Illinois Employers Should Think Twice Before Using Criminal Background Checks Going Forward

On March 23, 2021 Governor Pritzker signed into law Senate Bill 1480 which makes several meaningful changes to the Illinois Human Rights Act (“IHRA”). One significant change under the new law is that employers may not use criminal records when making employment decisions unless they consider specific factors and take certain steps before making a final employment decision. The law goes into effect immediately.

Employment Decisions Based on a Conviction Record Violate the IHRA

It is now a violation of the IHRA to “use a conviction record” as a basis for any employment-related decision, unless the employer can establish either:

  • there is a “substantial relationship” between the criminal conviction and the employee’s job; or
  • hiring or retaining the employee would create an “unreasonable risk” to a specific individual or the public.

To determine whether an “unreasonable risk” exists, employers must consider “whether the employment position offers the opportunity for the same or a similar offense to occur and whether the circumstances leading to the conduct for which the person was convicted will recur in the employment position.” Accordingly, in evaluating whether an “unreasonable risk” exists, employers must evaluate the following six factors:

  1. the length of time since the conviction;
  2. the number of convictions that appear on the conviction record;
  3. the nature and severity of the conviction and its relationship to the safety and security of others;
  4. The facts or circumstances surrounding the conviction;
  5. the age of the employee at the time of the conviction; and
  6. evidence of rehabilitation efforts.

Interactive Process

If an employer determines that one of the two exceptions applies, the employer must engage in an interactive process with the employee or applicant. The employer is required to notify the employee or applicant in writing of its preliminary decision that the employee’s conviction record disqualifies the employee. This notice must include:

  1. notice of the conviction or convictions that are the basis for the preliminary decision and the employer’s reasoning for the disqualification;
  2. a copy of the conviction history report, if any; and
  3. an explanation of the employee’s right to respond to the employer’s preliminary decision before it becomes final. This explanation must inform the employee that the response may include “submission of evidence challenging the accuracy of the conviction record that is the basis for the disqualification, or evidence in mitigation, such as rehabilitation.”

Upon receipt of the employer’s notice, the employee has up to five business days to provide a response before the employer makes a final determination.

Written Final Decision

Before making a final decision, the employer must consider any information submitted by the employee. If the employer determines that the employee or applicant is disqualified “solely or in part because of the employee’s conviction record,” the employer must provide another written notice to the employee. The second notice must include the following:

  1. notice of the conviction or conviction(s) that are the basis for the final decision and the reasoning for the disqualification;
  2. any existing procedures available to the employee to challenge the decision or request a reconsideration; and
  3. a statement that the employee has the right to file a charge with the Illinois Human Rights Department.

Practical Considerations

Illinois employers should reconsider how they will use criminal background checks in the future. While the law does not prohibit an employer from obtaining criminal background checks, it places a significant burden on employers if they want to use this information to make employment-related decisions.

Given the burdensome notice obligations, it may be more practical for employers to forego the use of criminal background checks altogether, unless there is a particularly compelling business reason for doing so. Due to the complexities of this decision, employers should discuss this matter with their employment lawyer. If an employer intends to continue using criminal background checks, it will need to implement appropriate procedures and policies to ensure compliance with the new law.

For additional help navigating these issues, feel free to contact Walker R. Lawrence, a partner in the employment law practice at Levin Ginsburg, at wlawrence@lgattorneys.com, or Joseph A. LaPlaca, an associate attorney at Levin Ginsburg, at jlaplaca@lgattorneys.com.

Facebooktwitterlinkedinmail

Lapsed UCC Filing Cannot Be Revived by a Continuation Statement

The importance of perfecting a security interest by filing a UCC-1 financing statement cannot be understated. Likewise, making sure the UCC-1 financing statement is accurate and has not lapsed is just as important. The case of Committee of Unsecured Creditors of Rancher’s Legacy Meat Co. v. Ratliff emphasizes the importance of ensuring that a UCC-1 financing statement is accurate and has not lapsed.

In Ratliff, James Ratliff provided loans to his business partner to form Unger Meat Company in 2010. Ratliff secured his loans through obtaining a security interest in Unger’s equipment, inventory, accounts receivable, furniture and fixtures. Ratliff perfected his security interest by filing a UCC-1 financing statement. On May 6, 2014 Unger changed its name to Rancher’s Legacy Meat Co. Ratliff failed to timely amend his UCC-1 financing statement to reflect the change in the company name and the UCC-1 financing statement lapsed. Even though Ratliff’s original UCC-1 filing lapsed, he filed two separate UCC-3 amendments in an attempt to protect his security interest.

In 2019, Ratliff began collection proceedings on his loans. Rancher’s Legacy Meat Co. filed for Chapter 11 bankruptcy in response to Ratliff’s attempt to collect on his loans. Ratliff asserted what he believed was priority in collection of his security interest. In response, the Committee of Unsecured Creditors argued that Ratliff did not have a valid security interest because his UCC-1 financing statement lapsed and so did his security interest. The Committee also argued that Ratliff’s subsequent UCC-3 amendments were invalid because they could not continue a security interest that no longer existed. The bankruptcy court agreed with the Committee, holding that Ratliff was an unsecured creditor and not entitled to adequate protection payments.

Ratliff emphasizes the importance of not only filing a UCC-1 financing statement to perfect a creditor’s security interest, but also making sure amendments are timely made so that the security interest does not lapse. If you require any help navigating UCC issues, feel free to contact Michael L. Weissman, an attorney in the commercial law practice at Levin Ginsburg, at mweissman@lgattorneys.com or any of our business attorneys.

Facebooktwitterlinkedinmail

COVID-19, Return to Work, and Data Privacy Guidance

As the COVID-19 vaccines are currently being distributed, employers must address various issues relating to the transition of employees back to the office.  Below is a quick general guide concerning what employers can and cannot ask their employees concerning COVID-19:

 

Can an employer take an employee’s temperature?

Yes. Generally, measuring body temperature is a medical examination.  Because the CDC and state/local health authorities have acknowledged community spread of COVID-19 and issued attendant precautions, employers may measure employees’ body temperature.

Can an employer ask an employee if they have had COVID-19?

Yes. Employers may ask all employees who will be physically entering the workplace if they have had COVID-19 or symptoms associated with COVID-19, as well as ask if they have been tested for COVID-19.

Can an employer ask an employee if they are having COVID-19 symptoms?

Yes.  During a pandemic, ADA-covered employers may ask employees if they are experiencing symptoms of the pandemic virus.

Can an employer send an employee home during the COVID-19 pandemic if they have COVID or symptoms associated with it?

Yes. The CDC states that employees who become ill with symptoms of COVID-19 should leave the workplace. The ADA does not interfere with employers following this advice.

Can an employer ask an employee if any member of their household has had COVID symptoms or has tested positive?

No.  The Genetic Information Nondiscrimination Act (GINA) prohibits employers from asking employees medical questions about family members.  GINA, however, does not prohibit an employer from asking employees whether they have had contact with anyone diagnosed with COVID-19 or who may have symptoms associated with the disease.

Can an employer require employees to have a COVID-19 test?

The ADA requires that any mandatory medical test of employees be job related and consistent with business necessity. Applying this standard to the current circumstances of the COVID-19 pandemic, employers may take screening steps to determine if employees entering the workplace have COVID-19, because an individual with the virus will pose a direct threat to the health of others.  Therefore, an employer may choose to administer COVID-19 testing to employees before initially permitting them to enter the workplace and/or periodically to determine if their presence in the workplace poses a direct threat to others.

Can an employer require employees to notify the employer if they test positive with COVID-19?

Yes.

Can an employer require employees to adopt infection-control practices?

Yes.  Regular hand washing, cough/sneeze etiquette and proper tissue usage and disposal may be required.

Can an employer require employees to wear PPE (masks, gowns, etc.) designed to reduce the spread of COVID-19?

Yes. An employer may require returning workers to wear personal protective gear and observe infection control practices.

Can an employer ask an employee if he or she has been vaccinated?

Yes. Simply requesting proof of receipt of a COVID-19 vaccination is not likely to elicit information about a disability and, therefore, is not a prohibited disability-related inquiry.

Can an employer require employees to have a vaccine?

Yes. Employers are permitted to encourage and even require vaccination before allowing employees to return to work. However, mandatory vaccination policies will require careful planning, training, and transparency to implement effectively and minimize risks.

Can an employer exclude employees from the workplace if they have not had a vaccine?

Yes, but only after doing an individualized assessment to determine if an employee poses a direct threat and concluding there is no other possible accommodation.

 

Record-Keeping

If an employer is currently complying with the Health Insurance Portability and Accountability Act (“HIPAA”), then it is already prepared to deal with the collection, storage, and disposal of an employee’s Personal Health Information (“PHI”) collected as a result of COVID-19.  However, the Occupational Safety and Health Administration’s (“OSHA”) most recent guidance on controlling COVID-19 encourages all employers, including non-health-related companies, to put a COVID-19 prevention program into practice.  OSHA encourages record-keeping as part of such a program.  Thus, the days of avoiding the storage of health-related data to potentially avoid record-keeping activities are seemingly over.  Certainly, employers in California must comply with California’s OSHA’s requirements concerning COVID-19.  The following table provides guidance for those employers who are not already HIPAA-compliant.

 

Can an employer store medical information it collects from employees related to COVID-19?

Yes. The ADA requires that all medical information about a particular employee be stored separately from the employee’s personnel file, thus limiting access to this confidential information.

Can an employer disclose the name of an employee to other employees when it learns that the employee has COVID-19?

No. The employer should not disclose the name of the employee who has COVID-19.  However, the CDC stated: If an employee is confirmed to have COVID-19, employers should inform fellow employees of their possible exposure to COVID-19 in the workplace but maintain confidentiality as required by the ADA.

Can an employer keep a log of daily temperature checks before entering the workplace?

Yes, provided that the employer maintains the confidentiality of this information.

Can an employer keep records of employees who have tested positive for COVID-19?

Yes, if confidentiality is kept.  Employers should make every effort to limit the number of people who get to know the name of the employee.

Can the employer notify other employees that an employee has tested positive for COVID-19?

Yes.  The ADA does not interfere with a designated representative of the employer interviewing the employee to get a list of people with whom the employee possibly had contact through the workplace, so that the employer can then take action to notify those who may have come into contact with the employee, without revealing the employee’s identity.

 

For almost a year since the onset of COVID-19, employers have been collecting and using data to track and trace the spread of the virus.  Employers must be vigilant when collecting and utilizing data for tracking and tracing the spread of the virus and understand the risks of unauthorized disclosure or other potential abuses of the data.

Data Privacy and Security

Employers must develop policies and procedures to collect, use, and analyze PHI that are in compliance with relevant privacy laws.  PHI, such as information that an employee has tested positive or is having symptoms of COVID-19, must be stored separately from regular personnel files and kept confidential.  If this information is stored electronically, it must be stored in a manner which limits access to the information.

Employers should consider creating a COVID-19 task force that is responsible for handing all COVID-19 related issues within the company.  This will necessarily limit the number of people who have sensitive COVID-19 information about employees.

It is important that employers discuss these issues with their data privacy attorney.  A data privacy attorney can help employers comply with the patchwork of federal and state privacy regulations, including GDPR and HIPAA, and develop systems for the storage and use of employee PHI.

This article is intended to provide generalized guidance for employers and may or may not apply to your exact situation.  If you require specific legal advice on these or related topics, or compliance with data privacy regulation that may affect your business, please contact Natalie A. Remien, a partner in the data privacy practice at Levin Ginsburg at nremien@lgattorneys.com or Walker R. Lawrence, a partner in the employment law practice at Levin Ginsburg at wlawrence@lgattorneys.com.

Facebooktwitterlinkedinmail

Illinois Legislature Narrows Restrictive Covenant Enforcement

Restrictive covenants are contractual terms that restrict an employee’s ability to work for a competitor. Historically, these covenants were often used to prohibit high-level executives or employees with proprietary knowledge from working directly for a competitor. Today, restrictive covenants are increasingly used for even lower-level employees.

Examples of restrictive covenants are: “employee may not compete directly or indirectly with employer for a period of two (2) years after leaving the company,” or “employee may not do business within a 50-mile radius of the business after employment termination.” Under Illinois law, a restrictive covenant must be:

1. necessary to protect a legitimate business interest;
2. limited in terms of duration, geographic scope, and prohibited activity;
3. supported by sufficient consideration; and
4. ancillary to a valid employment agreement or sale of a business.

In 2016, the Illinois Freedom to Work Act (“IFWA”) was passed, which prohibited employers from implementing restrictive covenants for low-wage employees. IFWA defines low-wage employees as “an employee whose earnings do not exceed the greater of (1) the hourly rate equal to the minimum wage required by the applicable federal, state, or local minimum wage law or (2) $13.00 per hour.”

On January 8, 2021, the Illinois legislature introduced House Bill 789 (“Bill 789”), which seeks to expand the scope of IWFA as follows:

1. covenants not to compete are neither valid nor enforceable unless the employee’s actual or expected yearly earnings exceed $75,000. Every 5 years, the yearly earnings figure will increase by $5,000;
2. covenants not to solicit are neither valid nor enforceable unless the employee’s expected yearly earnings exceed $45,000. Every 5 years, the yearly earnings figure will increase by $2,500;
3. covenants not to compete are neither valid nor enforceable if the employee subject to the covenant was terminated or furloughed due to the COVID-19 pandemic. Additionally, covenants not to compete are neither valid nor enforceable if the employee is terminated or furloughed under circumstances that are similar to the COVID-19 pandemic (such “circumstances” are not defined by Bill 789) unless enforcement of the covenant includes the payment of the employee’s base salary for the period of enforcement of the covenant, minus compensation received by the employee through subsequent employment; and
4. the employer must advise its employees in writing to consult with an attorney before agreeing to a non-compete or non-solicitation clause. Additionally, the employer must supply a copy of the clause at least 14 days before execution for the employee’s review.

Furthermore, the legislature also established five components necessary for a valid restrictive covenant. A restrictive covenant is void unless:

1. the employee receives adequate consideration;
2. the covenant is ancillary to a valid employment relationship;
3. the covenant is no greater than is required to protect the legitimate business interest of the employer;
4. the covenant does not impose an undue hardship on the employee; and
5. the covenant is not injurious to the public.

If an employer seeks to enforce a restrictive covenant and fails to succeed because the covenant is deemed unenforceable, Bill 789 would require the employer to pay the employee’s reasonable attorneys’ fees and costs. Significantly, Bill 789 does not apply retroactively.

It is expected that Bill 789 will pass in some form and would go into effect on June 1, 2021. Employers should consider whether they want to implement restrictive covenants in some form prior to Bill 789 being enacted into law, as those covenants will be grandfathered in.

For additional help navigating these issues, feel free to contact Roenan Patt, an attorney in the employment and business law practice at Levin Ginsburg, at rpatt@lgattorneys.com or Joseph A. LaPlaca, an attorney at Levin Ginsburg, at jlaplaca@lgattorneys.com.

Facebooktwitterlinkedinmail

Voluntary FFCRA Extension Through March 31, 2021

New Employee Rights Poster Required by FFCRA | COVID-19 | Martin Pringle Attorneys at Law

As Congress pushed through an additional COVID stimulus bill on the eve of the new year, it also temporarily extended the benefits afforded to employees under the Families First Coronavirus Response Act (FFCRA).

The FFCRA required employers with less than 500 employees to provide additional job protected paid leave for specific qualifying events (up to 80 hours of paid leave), and also provided up to 12 weeks of leave for parents who could not work because they needed to care for their children whose schools were closed due to COVID-19. For employers, any covered payments under FFCRA are eligible to be reimbursed to the employer by the federal government through a 100% tax credit. As a result, it is often a win-win for employers and employees – the employee gets paid, and in the end, the employer is reimbursed. The FFCRA benefits were set to expire on December 31, 2020.

On December 21, 2020, Congress did not extend FFCRA into 2021; however, they allowed employers to voluntarily continue providing paid leave benefits under FFCRA and to continue receiving the payroll tax credit through March 31, 2021. Thus, while FFCRA is no longer mandatory, employers can still provide these benefits to their employees and continue to offset their costs with the tax credit through the first quarter of 2021.

Key Takeaways for Employers

• Employers should not provide any additional leave under FFCRA to employees who have exhausted their bank of leave. The new legislation did not restart an employee’s entitlement to leave.

• Any FFCRA benefits taken in 2020 by employees will be applied to their leave bank in 2021. For example, if an employee used 48 hours of emergency paid sick leave in 2020, they should only be entitled to use an additional 32 hours.

• Employers will not be eligible to receive tax credits for any amount of paid leave that is greater than what employees are entitled to under FFCRA.

• If an employer provides voluntary FFCRA benefits in 2021, such leave is job protected and employers may not retaliate against an employee who takes such leave.

• Employees who took leave in 2020 are still protected by FFCRA’s anti-retaliation and anti-discrimination protections.

• If an employer provides FFCRA benefits in 2021, it is important to maintain proper documentation in the event of an IRS audit regarding the tax credit.

• If an employer chooses not to continue to offer paid leave under FFCRA, employees may choose to show up to work regardless of having COVID-19 symptoms to avoid missing a paycheck.

Employers should assess whether to continue offering FFCRA benefits and update their policies and practices accordingly. As with any policy change, employers should communicate these changes to their employees.

For additional help navigating these issues, feel free to contact Walker R. Lawrence, a partner in the employment law practice at Levin Ginsburg, at wlawrence@lgattorneys.com, or Joseph A. LaPlaca, an attorney at Levin Ginsburg, at jlaplaca@lgattorneys.com.

Facebooktwitterlinkedinmail

Illinois Employers Must Complete Mandatory Sexual Harassment Training Annually

As a result of recent amendments to the Illinois Human Rights Act (IHRA), employers in Illinois are required to provide annual sexual harassment training to employees who (1) work in Illinois, (2) may perform work in Illinois, or (3) regularly interact with Illinois employees. Employers have largely ignored these new requirements in the wake of the ever-changing environment created by COVID-19, but there is still time to comply. The training must occur on or before December 31, 2020. To help our clients comply with the law, Levin Ginsburg has been providing updated sexual harassment training to its clients virtually.

The Illinois Department of Human Rights provided a model PowerPoint program that employers can use to comply with the law. However, many employers prefer to offer their own training tailored to their business and policies. The law allows employers to use their own training, provided it meets or exceeds the statutory standards. At a minimum, the training must include:

• an explanation of sexual harassment consistent with the IHRA;
• examples of conduct that constitutes unlawful sexual harassment;
• a summary of relevant federal and state statutory provisions concerning sexual harassment, including remedies available to victims of sexual harassment; and
• a summary of responsibilities of employers in the prevention, investigation, and corrective measures of sexual harassment.

If your business is a restaurant or bar, the statute provides additional requirements, including providing each employee a written sexual harassment policy. Illinois recently issued a model training program for restaurants and bars, and this additional training must include the following additional topics:

• specific conduct, activities, or videos related to the restaurant or bar industry;
• an explanation of manager liability and responsibility under the law; and
• English and Spanish language options.

As the December 31, 2020 deadline is quickly approaching, it is important for employers to take steps to meet their obligations imposed by Illinois law. If you have questions about how Levin Ginsburg can help you conduct this training virtually for your employees, please reach out to

Walker R. Lawrence, a partner in the employment law practice at Levin Ginsburg, at

312-368-0100 or wlawrence@lgattorneys.com.

Facebooktwitterlinkedinmail

Be on the Lookout for Unemployment Fraud in Illinois

You and your employees may become victims of unemployment fraud. The past several weeks have seen a huge increase in unemployment fraud in the State of Illinois and elsewhere. Much of the fraudulent activity arises out of the federal government’s implementation of the Pandemic Unemployment Assistance Program (“PUA”) in May of 2020. Since the launch of the PUA Program, over 107,000 fraudulent unemployment claims have been filed on behalf of unknowing victims, many in the State of Illinois.

Here’s how the scam has been operating:

A victim of the scam in Illinois will receive a letter from the Illinois Department of Employment Security (“IDES”) confirming that the recipient’s unemployment benefits have been approved. The problem, however, is that the individual has not applied for unemployment. The letter will either enclose a debit card that deposits funds into a fraudulent account when used or will advise the recipient that funds are being direct deposited into a bank account in that person’s name. The account, however, was set up by the scammers, who then siphon the ill-gotten gains from the bogus bank account. The IDES is advising recipients not to activate and, instead, destroy the debit card. Additionally, if the individual receives such a notice and that the recipient of the notice did not apply for unemployment benefits, the following important steps need to be taken immediately. The individual should:

  1. Contact IDES at the telephone number listed on the notice. Due to increased volume, IDES will likely take days or even weeks to return the call. The victim can also go to the IDES website (see the link below) and complete a contact form.
  2. Contact one of the three credit agencies (Experian, Equifax or Transunion) through their websites and report the fraudulent activity.
  3. Call the local police and file a police report.
  4. Tell the employer identified on the notice as the “last employer” that they will likely be receiving a Notice from IDES that the victim has applied for unemployment benefits.
  5. Notify the Federal Trade Commission at www.ftc.gov to report the identity theft.
  6. If they don’t already have one, obtain a pin from the IRS. This will ensure no one can file a fraudulent tax return on the victim’s behalf. Remember, the fraudster has the victim’s social security number.

The victim needs to make sure that he or she has kept a good paper trail of all of the steps taken. If you or one of your employees believes they’re a victim of unemployment fraud, they may also consult the following website:

https://www2.illinois.gov/ides/Pages/Reporting_Unemployment_Insurance_Fraud.aspx

If you have any questions, please contact your Levin Ginsburg attorney.

Facebooktwitterlinkedinmail

Commercial Leases in the COVID-19 Era

2020 is and will continue to be a particularly difficult year for commercial tenants and their landlords. The sudden economic downturn resulting from the COVID-19 pandemic has radically changed the nature of businesses and the ownership and operation commercial properties. These unforeseen circumstances are requiring tenants, landlords and their professional advisors to address not only the short-term economic ramifications of the pandemic, but also the long-term impact on the manner in which commercial real estate is owned and operated.

Putting aside the manner in which space will be used, the impact of flexible work arrangements on the demand for office space, and the permanent closing of a large number of local and national retailers, the most immediate consideration is the need for stabilization of the financial condition of both tenants and landlords. Struggling tenants’ inability to pay rent now that PPP loan proceeds have been exhausted will have a direct bearing on landlords’ continued ability to pay operating expenses and service their debt. This zero-sum game is forcing parties to come up with creative solutions to balance the needs of both parties. Over the past six months, we have drafted many commercial lease modifications to address the new financial realities. The following is a brief summary of some of the issues landlords and tenants must consider in addressing both immediate and long-term implications of a tenant’s continued occupancy of the premises.

Rent Abatement vs. Rent Deferral

Although conceptually similar, the “abatement” of rent and the “deferral” of rent are quite different. In the case of rent abatement, a tenant with delinquent rent payments is relieved of its obligations to pay those missed payments. While this will provide the tenant significant relief in the near term, it does little to alleviate the landlord’s financial pressure. In the case of a deferral, the delinquent rent payments remain due, but are simply postponed until a later date, and take the form of either additional lump sum payments or staggered installment payments spread over a specified period. Needless to say, struggling tenants may be reluctant to commit to future higher rent payments or additional rent payments at a time when they are concerned about recovery and survival. By contrast, landlords will advocate for recovering delinquent rent rather than absorbing a complete loss of unpaid lease payments.

Tax and Expense Reimbursements

In addition to base rent, commercial leases will often include additional rent provisions requiring tenants to reimburse the landlord for the tenants’ proportionate share of operating expenses and real estate taxes attributable to the property. In considering whether to provide a tenant with rent abatement or rent deferral, a landlord will need to consider its ability to pay basic operating expenses such as taxes and insurance, which continue to accrue regardless of the tenant’s ability to make rent payments. Accordingly, it is not uncommon for landlords and tenants to compromise on rent abatements and rent deferrals by limiting those provisions to the tenants’ base rent obligation, but not the obligation to pay its proportionate share of operating expenses and taxes. As with the decision to provide rent abatement or rent deferral, the treatment of operating expenses and tax obligations will need to be considered to address the landlord’s receipt of sufficient cash flow sufficient to continue to operate and maintain the property.

Extensions of Lease Term

While it may seem counterintuitive to extend a financially troubled tenant’s lease term, lease extensions are common as they provide time for the tenant to recover financially from the impact of the pandemic and the opportunity to spread deferred rent over a longer period of time. Extensions are often combined with a new rent schedule that reduces rent payments in the short run, but allows for the payment of escalated rent over the newly extended term. Moreover, lease term extensions are also desirable to the landlord as they allow the landlord to increase rental income over a longer period of time and to avoid the difficulties associated with procuring new tenants during an economic downturn. Although a lease term extension may provide some benefit in the short run by reducing the tenant’s short term rental obligations, the increased rental obligations over an extended period of time could cause economic stress to a tenant looking to downsize by closing certain locations or imposing a long-term financial obligation on the tenant’s lease guarantor.

Alternative Rent Provisions

As an alternative to the parties reducing base rent, retail landlords and tenants can get creative by basing rent payments on a percentage of total tenant revenue. Although “percentage rent” clauses are not uncommon with larger retail leases, they can provide a compromise to parties to smaller retail leases as well. So long as parties can easily determine revenues received from in-store sales, percentage rent clauses are feasible. However, percentage rent clauses can be quite detailed and present a multitude of complexities when defining the revenue attributable to the premises. For example, sales made at separate tenant locations or sales made via the internet would need to be excluded. Similarly, tenants will need to be able to reduce sales to account for returns and the portion of customer sales attributable to sales tax. Inevitably, these clauses impose accounting and financial reporting burdens on tenants. The failure of the parties to properly address these issues by hastily drafting percentage rent clause runs the risk of future disputes.

Co-Tenancy Clauses

In the retail context, many leases will provide tenants a right to terminate or reduce their obligation to pay rent in the event that the retail property fails to include specified tenants or tenants of a certain type (e.g., a department store or grocery store). These lease provisions are included at a tenant’s request to assure the tenant that the retail property will attract a certain type and number of shoppers. Thus, the failure of retail chains and independent operators could have a substantial ripple effect on other leases in the retail property. In amending a lease, the parties should address the impact and continued relevancy of these types of provisions and the possibility of required rent modifications which account for the disappearance of other tenants of the property.

Release of Obligations

As discussed above, the parties need to address the extent of a tenant’s continued obligation to pay pre-COVID amendment liabilities. Careful consideration should be given to blanket releases of pre-amendment liabilities as those types of releases will often impact ongoing obligations that the landlord would want preserved. A tenant should not be absolved of its failure to perform non-rent obligations under the lease, such as repair and maintenance obligations. Moreover, consideration must be given to monetary obligations that first arise after the lease amendment but which relate to pre-amendment periods of time. For example, damage or liability claims that may be covered by tenant insurance should continue beyond the amendment. Additionally, the parties should determine whether a tenant remains liable for the results of the landlord’s annual reconciliation of operating expenses and taxes for prior fiscal periods, including the portion of any reconciliation payments attributable to pre-COVID periods of time.

Force Majeure

Many articles have been written regarding the applicability of force majeure clauses during pandemics. Because typical force majeure language does not specifically address the impact of pandemics, tenants will often seek to modify these clauses to address the possibility of future waves of the pandemic. Landlords will need to give special consideration as to the limits of any force majeure clause expansions. For instance, does it relate to this particular pandemic or all pandemics? Is the trigger tied to government-imposed shutdowns rather than the pandemic itself? Once again, a hastily drafted clause can bring unintended future consequences and additional disputes.

The foregoing discussion is by no means intended to be an exhaustive list. The point is that commercial landlord/tenant relationships can be complex and multi-faceted, and there are a number of immediate and long-term issues arising from the impact of the pandemic that require careful consideration.

If you have any questions about commercial leases or commercial transactions, please reach out to Jeffrey Galkin (jgalkin@lgattorneys.com) or any of Levin Ginsburg’s litigation attorneys at (312) 368-0100.

 

Facebooktwitterlinkedinmail

Wave of COVID-19 Employment Litigation on the Horizon

As employers continue to confront the unique challenges presented by the COVID-19 pandemic, the first wave of COVID-19 related lawsuits have been filed against employers. This is likely just the beginning. These lawsuits range from safety violations, to wage and hour claims, to leave law violations, and everything in between. It is important that employers take proactive measures now to mitigate their future litigation risk. However, because many of these fact patterns and laws are new (and ever-changing), there’s little guidance and case law to rely on as businesses make these critical decisions. Ultimately, it is important to rely on tried-and-true best practices implemented prior to COVID-19 and to work closely with your employment attorney to put the company in the best defensive posture before making any significant employment decisions.

Claims Arising out of the Family First Coronavirus Response Act (FFCRA)

The new federal law passed in response to the pandemic (our original blog about it can be found here) created new obligations for employers with fewer than 500 employees. Complicating matters, the Department of Labor continues to revise its rules, regulations, and FAQs (the latest rules went into effect on September 16, 2020) as a result of litigation challenging the regulations as overly broad and inconsistent with the law passed by Congress.

Many of these lawsuits allege that an employer failed to provide job-protected leave under FFCRA when it knew or had reason to know an employee was entitled to such leave. For example, a recent lawsuit in Illinois claims that an employer terminated an employee after he informed his supervisor he was leaving work because he had COVID-19 related symptoms. Shortly after leaving, he was hospitalized. The complaint alleges his employer terminated him and cut off his health benefits five days later.

Key Takeaway: It is important for employers to draft and implement new FFCRA policies and practices, and to train management to handle these types of requests. Once these policies are in place, they provide a reliable roadmap to avoid any missteps resulting from the failure to provide the required leave.

Wage and Hour Litigation

As remote work has become the norm, it has thrown a wrench in an employer’s ability to determine the start and end times of the workday for non-exempt employees who are entitled to overtime. Generally, employers are on the hook for all hours worked by an employee, including work outside of the employee’s shift. Employees working from home often begin to read emails and receive calls and texts before or after their shift, sometimes at odd hours. These activities are likely compensable and should be paid.

Businesses are beginning to see wage claims from disgruntled employees who have lost their jobs alleging they performed work at home outside of their normal shift for which they were not paid. While it is unlikely that a current employee would make such a claim, plaintiffs’ attorneys will leverage this employee-friendly climate and attempt to get a quick settlement from employers.

Key Takeaway: Employers should consider requiring all employees who are working remotely to enter into a telecommuting agreement that clearly lays out their expectations regarding (1) hours worked, (2) requesting overtime, (3) requesting to work outside of their normal schedule, (4) recording all hours worked even if not pre-approved, and (5) making it clear that any violation of this policy will result in discipline.

Workplace Safety

As expected, employees and their families have brought claims alleging that their employers failed to provide adequate safety measures, resulting in COVID-19 infections. Even though some of these claims may be governed by worker’s compensation laws, family members are suing employers directly in state court alleging the employer was negligent in failing to meet the employer’s duty of care and safety.

One such example is a claim filed in Illinois in August by a deceased woman’s estate. The complaint alleges that her husband’s employer (a meat packing company) failed to meet its standard of care of providing adequate safety measures, resulting in her husband contracting COVID-19 and thereafter infected his wife. The employees’ wife died a month later. Specifically, the complaint alleges that the employer failed to implement local and federal guidelines to mitigate employees’ exposure to COVID-19, did not require employees to wear appropriate PPE, and did not notify employees when an employee tested positive for COVID-19.

Key Takeaway: Employers need to proactively implement a return-to-work policy involving appropriate safety measures to help mitigate any exposure to COVID-19.

If you have any questions regarding labor or employment law, please contact Walker R. Lawrence, Partner at Levin Ginsburg, at wlawrence@lgattorneys.com or (312) 368-0100 or any of Levin Ginsburg’s labor and employment attorneys.

Facebooktwitterlinkedinmail

Businesses Cannot Count on Business Interruption Coverage to Combat Covid-19

On May 27, 2020, Levin Ginsburg published a blog post (https://lgattorneys.com/can-businesses-count-on-business-interruption-coverage-to-combat-covid-19-losses/) on a fast-developing legal situation in the business and insurance coverage community due to the COVID-19 pandemic. Specifically, as businesses were required to comply with states’ closure orders and social distancing guidelines, many submitted claims to their insurers under their policies’ business interruption coverage. Since that time, there have been significant developments regarding these business interruption claims.

Many businesses received notifications from their insurers rejecting the requests for insurance coverage from losses stemming from the COVID-19 pandemic and resulting state closure orders. Some requests for coverage were denied because the policies contained a “viral exclusion” that excluded coverage for damages caused by a virus. Other claims were denied on the basis that the virus and/or the state closure orders did not cause “direct physical injury or damage” as required by business interruption policies.

Businesses did not take these rejections lying down. Instead, many filed individual or class action declaratory judgment, breach of contract, and bad faith lawsuits against their insurers. Businesses generally asserted theories that: 1) the possible presence of COVID-19 constituted “direct physical loss or damage” under the policy; or 2) the state’s closure order constituted an act of “civil authority” for which there was coverage.

In response to these lawsuits, insurers have filed many successful motions to dismiss. Courts across the country have generally agreed that there is no coverage under the insurance policies’ “civil authority provision” because the state closure orders do not prohibit access to the insured premises, but rather, prohibit the business from operating. Additionally, courts have held that these lawsuits do not involve an “actual physical loss or damage” contemplated by the policy.

To date, twenty-two defendant insurers have dismissed business interruption coverage claims. Conversely, six plaintiff insureds have survived a motion to dismiss. An example of a successful insured occurred in Studio 417 v. Cincinnati Ins. Co., pending in the Western District of Missouri, the district court denied Cincinnati Insurance Company’s motion to dismiss and allowed the claim to go forward based on the allegation in the complaint that COVID-19 is a physical substance that attached to and deprived them of their property, resulting in direct physical loss to the property. Although the plaintiff survived a motion to dismiss, it will likely have to prove that COVID-19 actually was present at the premises in order to prevail on its claim.

Whether a business can successfully advance a business interruption lawsuit against its insurer will depend on the language contained in the policy, the nature of the business, facts demonstrating exposure to COVID-19, and the creativity of the insurance coverage attorney.

If you have questions regarding your insurer’s coverage obligation with respect to the COVID-19 pandemic or any other insurance coverage matter, please contact: Roenan Patt, Associate Attorney at Levin Ginsburg, at rpatt@lgattorneys.com or (312) 368-0100 or any of our attorneys at Levin Ginsburg.

Facebooktwitterlinkedinmail