Category: Law

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.

The Plaintiff’s End Game – Collecting the Judgment

It was a hard fought battle. You successfully sued a party in a commercial dispute who wronged you and a judge or jury awarded you seven-figure sum. Because the Defendant didn’t immediately take out its checkbook, however, you now face the task of collecting the judgment. Oftentimes, litigation doesn’t end when the judge bangs the gavel and you walk out of the courtroom with a judgment – a piece of paper saying that you’re entitled to money. You can’t bring the judgment to a car dealership and buy a car with it and the judgment itself won’t pay your mortgage. So what do you do to turn the judgment into actual dollars?

The Illinois Legislature and Illinois Supreme Court have carefully crafted laws and rules that allow you, as the successful plaintiff, to discover the judgment debtor’s assets in an attempt to collect your judgment. The process usually begins by serving the defendant with Citation to Discover Assets. The Citation to Discover Assets is first served on the defendant, usually either a person or a business, and, much like a summons or a subpoena, commands the defendant to appear at a specified time and place, usually a courtroom, to answer, under oath, questions about its assets. Typically, a Document Rider is attached to the Citation to Discover Assets requiring the judgment debtor to produce documents, such as bank records, titles to property, and the like, that will enable your attorney to locate assets. Importantly, service of the Citation to Discover Assets also acts as a form of lien or injunction on the defendant’s assets, generally preventing the defendant from disposing of assets while the post-judgment proceedings are pending.

As the victor, you are not only permitted to serve a Citation to Discover Assets on the defendant, you are also entitled to serve one on anyone who holds the defendants assets or who owes the defendant money, such as a customer, employer, bank, relative, investment company or anyone holding assets belonging to the defendant. These Third Party Citations require the third-party to provide sworn written answers to your questions within a certain period of time and, if it fails to do so, the judgment can also be entered against that third-party.

After you’ve been able to discover the existence of assets, you then ask the court to enter an order requiring the party holding the assets to turn them over to you. It takes a court order to get a bank to turnover a defendant’s cash. If you’re asking the court to order the turnover of tangible things, as opposed to cash, typically the order will require the assets to be turned over to the sheriff so the sheriff can sell them and turn them into cash.

There are many effective ways to satisfy a judgment, many are complex and require the assistance of an attorney familiar with the procedures. While most litigators know how to obtain a judgment, far fewer know how to effectively collect the judgment, leaving you holding little more than a very expensive piece of paper.

 

For more information on post-judgment proceedings, please contact:

Howard Teplinsky at hteplinsky@lgattorneys.com or 312-368-0100

The Illinois Independent Tax Tribunal: A New Forum for Certain Tax Protests

For years, Illinois taxpayers have been complaining about the Illinois Department of Revenue’s (the “Department”) handling of tax disputes. Complaints ranged from long delays in the Department’s administrative process to taxpayers not feeling like they were properly heard or their disputes fairly considered. Well, the Illinois General Assembly answered taxpayer’s calls in its creation of a new administrative forum, separate and apart from the Department, to handle certain types of tax disputes called the Illinois Independent Tax Tribunal (the “Tribunal”). The Tribunal’s self-proclaimed purpose is, among other things, “to increase public confidence in the fairness of the State tax system.” See 35 ILCS 1010/1-5(a).

In most cases, the Tribunal only has jurisdiction over protests filed after January 1, 2014. Any protests filed prior to January 1, 2014 continue with the Department. Typically, the Tribunal only has jurisdiction over protests if the amount of the tax liability exceeds $15,000, exclusive of penalty and interest. In situations where there is no additional tax liability assessed, but the total penalties or interest or both exceed $15,000, the Tribunal has jurisdiction.

Only certain types of tax protests may be heard by the Tribunal. These include tax liability under the:
• Illinois Income Tax Act
• Tobacco Products Tax Act of 1995
• Motor Fuel Tax Law
• Cigarette Tax Act
• Hotel Operators’ Occupation Tax Act

Other types of tax protests do not fall within the jurisdiction of the Tribunal. These include tax liability under the:
• Charitable Games Tax
• Cigarette Machine Operators’ Occupation Tax
• County Motor Fuel Tax
• Private Party Vehicle Use Tax
• Real Estate Transfer Tax

The Tribunal maintains its principal offices in both Sangamon County and Cook County, Illinois. A protest must be filed within the time permitted by statute and in the form prescribed by the Tribunal (which is similar to a complaint filed in state court). The Department is required to answer, in writing, within 30 days after a protest is filed. The Tribunal charges a $500 fee for the filing of a petition and the discovery process is governed by the Illinois Supreme Court Rules and the Illinois Code of Civil Procedure. Following the completion of discovery, a hearing will be held before an administrative law judge, independent of the Department, and the Tribunal will issue its decision in writing no later than 90 days after the completion of the hearing.

To discuss a tax dispute you have with the Illinois Department of Revenue, please contact:

Jonathan M. Weis at:

jweis@lgattorneys.com or 312-368-0100

or

Dean J. Tatooles at:

dtatooles@lgattorneys.com or 312-368-0100

New Illinois Law Provides Greater Protections for Pregnant Employees

In August 2014, Governor Pat Quinn signed into law Public Act 98-1050, which is commonly referred to as the “Pregnancy Workers Fairness Act” (the “Act”). The Act, which becomes effective January 1, 2015, provides greater protections for pregnant workers, requiring all Illinois employers to provide reasonable accommodations to any employee or job applicant for pregnancy and child-birth related conditions, unless doing so would impose an undue hardship on the employer.

The Act amends the Illinois Human Rights Act to include pregnancy as a protected class. “Pregnancy” is defined as “pregnancy, childbirth, or medical or common conditions related to pregnancy or childbirth.” Employers are now required to provide pregnant employees with “reasonable accommodations”—the same type of accommodations employers are already required to provide to workers with temporary disabilities. Reasonable accommodations may include light duty, assistance with manual labor, and additional or extended bathroom breaks.  An employer may only refuse a requested accommodation if the employer can demonstrate that the accommodation presents an undue hardship on its ordinary business operations. The Act also prohibits discrimination in the hiring and employment of pregnant workers and those affected by a medical or common condition related to pregnancy or childbirth.

Employers must also post a notice regarding employees’ rights under the Act in a conspicuous location or include this information in the employer’s employee handbook.

To discuss any questions you may have about the effect of this new law on your business, please contact:

Kristen E. O’Neill at:

(312) 368-0100 / koneill@lgattorneys.com

The Importance of Website “Terms and Conditions”

You may have noticed that many of the websites you visit have what are often called “Terms and Conditions” or “Terms of Use Agreements” (“Agreement”).  Links to such Agreements are often found at the bottom of the home page and/or the website, and the user must accept the terms and conditions in the Agreement in order to use the website. Prudent business owners include such Agreements on their business’s websites to make it clear on what basis information, products or services are being provided through the website and, to the extent possible, limit any liability that may arise out of use of the website.  If your business operates a website it is to your advantage to include an Agreement.  Such Agreements are especially important to companies that sell products, distribute content, and permit users to post messages or other content that raises the potential for third-party liability on their websites. The specific terms contained in the Agreement will vary depending on the nature of the website and the underlying commercial relationship between the user and the website owner.

Most Agreements should address some or all of the following: (1) a clear statement that use of the website constitutes acceptance of the terms set forth in the Agreement; (2) a detailed description of the services, products and/or  information provided through the website; (3) any payment terms and return policies for e-commerce websites; (4) the method for creating and canceling accounts, if applicable; (5) general disclaimers and website-specific disclaimers depending on the nature of the website; (6) ownership of the intellectual property rights in and to the website  content; (7) intellectual property rights in and to any submissions by the user;  (8) limitations of liability; (9) any age restrictions; (10) Digital Millennium Copyright Act safe harbor language; (11) restrictions on the user conduct; and (12) a dispute resolution section, including choice of law and arbitration provisions.

To discuss your website’s “Terms and Conditions” or “Terms of Use Agreements”, or other important disclaimers which may be appropriate for your business, please contact:

Cynthia B. Stevens at:

(312) 368-0100 / cstevens@lgattorneys.com

New Business Ventures: Register as a “New Business Venture” and Attract Investors Seeking to Take Advantage of the Illinois Tax Credit for Angel Investments

New business ventures can register with the Illinois Department of Commerce and Economic Opportunity (the “DCEO”) to qualify as “eligible” to participate in the Illinois Angel Investment Credit Program (the “Program”). If a new business venture is qualified by the DCEO to participate in the Program, then an angel investor who invests in the new business venture may claim an “Angel Investment Credit” against its Illinois income taxes in an amount equal to 25% of an “angel investment” made by the individual angel investor, as reflected on the Tax Credit Certificate issued by the Department of Commerce and Economic Opportunity (86 Ill. Adm. Code 100, eff. July 9, 2014), and subject to certain rules and restrictions. Therefore, the Angel Investment Credit is an incentive for investors to invest in your business.

Any business desiring to qualify as a new business venture must meet certain requirements, including but not limited to, being headquartered in Illinois, having at least 51% of the employees employed by the business employed in Illinois, having fewer than 100 employees at the initial time of registration, and the business has received not more than $10,000,000 in aggregate private equity investment in cash or $4,000,000 in investments that qualified for tax credits.

The Illinois Angel Investment Credit Program has allocated $10 million in tax credits annually, from 2011-2016, and the Angel Investment Credit is awarded on a first-come, first-serve basis. New business ventures and “angel investors” should act fast to either submit a registration application (for new business ventures) or claimant application (for investors). An investment is considered to be an “angel investment” if the investor invests in a “qualified new business venture” in exchange for an ownership interest, with such investment being at a risk of loss.

To discuss the “Angel Investment Program” generally, the benefits and procedures of registering your business as a new business venture, or how it can help reduce an investor’s Illinois income tax liability, please contact:

Morris R. Saunders at:

(312) 368-0100 / msaunders@lgattorneys.com

Attention Employers and Employment Agencies: Criminal Records and Criminal Histories of Prospective Employees Off-Limits at Application Stage!

The Job Opportunities for Qualified Applicants Act (the “Act”), a new Illinois statute, will become effective January 1, 2015. The Act restricts employers and employment agencies from inquiring about or requiring the disclosure of an employment applicant’s criminal record or criminal history at the application stage, i.e., until the employer or employment agency has determined the applicant is qualified for the position and notified the applicant that he or she has been selected for an interview or, if there is not an interview, until after a conditional offer of employment is made to the applicant.

The Act defines an employer as any person or private entity that has 15 or more employees in the current or preceding year and employment agencies as any person or entity regularly undertaking, with or without compensation, to procure employees for an employer or to procure for employees opportunities to work for an employer.

The prohibition on inquiring into an applicant’s criminal record or criminal history at the application stage does not apply for positions where: (i) employers are required to exclude applicants with certain criminal convictions from employment due to federal or state law; (ii) a standard fidelity bond or an equivalent bond is required and an applicant’s conviction of one or more specified criminal offenses would disqualify the applicant from obtaining a bond; or (iii) employers employ individuals licensed under the Emergency Medical Services Systems Act.

Employers and employment agencies are allowed to notify applicants in writing of the specific offenses that will disqualify an applicant from employment in a particular position due to federal or state law, or the employer’s policy. Therefore, if an employer has a company policy which would disqualify an applicant from being hired based on specific offenses, the employer may notify applicants in writing of that fact.

Civil penalties that apply to employers or employment agencies that violate the Act range from a warning for the first violation to a civil penalty of up to $1,500 for every 30 days that passes without the employer’s or employment agency’s compliance with the Act.

In addition to the new rules under the Act, the ban against employers and employment agencies inquiring into or using an arrest record or expunged criminal history as a basis to refuse to hire remains in effect.

To review your business’ employment application and procedures or to review your business’ policies regarding specific offenses which may disqualify an applicant, or develop a notice letter to potential employees, please contact:

Morris R. Saunders at:

(312) 368-0100 / msaunders@lgattorneys.com

or

Mitchell S. Chaban at:

(312) 368-0100 / mchaban@lgattorneys.com

Alert to Property Owners: What the Firearm Concealed Carry Act Means to You.

The Firearm Concealed Carry Act became effective on July 9, 2013, and applications for concealed carry licenses became available to Illinois residents in early 2014.

What does this mean for property owners? Generally, an owner of private property may prohibit the carrying of concealed firearms on the property under his or her control, but must do so in compliance with the Firearm Concealed Carry Act.

However, the Firearm Concealed Carry Act allows holders of concealed carry licenses to keep a firearm, subject to certain requirements, in their vehicle, even if their vehicle is located in a parking area of a prohibited location.

To determine whether you are in compliance with the Firearm Concealed Carry Act’s procedures and requirements, or to review your employee handbooks and policies generally, please contact:

Mitchell S. Chaban at:

(312) 368-0100 / mchaban@lgattorneys.com

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