti bythe White manager of the fabrication shop in which they worked. One

employee was then fired for complaining. Part of the $200,000 settlement




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required the company to train its Butner-based managers and employees in

antidiscrimination laws.

Occupational or Industry-Specific Training Requirements

Federal statutes may also require training for personnel in certain occu-

pations.A prototypical exampleis found in federal lawsgoverning transpor-

tation. To illustrate, the authorizing legislation (Transportation Aviation

Programs Air Commerce, 2002) requires the Federal Aviation Administra-

tion (FAA) to establish employment standards for variousair carrier person-

nel. Part of these standards include both minimum training and retraining

requirements. FAA regulations (Air Carriers Operating Requirements,

2000) detail training requirements for flight instructors, pilots, flight engi-

neers, and flight attendants, among others. For example, under these regula-

tions, initial training for flight attendants must cover such topics as how tohandle passengers, a review of the aircraft, using the public address system,

and proper use of the electrical galley equipment. There must be an assess-

ment of the trainees ability to perform assigned duties. Depending on the

type of aircraft, the training must be a minimum of 8 or 16 hours. Further-

more, based on researchin theareaof pilot crew interactionsduring in-flight

emergencies, there are regulations that also require crew resource manage-

ment (CRM) training. CRM training teaches members of the flight and

attendant crew to work together effectively in sharing information and mak-

ing decisions (Driskell & Adams, 1992). In effect, in this case, regulations

mandate the training of teams over and above the skills training required to

do their individual jobs. Underground mine operators are required to pro-

duce plans for training new miners and refresher training for existing min-

ers. Details about what theplan shouldinclude (such as whowill provide the

training, teaching methods, and course materials) are provided, and the plan

mustbe approved (Training and retraining of undergroundminers, 1978).3

Other examples of HRD mandates by state or local statutes include occu-

pational training requirements for police, firefighters, and school person-

nel. For example, the state of New Jersey requires that persons may be hired

for 1 year on a probationary basis as police officers, but they must complete

approved police training before becoming a permanent employee (Police

Training Commission, 1998). Similar requirements exist for individuals in

special law enforcement positions, such as correctional officers or human

services police officers. Maryland requires that public officials (as defined

in the statute) complete a 2-hour training course on the states Public Ethics

Law. In addition, regulated lobbyists are required to attend a similar trainingprogram at least once every 2 years (Public Ethics, 2001).




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Apprenticeship Training

Apprenticeship is a time-honoredmeansfor impartingthe skillsof a craft

to a young understudy. Historically, the young apprentice worked as an

indentured servant under the total supervision of the craftsman and his fam-

ily, and even though the contract for indentured servitude did define the

terms and conditions of working and learning as an apprentice, it was also a

relationship easily fraught with the potential for abuse and mistreatment

(Bridenbaugh, 1961; Jacoby, 1991; Steinfeld, 1991). This traditional form

of occupational training was already in decline by the time of the Civil War.

In part, decline was triggered by the repudiation of indentured servitude. In

part, decline was hastened by industrialization. For industrial managers

operating in the wildly fluctuat ing economy after the Civil War, apprentice-

ship contracts limited employer staffing flexibility during economic

downtimes. Indeed, by the late 1800s, employers stopped using apprentice-ship programs in favor of the then-emergent trade schools (either independ-

entinstitutions or their own internal training programs) as a way to maintain

flexibility and still meet their needs for skilled employees. For employers,

an added benefit was that trade schools transferred training costs to the stu-

dent-employee. Trade schools were not without their abuses, though. Too

often, being in an employer-based trade school meant paying for poor

instruction as students were not so much taught a trade as used as cheap

labor (Jacoby, 1991).

Given the ongoing need for workers trained in various trades, apprentice-

ship programs continued, and first came under legislative coverage in 1911

in Wisconsin (Employment and Training Administration, 1987). In 1937,

apprenticeship programs were brought under federal law through the Fitz-

gerald Act (National Apprenticeship Act). The act created the Bureau ofApprenticeship and Training (BAT) for administering its provisions. The

law governs several aspects of apprenticeship training, which is defined as a

combination of a minimum of 2,000 hours of supervised, structured on-the-

job work and training with a minimum of 144 hours formalized, theoretical

instruction. The learner must be paid a progressively increasing wage while

working as an apprentice. Apprenticeships cannot begin before age 16 and

must be open to all on a nondiscriminatory basis. On completion of the pro-

gram, the learner is awarded a certificate of completion. The law also estab-

lishes a state-based governing structure. In addition, sponsoring employers

areto registertheir program with eitherthe state agency or theBAT to ensure

its compliance with the standards set for apprenticeship programs. For

example, if a program is registered, nonwork time spent in formal instruc-

tion does not have to be counted as compensable work time, and the appren-

tice does not have to be paid for that time. (See the discussion on compensa-

tion and training for elaboration.)



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Copyright and Intellectual Property

The copyright law of the United States (Copyright Act, 1976) gives

protections and controls to authors over the use of their original works by

others. In short, copyrighted works cannot be reproduced or distributed

without the authors permission. Original works of authorship not only

include written materials but also musical, artistic, or other intellectual

works. If someone, such as a trainer, infringes on a copyright (by the unau-

thorized reproduction of materials, for example), that person may be liable

(as well as create a liability for their organization) for not only actual dam-

ages and profits but also for attorney fees and other statutory damages,

depending on the nature of the copyright protection claimed.

Copyright and intellectual property rights can apply to HRD practitio-

ners in several ways. First, a trainer might desire to use the copyrighted

materials produced by others, such as copies of articles, chapters,worksheets, tests, and the like. In general, copyright law requires that writ-

ten permission be obtained from the author prior to using the material. The

limited exception to this rule is the so-called fair-use doctrine. Here, copy-

right strictures maybe exemptedwhen small amounts of a copyrighted work

are used for teaching purposes, particularly by nonprofit educational insti-

tutions. Four criteria, considered in their totality, determine whether the

fair-use exemption applies: the purpose of the use (whether it is used in a

nonprofit educational or a commercial context); the nature of the work used

(facts or imaginative creations); how much of thetotalwork wasreproduced

(a little or a lot); and the effect of the reproduction on the potential market

value of the work (Copyright Act, 1976). In the first three criteria, a small

amount of factual material copied from an original work used in a noncom-

mercial venue would suggest fair use. The fourth criterion is decisive: ifthere is an active market for the materials (be they chapters from texts, jour-

nal articles, tests, packaged exercises, and so on), the fair-use exception is

weakened (Fair Use of Copyrighted Materials, 1998). The fair-use excep-

tion to the reproduction and use of materials would generally not be avail-

able to trainers working in a private, commercial setting.

Copyright rules apply not only to the more traditional textual materials

but also to such other kinds of copyrighted materials as cartoons, comic

strips (Raugust, 1998), and musical recordings. Like other materials, car-

toons, comics, and musical recordings are copyrighted, and permission

should be secured for their use. With the advent of so-called accelerated

learning techniques (Rose & Nicholl, 1997), trainers may play musical

recordings as part of a training program to induce brain wave states presum-

ably more receptive to learning and retention. Copyright protections cover-

ingthe playing of musicprohibitthe unauthorized useof a recorded musical




16/29

work if the work is used as part of a program intended to produce financial

gain.A second majoreffect of copyrightlaws on HRD practice occurswhen an

employer commissions the production of materials, such as training manu-

als or instructional software, that could be copyrighted. The operative legal

principleis theso-called works forhire, andat issue here is theownership of

theresulting product. If eitherof thetwo following conditions applies, own-

ershipof theproduct belongs to theemployer. First, an employeemay create

a document within the scope of his or her regular employment duties. An

employee, working as a trainer, may create and produce training manuals or

other materialsfor that employer as part of hisor hernormal jobduties. Sec-

ond, employer ownership of training materials may also occur when a per-

son, working in the capacity of an independent contractor, creates specially

commissioned works. For this second rule to apply, the work produced must

fit one of several categories (such as instructional texts, tests, or answersheets), and there must be a written agreement between the parties indicat-

ing the work is a work for hire.

Third, there is the question of how to acquire copyright protection for a

work as when an HRD professional creates new materials. According to the

law, to be eligible for copyright, the work must be produced in some tangi-

ble form of expression, such as text, pictures, drawings, sound recordings,

and the like. Both commercially published and unpublished works may be

copyrighted. Copyright protection is established automatically when the

work is created (that is, fixed in some format). Unpublished works do not

haveto be filed or depositedat theCopyright Office,although there areobvi-

ous reasons to do so. However, works published in the United States that are

offered for sale, lending, or lease must be deposited within 3 months of pub-

lication, however.

An emerging copyright issue concerns the extent to which copyright

protections extend into digital and distance learning in the context of the

fair-use exception. Under the fair-use doctrine, if a work qualifies for the

exception, the copyright law allows the work to be displayed and used for

educational purposes in the classroom setting. But does that allowance for

full display apply when the classroom is really a network of personal com-

puters conceivably located anywhere on the planet? If the work is not eligi-

ble under the fair-use doctrine, it would have to be considered an unallow-

able reproduction. For trainers in private settings working in a for-profit

kind of organization, this debate is moot because the fair-use exemption

would probably not be available anyway. A recent conference on fair use

was unable to resolve this issue (Fair Use of Copyrighted Materials, 1998).Trainers who may have fair-use materials should be cautious about using

such materials in electronic venues and should be attentive to emerging res-

olutions on the matter.




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Eavesdropping and Privacy

Organizations may provide training to employees in how to use phone

systems when dealing with customers and others. In these programs, train-

ees might use phones either in controlled classroom or live, on-the-job train-

ing conditions while trainerswould observe their performances for develop-

ment and assessment purposes by listening to conversations. Under the

Electronic Communications Privacy Act (2001), such monitoring may be

against the law, especially if the employee believes those communications

areprivate(thatis, notbeingobserved by theemployer). To avoidthis liabil-

ity, employers should make sure trainees in such situations are notified in

advance that their communications may be monitored. Such notice would

act to reduce the trainees presumption of privacy in phonecommunications.

The implications of this law can be seen in a 1987 case with the Milwau-

kee Police Department. A short time before, the department installed a newphone system that included the capability for supervisors to listen to phone

conversations using a so-called silent monitor feature. Employees were

notified that this feature could be used for the purposes of supervision, eval-

uation, and training. Sometime thereafter, a dispatcher sued, charging a vio-

lationof herprivacy. Thecourtrejected herclaim because of thenotification

that had been previously provided (Griffin v. City of Milwaukee, et al.,

1996).

Recently implemented regulations to the 1996 Health Insurance Porta-

bility and Accountability Act (HIPAA) extended certain privacy training

requirements to various health plans and health care providers. The inten-

tion is to provide protections for the privacy of patient medical information.

Under the regulations, covered entities must adopt written procedures for

safeguardingthe privacy of patient information, including details aboutwhowill have access to the information and when information may be disclosed.

Covered entities are required to train their employees in these policies and

procedures (Protecting the Privacy, 2001).

Otherwise, there are few other laws specifically providing privacy

protections for employees in private employment settings (Hubbartt, 1998).

Nonetheless, privacy issues can emerge from training. Lucky Stores was a

chain of grocery stores located in California. In 1992, a class action suit was

brought on behalf of women employees alleging discrimination in various

aspects of job assignments (placement, promotion, allocation of work

hours, and movement to full-time positions). Each store operated relatively

autonomously in terms of its employment practices and without significant

oversight from a centralized personnel department in regards to hiring, pro-

motions, or training. In 1988, Lucky Stores conducted two training pro-

grams for managers that covered issues in affirmative action and sexual

harassment. In the training sessions, participants were encouraged to men-

tion stereotypes they had heard about women and minorities; notes of these




18/29

comments were made. Although other evidence about staffing patterns and

practices were also included at trial, the stereotypical comments made bythe managers during the training were used as evidence indicating biased

attitudes of management toward women. Lucky Stores was found guilty of

sex discrimination (Stender et al. v. Lucky Stores, Inc., 1992). In short, com-

ments elicited as part of a training program intended to support public poli-

cies of nondiscrimination were turned against the very company for whom

the training was provided. Self-critical remarks were made in a setting pre-

sumed secure from outside observation or accountability.

In this context, Conways (1995) discussion of the methods by which a

corporation can protect self-critical information from discovery and use by

opposing counsel is relevant. Corporations have an incentive to proactively

audit their programs and practices for legal compliance (as suggested in the

Stendercase), yet one result of such compliance audits may be damning

information about organizational practices or conditions. Were this infor-mation to become known by adversaries, the corporation could effectively

hang itself. Efforts to comply with environmental protections requirements

are frequently used to illustrate this dilemma, but, as also suggested by the

Stendercase, the extension of these concerns to HRD programs intended to

identify and correct other compliance requirements might not be that much

of a stretch. HRD programs that address legally sanctioned employment

standards (such as safety, equal employment [Webb et al. v. Westinghouse

Electric Corp., 1978], or harassment) may use various procedures, such as

self-report assessments or open discussions, to identify potential compli-

ance problems and needs. Three methods for protecting such information

from discovery are the attorney-client privilege, the work product doctrine,

and the privilege of critical self-evaluation. According to Conway, none of

these are very suitable options for compliance audits. In the first two

options, an attorney must be intimately involved in the proceedings that are

clearly within the scope of providing legal advice; for the latter option,

courts have been reluctant to grant the privilege. In short, this is an area of

HRD practice in which stakes could be high with little protective recourse.

Absent some kind of legal protection for information gathered in training

contexts madeunder supposed conditions of privacy or confidentiality, both

trainers and trainees should be on notice as to the potential for their remarks

to resurface in other settings.

Ethics Training

In 1984, the U.S. Congress passed the Crime Control Act, part of whichled to the formation of the U.S. Sentencing Commission (USSC) as an inde-

pendent agency within the judicial branch of the government. One charge of

the USSC is to recommend sentencing procedures that automatically take




19/29

effect 180 days after submission unlessa law is enacted to thecontrary (An

Overview of the United States Sentencing Commission, n.d.). The guide-lines are intended to provide federal judges across the nation with a consis-

tent framework for meting out punishment.

Like individuals, organizations can also be convicted of criminal con-

duct. Under the sentencing guidelines applying to organizations found

guilty of illegal conduct, judges may consider certain mitigating factors in

reaching their decisionaboutpunishment. One important factor is the extent

to which theorganizationhas in place an effective compliance program. The

program cannot just be on paper but must be ongoing and should include

compliance standards, systems for monitoring and reporting potential

wrongdoing, and oversight by high-level personnel. In addition, an effective

compliance program should involve communication to employees on com-

pliance standards and procedures. For Chadwick (2001), this meant ethics

training. USSC Chair Judge Diana Murphy (n.d.) argued that, even thoughthe sentencing guidelines do not mention ethics training specifically, it is

likely that effective compliance training must include an ethics component.

Similar to sexual harassment training, then, whereas ethics training is not

mandated by statute, courts may be favorably impressed by organizations

with such training in the event of charges of corporate wrongdoing.

The Tax Code and Training

Employee training and education activities incur costs. These costs may

be borne by the employer and/or its employees. One way employers may

promote employee learning and development is by assuming some or all of

those costs, and although employers may have good reasons on their own to

pay for training and education, the tax code also offers breaks or incentives

for employers to assume training costs. Beyond the issue of direct financial

support for employeetraining, employers may wish to encouragethe educa-

tional self-development and improvement of their employees by taking

advantage of various statutorily authorized provisions of the Internal Reve-

nue Code (IRC). A foundation principle for employer-provided training is

found in Section 132 of the tax code (Certain Fringe Benefits, 2001), in

whichcertain employer costs for training can be considered legitimate busi-

ness expenses. Expenses such as thecostsof training staffsalariesand bene-

fits, fees for purchased training programs, consulting support, and so on

would all apply. The employer takes these training expenses as a deduction,

thereby reducing taxliability. At thesame time, theemployerdoes notmake

any payment to the employees who participate in the training; as such,employees are not credited with any additional compensation and avoid any

personal tax implications.




20/29

For other kinds of training and development expenses, though, partici-

pating employees may receive some form of payment that could have per-sonal tax implications. These education payment plans are of two kinds:

educational reimbursement programs and educational assistance plans

(Employee Assistance Programs, 1999). Under the more common Educa-

tional Reimbursement Program (ERP), the employer has maximum discre-

tion in structuring what training is paid for and how the training is funded.

Consider the case in which an employer sends an employee in a sales posi-

tion to attend a public training seminar on sales techniques; the employee

pays forthe cost of theprogramplusattendant expenses(travel, meals, lodg-

ing) up front but then is reimbursed for those incurred expenses by the

employer. If the educational expenses are considered ordinary and neces-

sary, the employer may again deduct the training expenses. Normally,

though, thebasic IRCruleis that payments to an employee shouldbe consid-

ered part of theemployees gross income, andthe employer shouldwithholdall applicable taxes. As part of an educational reimbursement plan, though,

payments to an employee would not be considered part of the employees

gross income due to two possible exceptions. First, as a so-called working

condition fringe benefit exception, employer payments can be excluded

from employee gross income if the employee privately could have deducted

the expense, and the educational expenses were job-related. Second, the so-

called accountable plan exception is based on the working condition criteria

but adds an internal operational procedure. For expenses to qualify as a

working condition benefit, the employee must provide an itemized account-

ing of the educational expenses to the employer, the reimbursement paid to

the employee is no more than the itemized cost, and the payment is made

independently of normal payroll.

The second type of payment plan to employees for training and educa-

tional purposes is the Educational Assistance Program (EAP). Under Sec-

tion 127 (2001), an employer can pay an employee up to $5,250 per year for

certain educational expenses. The amount of the assistance provided

(within the $5,250 per employee limit) can be deducted by the employer as

an employee benefit business expense without adding the payment to the

employees gross income for the year. Furthermore, unlike the ERP, the

training or educational courses do not have to be job-related nor do they

have to be part of a degree program to qualify. The education may be pro-

vided by an independent educational institution(suchas a college or univer-

sity), by other educational providers (such as an industry association), or by

the employer directly. During the 1990s, the EAP provisionsof the tax-code

frequently lapsed and were then reinstated. The Economic Growth and TaxRelief Reconciliation Act of 2001 removed that see-saw movement and

installed these rules permanently (for the following 10 years).




21/29

For an educational assistance plan to qualify for tax-free treatment under

Section 127, the employer must establish a formal program that meets thefollowing conditions: (a)the plan must exist as a separate, written document

designedexclusively for employees of the organization; (b) the benefits pro-

vided by the plan do not favor highly compensated employees (as defined in

theIRC);(c) theprogramdoes notprovidemorethan 5% of thetotal benefits

to owners (including shareholders) who own more than a 5% stake in the

business; (d) employees cannot elect to receive cash or other benefits

instead of the assistance; and (e) employees are given reasonable notice of

the program. The educational assistance plan does not have to be separately

funded. The plan may set up a variable pay schedule for reimbursement

based on the grade received. Employers do not have to apply to the Internal

Revenue Service to receive a determination that their plans are qualified.

The employermust meet certain record-keeping and reporting requirements

under the Employee Retirement Income Security Act (ERISA) (2002).In summary, the costs of training are covered by IRC provisions. For

employers, the costs of providing training directly to employee can be

deducted as a legitimate businessexpense with tax implications for employ-

ees. When employees are paid for training, though, these monies can again

be deducted as an expense by the employer and excluded from employee

taxable gross income under two conditions. An educational reimbursement

plan simply covers employee outlays for ordinary and necessary training in

essential job-related skills. The educational assistance plan allows employ-

ees to receive up to $5,250 in educational support payments for a broad

range of courses under a specific educational benefit program.

Compensating Trainees andRecovering the Costs of Training

Employees participating in training programs are covered by laws gov-

erning compensation. The principle federal statute applying here is the Fair

Labor Standards Act (FLSA) and its various amendments. In general, the

FLSA requires that nonexempt employees be paid at least the minimum

wage (as defined by law) for their hours on the job (compensable time); any

hours worked in excess of 40 during the workweek must be paid at the over-

time rate of time and one-half . There are several exceptions to the overtime

rule. For example, police and firefighters who attend certain types of

required training outside normal working hours do not have to be paid over-

time rates for that time (Fair Labor Standards Act, 2001, Sections 785.27

et seq.). A second exception applies to employees without a high schooldiploma or who have no more than an 8th grade education: An employer

may employ any employee for a period or periods of not more than 10

hours in the aggregate in any workweek in excess of the maximum work-




22/29

week . . . without paying . . . for overtime if that time is devoted to remedial

education but not job-specific training (Fair Labor Standards Act, 2001,section 7.q).

Learning to comply with the provisions of this law may carry its own

training obligations, as Food Lion, the North Carolina-based grocery chain,

learned in thelate 1980s when it was charged with repeated andwillful prac-

tices of violating overtime payment standards when it required its store

employees to work off the clock (that is, clock out but still continue work-

ing). The consent judgment reached with the Department of Labor (Food

Lion Settlement,1993)involved notonlyback payand finesin excess of $16

million but also included an agreementto train both itsmanagement person-

neland employees in the law regarding minimum wages and overtime. Food

Lion also agreed that its top management officials will publicly support

and actively participate in this training initiative (Food Lion Settlement,

1993, p. 5 attachment).There are several other training implications from this law. First, if an

employer requires a nonexempt employee to be on duty, that is, under the

employers requirement to be available to work, that employee must be paid

for that time. This basic rule applies regardless of the nature of the

employees activity (e.g., the employee could be hired to do nothing). Fur-

thermore, the rule also applies even if the employer did not specifically

instruct the employee to do work (such as taking work home) but was aware

that the work was being done (suffering and permitting work). Thus, if an

employer requires its nonexempt employees to participate in a training pro-

gram that stretches beyond normal working hours, those employees must be

paid for additional time. Failure to pay employees properly can result in

back pay (which can be doubled for willful violations). The recent decision

affecting Boeing Company (Seattle Professional Engineering Employees

Association et al. v. The Boeing Company, 2000) illustrates this point. For a

numberof years prior to this suit, Boeingrequiredits newlyhiredemployees

to attend a so-called pre-employment orientation program during which

time participants completed various employment forms and procedures,

watched videos, and listened to presentations. Participants were also told

they would not be paid for this time. The Seattle Professional Engineering

Employees Association charged that this practice violated Washington

states minimum wagelaw,a claim supportedat trial and affirmed on appeal:

for those employees required to attend, the orientation period constituted

work, and the nonexempt employees had to be paid for their time. On the

other hand, training time may not be compensable if the following four con-

ditions are met (Kahn et al., 1996): (a) attendance at the program is in factpurely voluntary; (b) the program is scheduled to occur outside the

employees normal working hours; (c) the program is not directly related to

the employees job; and (d) the employee performs no productive work




23/29

while attending the program. So, class time spent pursuing a degree at an

independent educational institution does not qualify as compensable time,andneither would be time spent in attending an optional promotionprepara-

tion program scheduled after a shift. This issue may become more pro-

nounced with the diffusion of online learning. These training systems carry

the promise of learning anytime and anywhere, as training moves from the

classroom to the desktop or laptop. It is easy to imagine situations in which

employees are expected (suffered and permitted) to do training at home

while on their ownuncompensatedtime (Zielinski, 2000).

In some cases, employees in the role of trainee or apprentice can be paid

somewhat less than the minimum wage. The FLSA designates that, in cer-

tain industries (such as clothing or some specific manufacturing sectors),

employees may be employed in a learner status if experienced workers are

not available. However, the employer must obtain a special certificate from

the Department of Labor authorizing the approved lower rate of pay.Finally, some employers may require applicants to complete certain

training programs before they are hired as employees. Applicants who are

notemployees would notbe protectedby theFLSA andwould notneed to be

paid fortheirtraining time. Indeed, an employermay run a training program

or school specifically to prepare job applicants for employment, such as

might be the case with airlines and flight attendant training. If people in

these situations are employees during the training period, they must be paid

for their time while in the training. If they are not employees, however, they

do nothave to be paid fortheirtraining time. Thus, it makessome difference

to employers if trainees are also employees.

TheWageandHour Divisionguidelines forconsidering whether trainees are

also employees and therefore entitled to coverage under theFLSA were formed

in response to two cases in the1940s regarding trainees. In both Wallingv. Nash-

ville,Chattanooga, andSt.Louis Railway(1945) andWallingv. Portland Termi-

nal Co. (1945), thecourtfoundthat individualsin thetrainee roles they occupied

with their railroadswere notemployees. Based on these andsubsequent rulings,

trainees can be excluded from the training overtime payment requirement if an

employer-provided training program meets the following conditions (Kahn

et al., 1996):

1. The training curriculum is similar to what would be given in a comparable voca-tional school, even if the program is offered on site.

2. The training is provided for the benefit of the students.3. The trainees do not replace or do the work of regular employees (but may work

under their close supervision).

4. The employer providing the training obtains no particular advantage from theactivities of the trainees.5. Thetrainees arenot inherently entitled toa jobwiththe employer/traineronce they

complete the training.




24/29

6. Both the employer and the trainees understand the trainees are not entitled to

wages during this training period.

These guidelines were successfullyapplied anddefended in thecase ofDon-

ovan v. American Airlines (1981; see also Donovan v. Trans World Airlines,

1983, for parallel case with the same underlying facts and outcome). Since the

late 1950s, American Airlines had run a 5-week so-called stewardess college

(later called flight attendant training) to cover all mandated training require-

ments plus other topics. Participants lived on site at no cost but did not perform

any tasks related to airline operations. In short, the training was independent of

theairlinesand includedno on-the-jobtrainingelements. Studentswerenotpaid

duringtheirtrainingperiod, andbasedon thefindings incourt,studentswere not

operating as employees and were not entitled to any pay for their time.

Recovering Training Costs

In addition to the issues involved in properly compensating employees

for their training time, some employers may seek to recover the costs of

training from employees who leave. A recent case decided by the Michigan

Supreme Court(Sands Appliance Services,Inc. v. Wilson, 2000) highlighted

the issues involved here. In 1992, Sand Appliance Services hired 19-year-

old Christopher Wilson as a trainee service technician. Wilson was required

to sign a tuition contract in which he agreed to paySands a specified amount

as a repayment for the training he received if he left during his first 6 years

on the job. Sands argued that this contract was necessary to help defray lost

training costs. Wilson left before 4 years and Sands sued. Under Michigan

law, employers are prohibited from demanding or collecting remuneration

for consideration in exchange for employment (in effect, making bribes orkickbacks for employment illegal). The majority ruling of Michigans

Supreme Court found in Wilsons favor, ruling that the tuition contract

amounted to consideration payable to the employer as a condition of

employment. The dissenting opinion, however, pointed to the complexity of

the issue. Instead of seeing the tuition contract as a consideration or kick-

back for being given the job, the dissenting judge argued that the training

provided by Sands was a valuable outcome in and of itself, and that this con-

tract was just that: an agreement in which something of value (training) was

exchanged for something else of value (6 years employment or repayment

for the costs of training). In the dissenting view, such a contract was not a

kickback, the contract should have been honored, and Wilson forced to

repay for his 4 years of training.

How to reconcile these views? Can an employer obtain repayment fromthe departing employee for the training provided? Several factors would

need to be considered here (Kahn et al., 1996). First, although there is no




25/29

direct prohibition against suchactions by the FLSA,state statutesgoverning

payroll payments may still limit what deductions may be withheld. Second,if reductions are taken from nonexempt employees, the reductions should

not have the effect of lowering that persons rate of pay below the minimum

wage. Third, any training cost recovery agreements should be able to with-

stand the scrutiny of state laws regulating employment-based contracts (as

seen in the Michigan case) that have the effect of restraining trade by limit-

ing the operations of a free labor market. For example, it could be argued

that the training repayment requirement effectively restricts an employees

mobility. Employers wishing to pursue such action are advised to put the

relationship into an enforceable contract. The amount to be recovered

should either be documented costs or reasonable estimates. The term under

which the contract can apply should also be reasonable, say during the first

year or two or employment; lifetime limitations would be onerous and hard

to defend. Finally, the contract should be freely entered into by theemployee, without taint of coercion, and should probably be independent of

an offer of employment.

Employee Benefits

Over thepast 20 years,employers have shifted away from themore costly

defined benefit programs to the more flexible defined contribution plans,

particularly 401(k) plans. This trend has presented the HRD function with a

new and unexpected challenge, however. Along with shifting more respon-

sibility to employees for funding and managing their retirement invest-

ments, defined contribution plans also move more risk to employees. Under

these newer arrangements, both the quality and the adequacy of an

employees pot of self-managed retirement dollars can be put in question

(Johnson, 1996; Mandelker, 1998).

As a result, employers faced a new form of liability. Even after shifting

investment responsibility to employees, the question of potential risk

remains: How much is the employer still responsible if the employees

investment choices under a defined contribution plan lose value? Can an

employer be responsible for providing faulty or insufficient information if

the employees investment underperform? One obvious solution is to pro-

vide employees training and education in financial management. Yet even

so, liabilities still remain. Under the ERISA (2002), retirement plan spon-

sors must act in a fiduciary manner to protect the best interests of the plan

and its participants; failure to do so may result in personal liability. As ini-

tially formulated, a party (such as an employeroperating through its trainingfunction) providing investment advice could become a de facto plan fidu-

ciary and thereby acquire personal responsibility for shortfalls in retirement

investments.




26/29

Employers offering defined contribution plans, therefore, face a chal-

lenge in making sure employees receive sufficient training so that they canmake informed decisions, while also avoiding providing investment advice.

The line between these two training intentions is often hard to detect, putt-

ing employer-provided educational programs in the situation of being

damned for providing too little investment education and being damned for

providing too much in the way of advice. The crux of the problem involves

whether certain forms of employee educationspecifically, the giving of

investment advice beyond simply offering informationmay converta plan

sponsor into more of a fiduciary role with the attendant assumption of

responsibility for asset management and results. In this context, the Pension

and Welfare Benefits Administration of the Department of Labor issued

guidance on participant investment education in 1996. The intention of this

guidance is to create certain safe-harbor protections for investment educa-

tion programs to neutralize the risks to employers from assuming fiduciaryresponsibilities. If a party provides educationand trainingusing any or allof

the four following categories of information, thatparty would not be consid-

ered as rendering investment advice and would be enjoy a presumptive

exemption from fiduciary risk: (a) information aboutthe plan itself, the ben-

efits of contributions and/or preretirement considerations, as long as no par-

ticular investment option is pushed; (b) general financial management infor-

mation, historical comparisons of various investment alternatives, or

techniques for assessing future retirement needs or personal risk tolerance;

(c) asset allocation models that calculate various outcomes under different

investment assumptions; and/or (d) interactive investment materials, such

as worksheets, software, and the like, that provide estimates of future

income needs or resources. According the Interpretive Bulletin 96-1 issued

on thismatter, investment educationand training that stays within these lim-

its should protect the parties from becoming plan fiduciaries. Even so, plan

sponsors are still expected to be careful in selecting qualified individuals to

conduct such programs so that they will act prudently and solely in the

interest of the plan participants and beneficiaries (p. 29590).

Notes

1. The diversity in types of laws is reflected in an equally diverse literature. Federal stat-

utes are enshrined in the United States Code (USC), although derivative or implementing reg-

ulations are in the Code for Federal Regulations (CFR). State statutes go by various labels,

including Codes, Annotated Codes, Statutes, Revised Statutes, and so on. The judicial rulings

from court cases are found in any number of court reporting volumes, assembled by jurisdic-

tion, level, and area of law. With few exceptions, both federal and state statutes, regulations,and court decisions are all available online. The standard citation format is different, though,

than the format (journal name, volume, number, pages) typicall y used in the social and behav-

ioral science literature. The legal format puts the source (volume or journal name, usually

abbreviated) in the middle, preceded by the title number (for statutes) or the volume number


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