Posts from: September 2018

Recent Changes in Illinois Law Will Place Additional Burdens on Employers

In 2018, Governor Bruce Rauner signed into law a number of changes that are already in effect or will go into effect starting January 1, 2019. As with each New Year, it is important to reflect on those changes and how they impact your business.

Amendments to the Illinois Wage Payment and Collection Act

As of January 1, 2019, all employers will be required to reimburse its employees “for all necessary expenditures or losses incurred by the employee within the employee’s scope of employment and directly related to services performed for the employer.” 820 ILCS 115/9.5. The act defines “necessary expenditures” as “all reasonable expenditures or losses required of the employee in the discharge of employment duties and that inure to the primary benefit of the employer.”

To be reimbursed the employee shall submit a request for reimbursement, along with all appropriate supporting documentation within 30 days. This deadline can be extended pursuant to a written expense reimbursement policy. If the employee does not have supporting documentation, a signed statement regarding the expense will be sufficient.

Employees, however, will not be entitled to such reimbursements if: (1) the employer has an established written expense reimbursement policy and (2) the employee failed to comply. In addition, an expense need not be reimbursed unless it was authorized by the employer or was authorized pursuant to a written expense reimbursement policy. The employer may also put limits or caps on its reimbursement policy provided it is not de minimis or eliminates any reimbursements.

What Should Employers Be Doing? Work with your Illinois Employment Labor attorneys to do an annual review and check of your policies regarding expense reimbursements. It will be critical for all employers to have a policy so that there is adequate cost containment. Many employers will need to evaluate reimbursing its employees for cell phones, gas, and other expenditures they are required to incur for purposes of performing their job.

Nursing Mothers Must be Paid

As of August 21, 2018, nursing mothers in Illinois within one year after the child’s birth must be given “reasonable break time” to express milk and an employer “may not reduce an employee’s compensation for time used for the purpose of expressing milk or nursing a baby.” 820 ILCS 260/10.

What Should Employers Be Doing? Review your handbooks and policies to ensure new mothers understand that they are entitled to express milk as needed and that they are not being docked any pay for doing so.

Amendments to the Illinois Human Rights Act

On August 24, 2018, the Illinois Human Rights Act (“IHRA”) was amended in three meaningful ways. Some of the changes went into effective immediately, while others go into effect on January 1, 2019.

1. The amendments extended the deadline to file a charge of civil rights violations from 180 days to 300 days from the date of the alleged violation of the IHRA. The EEOC and IHRA deadline requirements are now the same in Illinois.

2. As of January 1, 2019, the Illinois Human Rights Commission composition will change from 13 part-time members to 7 full time members. This is expected to expedite matters before the Commission and reduce the number of cases pending before the Commission.

3. The Illinois Department of Human Rights (“IDHR”) is required within 10 days of a new charge, to notify the complainant that they have the right to opt-out of the investigation process and immediately receive the right to file a suit in circuit court. Once granted by the IDHR, the complaint must file suit within 90 days in circuit court.

What Should Employers Be Doing? Employers should expect a steady increase in claims filed before the IDHR. Previously, if an employee filed at the EEOC after 180 days it was not concurrently filed at the IDHR. So long as it is timely filed before the EEOC it will also be timely filed before the IDHR. Additionally, charges that are dismissed quickly at the EEOC may still be pursued at the IDHR that would have otherwise never been refiled.

The opt-out procedures will lead to aggressive plaintiff attorneys avoiding the investigation process entirely and filing suit as quickly as possible, increasing costs and the burden to defend these claims. Employers should continue to work closely with counsel to evaluate all terminations and be prepared to defend any claims that may get filed quickly in state court.

Levin Ginsburg has been working with employers for approximately 40 years to help them protect their businesses. If you have any employment or other business related issues, please contact us at 312-368-0100 or email Walker Lawrence at wlawrence@lgattorneys.com

Will 2 Years of Continued Employment Be Enough in Illinois to Enforce a Non-Compete?

The Answer: It’s Complicated.

In 2013, an Illinois Appellate Court in Fifield v. Premier Dealer Services, Inc., decided that absent additional consideration, continued employment for less than 2 years after the restrictive covenant was signed, would not be sufficient to enforce a restrictive covenant. The Fifield decision was unusual because courts often do not consider the adequacy of the consideration ̶ only that there was consideration to support a contract. Often, the promise of continued employment was acceptable. This decision sent shock waves throughout Illinois and required employers to reevaluate the value they were giving employees when entering into restrictive covenants.

Since that decision, Illinois state courts have routinely followed Fifield and applied its bright line test in cases where there is no additional consideration given to the employee except continued employment.

For example:

• October 31, 2017 – Employee signed a restrictive covenant after working for his employer for nearly 12 years and also served on the company’s board of directors. He announced his resignation and left 6 months later. He was finally removed from the Board a year after signing the restrictive covenant. Upon leaving he started a new business that directly competed with his employer. The Court found that the restrictive covenant was not enforceable because he did not work for at least two years after signing the restrictive covenant.
• June 25, 2015 – Employee worked for employer for more than three years and left. After working for the new employer for one day, the employee asked to come back. As a condition of his return, the employer requested he sign a restrictive covenant. The employee quit 18-months later. The Court held that because he did not work at least two years after executing the restrictive there was not sufficient consideration to support the restrictive covenants.

Complicating matters, however, Federal Courts in Illinois have consistently rejected Fifield’s bright line test and adhered to a more comprehensive fact specific analysis. The Federal Court’s decisions believe that the Illinois Supreme Court would not adopt Fifield’s rigid and bright line test and continue to a support a “totality of the circumstances” review. As a result, it has led to decisions that are at odds with the State courts:

For example:

• October 20, 2017 – Employees left after 13-months of employment, took confidential information, and started working for a competitor. Employees argued that Fifield governed and therefore the restrictive covenants were not enforceable. The Court disagreed and rejected Fifield’s bright line test.

• July 24, 2017 – Employee left after working for employer for nearly ten years. He signed a restrictive covenant 16 months prior to leaving. The Court rejected Fifield’s bright line rule. The Court noted that “[f]ive federal courts in the Northern District of Illinois and one federal court in the Central District of Illinois have predicted that the Illinois Supreme Court will reject the Illinois appellate court’s bright-line rule in favor of a more fact-specific approach.”

What does this mean for employers?

Because all Illinois employers should expect that they will have to enforce these agreements in a state court, the Fifield holding must continue to be respected. Employers should review their restrictive covenants to ensure the agreements are carefully drafted to improve enforceability.

Levin Ginsburg has been working with employers for approximately 40 years to help them protect their businesses. If you have any employment or other business related issues, please contact us at 312-368-0100 or email Walker Lawrence at wlawrence@lgattorneys.com

Have You Looked At Your Buy-Sell Agreement Lately? Business Succession Planning

John, Alexandria, Mary, Martin, and Yvette, formed the Jammy Sleepwear Company over thirty-five (35) years ago.  They were equal partners and formed a corporation.  On the advice of their attorneys, the entered into a shareholders’ agreement that contained buy-sell provisions.  This type of agreement is sometimes referred to as a “buy-sell agreement”.

Their buy-sell agreement contained various provisions, including under what circumstances a departing shareholder’s shares would be purchased, what the purchase price of those shares would be, and the terms of payment.  Since the business was in its infancy, they agreed it would be valued at its “book value”, meaning that the value of the assets on its financial statements, less all obligations, would be the business’s value.  There was no adjustment for good will or other intangible assets.  Also, the increase in value of any assets would not be taken into consideration.  The purchase price to a departing shareholder was to be paid in twelve (12) months, in equal monthly payments.  The business was required to purchase a departing shareholders shares.

Since they formed the business in 1980, they acquired other businesses and purchased real estate through a separate LLC.  They did not think to have a buy-sell for the LLC.

John has announced he would like to retire, but he has objected to the purchase price as being “unfairly” low.  He has advised the other owners that he will keep his interest in the real estate, since it will provide him with a “good stipend” during his retirement.  Shortly thereafter, Mary announced her retirement.

The remaining owners are concerned that the business will not be able to support payments to John and to Mary.  Also, the remaining owners would prefer that John and Mary also sell their interests in the LLC.

Unfortunately, the shareholders (and LLC members) did not regularly review their buy-sell agreement.  As the value of the business grew, the amount of the payments increased and would put a strain on the cash flow of the business.  If more than one owner were to retire, it would cause a bigger strain.  Either the business would have to borrow money, the owners would have to make capital infusions, new investors would be needed, or the business would need to be sold.

Some buy-sell agreements address these types of situations, by limiting the amounts that must be paid out to departing owners on an annual basis.  For example, the payments cannot exceed a specific dollar amount or a percentage of gross profits.  Also, when the owners buy real estate to be used by the business, they might consider including the real estate as a part of the buy-sell process.

Buy-sell agreements should be reviewed periodically to ensure they continue to meet the needs of the business and its owners.  Levin Ginsburg has been advising business owners regarding legal aspects of their businesses, including buy-sell agreements for almost forty  years.

Please contact us with any questions you have regarding your business (including any buy-sell issues) at 312-368-0100 or Morris Saunders at msaunders@lgattorneys.com.

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