Today’s BIPA Ruling is Brought to You By the Letter I

Important Developments in lL Biometric Information Privacy Act

Some judges have an extraordinary ability to explain their decisions in an easily understood and relatable manner. Such was the case in a very recent decision involving whether an employer’s commercial general liability insurance policy (“CGL”) covered an employee’s claims under the Illinois Biometric Information Privacy Act (“BIPA”). In State Automobile Mutual Insurance Company v. Tony’s Finer Foods, No. 20-cv-6199, Judge Steven Seeger of the United States District Court for the Northern District of Illinois was tasked with deciding whether a standard exclusion in a CGL policy relieved the insurer of its duty to defend a BIPA claim. BIPA is an Illinois statute that, among other things, requires private entities that obtain biometric information from an individual to first inform the individual that the information was being collected and stored and obtain a release from the subject. In the employment context, oftentimes employers collect biometric information (such as fingerprints) for time keeping purposes. In the last seven years, litigation over alleged BIPA violations have exploded and employers often look to their insurance companies to assist in the defense. Judger Seeger ultimately held that the “employment-related practices” exclusion did not preclude insurance coverage, undoubtedly good news for employers.

An “Employment-Related Practices” exclusion is common in CGL policies. Essentially, the exclusion precludes coverage for certain employment-related claims made by employees against their employers. In the policy at issue in the State Automobile case, coverage was specifically excluded for “personal or advertising injury” to “any person” arising out of  “(a) refusal to employ that person; (b) termination of that person’s employment; or (c) employment-related practices, policies, acts or omissions, such as coercion, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation, or discrimination…”  The court recognized that subparts (a) and (b) were not at issue and the only question was whether the underlying lawsuit was about an injury to the employee arising out of “employment-related practices.”  The insurance company argued that the exclusion applied because the case arose out of the manner in which employees clock in and out of work.  While the argument was “an appealing one,” the court took a closer look at the exclusion and determined that it did not apply. First, the court recognized that the exclusion was the “third part of a trilogy” with the first two parts covering hiring and firing. The judge reasoned that the third subpart, “arising out of employment related practices,” read with parts one and two appears to apply specifically to adverse employment action “and not any and all claims about something that happens at work.”  The judge further stated that even though clocking in or out is an employment practice or policy, the fact that the text then contains a “laundry list” of targeted disciplinary practices, “using one’s finger to clock-in and clock-out is an awkward fit in that string, at best.”  In determining that the third clause, when read in tandem with the first two clauses, could not be interpreted as generally excluding all claims arising out of employment, Judge Seeger cited to the well-known and respected Sesame Street doctrine of “one of these things is not like the others – one of these things just doesn’t belong.”  After recognizing that other courts have come to differing conclusions, the court nonetheless ruled in favor of the employer and denied the insurer’s motion for summary judgment on whether it had a duty to defend the BIPA claim.

If you would like to discuss these or similar issues in more detail, please contact Howard L. Teplinsky at (312) 368-0100 or hteplinsky@lgattorneys.com.

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Use Employee Compensation Plans to Keep Your Valued Employees

4 Benefits And Taxes You Should Discuss With Your Employee | Cleaning Business Today

As many employers have discovered, it is becoming increasingly difficult to attract and retain talented employees. One method is to provide an attractive deferred compensation plan for your key employees.

Deferred compensation plans may be of two general varieties – “qualified” or “non-qualified”. In a qualified plan, such as a profit-sharing plan or a 401k plan, there are various laws regarding the terms of those plans. These terms may include who is eligible to participate, vesting schedules, and the permitted amount of annual contributions. In these plans, the employer receives an income tax deduction when it makes a contribution to the plan. The employee includes in its income the amount it receives from the plan upon distribution. If the employee leaves the employer, the employee may take all vested amounts.

In “non-qualified” plans, the governing laws are less rigid in terms of eligibility and other terms of the plan. The employer may choose who may participate, provided the employer does not discriminate based on protected classes, such as race and gender.

In a non-qualified plan, the employer may add different vesting schedules and include non-competition provisions, as well as other provisions intended to encourage the employee to remain in the employ of the employer. In non-qualified plans, the employer is entitled to an income tax deduction when the employee is required to include the amounts in its income.

Some of the more common provisions in non-qualified plans include the following:

  • Vesting- The vesting schedule could be as long as the employer feels is necessary. Practically speaking, it should not be so long that the employee does not “see” the benefit in remaining with the employer.
  • Incentives- The contribution could be dependent on the business attaining certain revenues or profits.
  • Payouts to Employee- Amounts could be payable to the employee upon the employee’s death, disability, or retirement at a certain age. Payments could be made over a period of time (e.g., monthly over five years) and can be tied to certain restrictive covenant periods.
  • Non-Competition- The employee would agree not to compete with the employer after termination of employment.
  • Payments Upon Sale of Business- The plan could be structured so that the employee would receive payments upon the sale of the business. Often these types of plans issue “phantom equity” to the employee. This “phantom equity” has no voting rights or any other rights that an equity holder might have. However, the “phantom equity” has a value attributed to it, and that value is paid to the employee upon the sale of the business.

While many employees expect that the employer will have a “qualified plan”, a qualified plan does not provide an incentive for the employee to remain employed with the employer because the employee may leave at any time and take all vested benefits. With a “non-qualified plan”, the employee is provided an incentive to remain with the employer. If the employee leaves “early”, then he or she may forfeit any benefits which would have been provided.

If you would like to discuss the benefits of a non-qualified plan, please call (312) 368-0100 and ask to speak with Morris Saunders or Walker Lawrence.

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The Great Resignation – Employers Beware

Resignation Letter" Images – Browse 1,242 Stock Photos, Vectors, and Video | Adobe Stock

The job market continues to be volatile, and businesses are willing to take more risks to hire proven talent. That means taking the best people from their competition. Business owners therefore need to start preparing for when (not if) a key employee leaves to join a competitor.

Below are some ideas to help you prepare for a key employee’s potentially sensitive exit to a competitor and ensure your business is protected: begin preparing and setting up a plan of action so you are prepared to handle.

• Review current restrictive covenant and confidentiality agreements. This is particularly important right now because non-compete laws are changing in Illinois and in other states in the US.
• Update confidentiality agreements to require employees to submit information about their digital footprint on their personal devices, including making those devices available for a forensic review upon the employee’s exit.
• Consider implementing phantom equity programs or bonus plans.
• Evaluate your hybrid-work environment and focus on flexibility.
• Audit your IT protocols and ensure your most important data is being monitored and its confidentiality maintained.
• Limit which employees get access to sensitive information – gone are the days that every employee gets access to all your information.

When an employee leaves to join a competitor, employers should immediately take certain preliminary steps to identify possible wrongdoing:

• Preserve the employee’s email and activity logs. This data is often auto deleted unless you place a hold on the information.
• Review emails sent to personal email addresses.
• Review all emails sent with attachments.
• Review activity logs.
• Preserve any devices used by the employee.
• Conduct an internal investigation to determine if there has been any other unusual activity.
• Retain a computer forensic expert.

Once these preliminary steps are completed, consider sending a cease-and-desist letter to the former employee and the new employer to ensure any damage is contained. Depending on the circumstances, filing a lawsuit (including seeking immediate injunctive relief) may offer the best protection for your business.

The attorneys at Levin Ginsburg can help businesses prepare for and react to the departure of key employees so that any impact is mitigated. 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 (312) 368-0100.

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Important Change to the Illinois Equal Pay Act

California Fair Pay Act vs Equal Pay Act, What's the Difference?

An amendment to the Illinois Equal Pay Act (“Illinois EPA”) that took effect January 1, 2022 clarified that the Illinois EPA does not prohibit employers from discussing with job applicants the unvested equity or deferred compensation that the applicant would forfeit upon resigning from the applicant’s current employer.

While the Illinois EPA continues to restrict employers’ ability to ask applicants questions about their compensation, the amendment clarifies that employers may discuss unvested equity and deferred compensation, only if an applicant for employment voluntarily discloses that the applicant would forfeit unvested equity and/or deferred compensation by resigning from their current employer. If an applicant voluntarily discloses that they will forfeit unvested equity or deferred compensation, employers may request that the applicant verify the aggregate amount of such compensation.

Employers and employment recruiters should be cognizant of this important change to the Illinois EPA, particularly given the current labor market. Further, employers and employment recruiters should be careful to not violate the Illinois EPA if the applicant does not voluntarily disclose compensation from his or her prior employer.

Having an experienced employment attorney evaluate your employment issues is critical to avoiding problems resulting from failing to comply with state and federal law. For more information regarding these or similar issues, please contact Mitchell S. Chaban at mchaban@lgattorneys.com or (312) 368-0100.

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DOL Withdraws Guidance On When An Employer Must Pay Employee for Covid Testing or Vaccinations

Could COVID-19 vaccines become mandatory in the U.S.? | Hub

On January 20, 2022 the DOL released Fact Sheet #84 containing guidance for employers faced with the issue of whether or not it should pay employees for their time spent obtaining COVID-19 tests and vaccinations. On January 24, 2022, without explanation, the DOL removed Fact Sheet #84 from its website. While it is still unclear why it was removed (likely related to OSHA rescinding its ETS requiring mandatory vaccination/testing policies), Fact Sheet #84 provided insight into an ongoing legal question facing businesses – when do I need to pay for the time my employees spend getting tested or vaccinated?

In 2021 the DOL answered several FAQs related to the Fair Labor Standards Act (“FLSA”) and COVID-19. Under the DOLs FAQs, time spent by an employee “waiting for and receiving medical attention at [an employer’s] direction or on [an employer’s] premises during normal working hours” was compensable. The more complicated issue was whether time spent getting tested on a day off and off-site was compensable. In typical DOL fashion, the answer was “it depends.” The DOL opined that the key inquiry, which is consistent with FLSA precedent, was whether the time spent receiving a test was “necessary for [an employee] to perform their jobs safely and effectively during the pandemic”. The FAQs provide an example in which the time spent by a store cashier getting tested on her day off is likely compensable because significant interaction with the general public is “integral and indispensable” to the cashier’s job.

The now-removed Fact Sheet #84 provided further clarification. Activities that occur during normal working hours are generally compensable, subject to certain limited exceptions. Accordingly, employers must pay for an employee’s time during the normal workday getting (1) tested; (2) vaccinated; or (3) screened for COVID-19 related symptoms.

For activities outside the normal working day, Fact Sheet #84 suggested that time spent getting vaccinated, even if outside the normal working day, is “integral and indispensable” to an employee’s job because it is the most effective “control available to protect employees from becoming seriously ill and dying due to occupational exposures to COVID-19.” This conclusion relied on the now rescinded OSHA vaccine/testing mandate. As a result, under Fact Sheet #84, time spent getting vaccinated was compensable even if the vaccination occurred outside normal working hours if it is as a condition of employment.

For time an employee spends getting tested, the DOL broke it down into two separate groups. First, if an employee is unable to be vaccinated due to a protected reason (e.g., medical or religious) and the employer requires such employee to be tested in lieu of vaccination, time getting tested is compensable because it is “integral and indispensable to the employee’s work and therefore compensable … given that vaccination is not a viable option for such employees.”

However, for employees that are able to receive the COVID-19 vaccine, but voluntarily decline to do so, getting tested is no longer “integral and indispensable” because the employee is voluntarily choosing a less effective tool (e.g., getting vaccinated) to be safe at work. Accordingly, under Fact Sheet #84, employee’s that chose not to be vaccinated, and the choice was not based upon religious or medical reasons, were not entitled to be paid for time spent getting tested, even if required by the employer.

Given that Fact Sheet #84 was removed from the DOL’s website, it is not currently the official “guidance” from the DOL. However, its interpretation and examples are helpful in considering the DOL’s FAQs on compensability and should be considered when employers review these issues in the workplace. These guidelines do not have the force and effect of law and apply only to the FLSA. Employers must consider state and local ordinances that may impose additional or different obligations on an employer to pay for time getting tested or vaccinated. For assistance in reviewing compensability issues reach out to Walker R. Lawrence (wlawrence@lgattorneys.com), a partner in Levin Ginsburg’s employment law practice group.

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Recruiting Top Talent and Retaining Key Employees

Key Person Insurance | Protect your Business from Key Employee Loss

As we approach the new year and reflect on the radical changes occurring over the last 18 months, recruiting top talent and retaining key employees remains a significant challenge for many businesses. For that reason, many business owners are exploring additional tools and options to attract new talent and keep key employees.

One of these tools is a phantom equity plan. A phantom equity plan offers a business significant flexibility while at the same time giving an employee something of value that is intrinsically tied to the growth of the business. Phantom equity plans provide an employee some, but not all, of the benefits of being an equity holder without the complexity, additional documentation, and voting rights typically associated with equity ownership. These benefits may include: (1) receiving distributions or dividends when such benefits are paid to equity holders, (2) payments upon a sale of the company, or (3) payments upon retirement or separation of employment.

In exchange for providing an employee these added benefits, businesses realize several advantages. First, an employee feels rewarded when they are offered phantom equity, while at the same time creatively aligning an employee’s financial goals with the business’s success. Second, the terms of a phantom equity plan can be carefully crafted to ensure an employee continues working for a business before earning any financial benefit from a phantom equity plan. Finally, businesses can require that an employee execute updated non-compete and non-solicitation covenants that will be more defensible because the employee is receiving a significant added value (e.g., potential payments under the phantom equity plan) in exchange for signing the restrictive covenants.

While these programs are “simpler” by nature, businesses must still prepare these plans and administer them in compliance with the IRS code and other applicable statutes and regulations. The attorneys at Levin Ginsburg can help design, implement, and prepare a phantom equity plan that is a good fit for your business to allow you to recruit top talent and retain key 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 (312) 368-0110.

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The Expanded Illinois Secure Choice Retirement Savings Program Will Soon Cover Small Employers

Illinois Secure Choice - Ascensus

The Illinois Secure Choice Retirement Savings Program (“SCRSP”) is a retirement savings instrument for private sector workers in Illinois who do not have access to an employer-sponsored plan. Recent legislation expands the SCRSP to cover employers with five or more employees. Previously, the SCRSP applied only to employers with 25 or more employees that had been operating in Illinois for at least two years and did not offer a qualified retirement plan.

The SCRSP requires covered employers to distribute information provided by the SCRSP, facilitate employee enrollment in the SCRSP, and remit contributions to the SCRSP via employee payroll deductions. The new legislation also includes annual automatic contribution increases up to 10% of wages (employees have the right to opt-out).

Employers will receive notifications of their obligations and applicable deadlines under the expanded SCRSP. The initial enrollment deadline will apply to employers with more than 15 employees and fewer than 25 employees and will occur no earlier than September 1, 2022. The second enrollment deadline will apply to employers with at least five but not more than 15 employees and will occur no earlier than September 1, 2023.

Smaller employers that will fall under the auspices of the expanded SCRSP should consult with experienced counsel to assure compliance with the SCRSP.

If you have any questions regarding the SCRSP, please contact Mitchell Chaban at mchaban@lgattorneys or (312) 368-0100.

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Restrictions on Limiting Fiduciary Duties Owed Under the Illinois Limited Liability Act

Changes to the Illinois Limited Liability Company Act (the “LLC Act”) become effective January 1, 2022. The upcoming changes to the LLC Act affect the ability of operating agreements to alter or eliminate certain fiduciary duties owed by LLC members.

LLCs are owned by their members and are generally governed by some combination of the company’s operating agreement and the LLC Act. Under common law, members of an LLC owe fiduciary duties to other members, including the duties of loyalty and care. The duty of loyalty means a member cannot compete with or put her own interests above the company’s interests. The duty of care means a member agrees to treat the LLC as a reasonably prudent person would treat the business as if it were her own. The current LLC Act requires members of a member-managed company to discharge their duties to the company and the other members and to exercise their rights consistent with “good faith and fair dealing.” The LLC Act amendment clarifies that these statutory duties do not limit any fiduciary duties of loyalty and care owed at common law unless the restriction in the operating agreement is clear and unambiguous.  In other words, your LLC’s operating agreement should thoroughly and specifically address these duties.

Starting in 2022, the LLC Act will permit operating agreements to identify specific activities or examples of conduct that do not violate the duties of loyalty or care and spell out the standards by which the members’ fiduciary duties are to be measured. This change to the LLC Act imposes a contractual covenant of good faith and fair dealing to operating agreements and aids LLCs and their members in understanding which activities will violate the operating agreement, thereby liberating an LLC and its members from ambiguity and unwanted litigation.

If you would like to schedule a consultation to prepare, revise or review your LLC’s operating agreement or for any other business-related matter, please contact Joseph A. LaPlaca (jlaplaca@lgattorneys.com) or Roenan Patt (rpatt@lgattorneys.com) at (312) 368-0100.

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A Properly Drafted Non-Reliance Clause Can Bar Fraud Claims

A well-drafted non-reliance clause will bar a later-asserted claim for common law fraudulent misrepresentation or fraudulent inducement.  A non-reliance clause should not be confused with an integration clause.  An integration clause (also called a merger clause) provides that the contract to be signed represents the final agreement, merges all prior versions of the contract, and supersedes any prior discussions or versions of the contract.  In essence, an integration clause prevents claims based on agreements reached during the negotiations that led to the signing of the contract which were not written into the contract itself.  An example of an integration clause is: “This agreement constitutes the entire agreement between the parties and supersedes all prior agreements, representations, warranties, statements, promises, and understandings, whether oral or written.”

In a situation where a party to a contract containing an integration clause claims that she was induced into signing the contract by fraudulent misrepresentations (i.e., statements made outside of the contract), Illinois law is clear that an integration clause does not bar a fraud suit.  The principle underpinning the general rule that an integration clause cannot bar a fraud claim is that, as one court has put it: “fraud is a tort, and the parol evidence rule is not a doctrine of tort law, and so an integration clause does not bar a claim for fraud based on statements not contained in the contract. * * * [A]ll an integration clause does is limit the evidence available to the parties should a dispute arise over the meaning of the contract.  It has nothing to do with whether the contract was induced by fraud.

While an integration clause would not bar a fraud claim, a non-reliance clause can.  An example of a non-reliance clause is: “The parties hereto, in executing this agreement, do not rely on any inducements, promises or representations other than such as are expressly contained in this agreement.”  Illinois law is clear that if a contracting party signs an agreement containing a non-reliance clause that disclaims reliance on representations made outside of the contract, then the party cannot thereafter maintain a claim for fraud.  This is a logical rule, given that it is hardly justifiable for someone to rely on something that they have agreed not to rely on, and without justifiable reliance, there can be no fraud.

If you would like to schedule a consultation to prepare, revise, or review your contracts or if you are involved in litigation involving a contract, please contact Mitchell S. Chaban at mchaban@lgattorneys.com (312) 368-0100.

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Developments in the Law-Employee Handbooks and Separation Agreements

How to Create An Employee Handbook | Small Biz Ahead

Along with the election of a new President in 2020 came the appointment of a new National Labor Relations Board (NLRB) General Counsel. In line with how many federal agencies work, the appointment of a new General Counsel often brings numerous adjustments to the law and doctrinal shifts, including overruling legal precedents that were in place during a previous administration. Two such expected changes in the law involve 1) employee handbooks, and 2) confidentiality and non-disparagement provisions in employee separation agreements.

Employers should expect significant modifications in the law regarding the enforceability of certain provisions commonly found in employee handbooks. Employee handbooks commonly include confidentiality rules, non-disparagement rules, social media rules, media communication rules, civility rules, rules requiring respectful and professional conduct, and offensive language rules. For those rules that could be interpreted as infringing on employees’ rights to engage in protected concerted activities (employees’ rights to act with co-workers to address work-related issues), the new General Counsel of the NLRB is seeking to shift much of the burden back onto employers, even when the rules seem facially neutral, to prove that the rules do not infringe on employees’ rights. If a “reasonable employee” believes that the rule is infringing on his or her rights to engage in protected concerted activity, the General Counsel of the NLRB likely will consider striking those rules. Employers therefore should expect much greater scrutiny of their handbooks and should consider revising or removing certain provisions currently in their handbooks.

The enforceability of certain “employer friendly” separation agreement provisions and confidentiality rules will also likely be reconsidered. Under the prior administration, separation agreements that contained confidentiality and non-disparagement clauses were by and large found to be lawful. For example, the NLRB upheld a provision in a separation agreement prohibiting a departing employee from making any public statements detrimental to the business or reputation of the employer. In the near future, however, such a provision will likely be found unenforceable. With respect to confidentiality, the NLRB determined during the previous administration that a confidentiality provision in an arbitration agreement prohibiting the disclosure of evidence outside of the arbitration proceeding or of the arbitration award itself was valid. However, that holding is likely to be overturned during the current administration. As such, employers will need to consider revising certain portions of their employee separation agreements.

Other changes in the law are on the horizon as well. As always, should you have any questions regarding the impact of employment issues on your business, please do not hesitate to contact your Levin Ginsburg attorney.

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