Levin Ginsburg previously updated our clients on the proposed changes to Illinois non-compete and non-solicitation law (See March 30, 2021 blog here). That legislation passed on May 31, 2021, was signed into law August 13, 2021, and takes effect January 1, 2022. The new law is not retroactive, so it will not impact any agreement entered into before the new year.
Employers must understand this new law and how it will impact their restrictive covenant agreements with employees. The key requirements are as follows:
- Employers may not enter into non-compete agreements with any employee earning $75,000 or less per year. This salary threshold is scheduled to increase by $5,000 every 5 years through 2037.
- Employers may not enter into non-solicitation agreements with any employee earning $45,000 or less per year. This salary threshold is scheduled to increase by $2,500 every 5 years through 2037.
- Every restrictive covenant must include a notice for the employee to consult with counsel, which must be given to an employee 14-days before the restrictive covenant is executed.
- The new law codifies legal precedent that requires an employee to work at least 2 years before continued employment would be considered sufficient consideration for the agreement. As a result, employers will be required to provide some professional or financial benefit in exchange for signing any agreement in order for the agreement to be deemed enforceable at the time of execution.
- A restrictive covenant will be unenforceable if the employee was terminated or furloughed due to the COVID-19 pandemic or under similar circumstances (yet to be defined).
- The law does not allow a court to entirely rewrite a restrictive covenant, but gives the court broad discretion to modify or delete provisions of a covenant rather than hold the entire covenant unenforceable.
- Finally, the new law will require employers to pay an employee’s attorneys’ fees if the restrictive covenant is deemed unenforceable.
These changes will have a significant impact on an employer’s decision to require its employees to sign non-compete and non-solicitation agreements. Employers should begin working with their employment counsel now — well before the new law’s effective date of January 1, 2022 — to ensure their agreements are enforceable and avoid the risk of litigation and liability for an employee’s attorneys’ fees.
For assistance in drafting enforceable restrictive covenants and protecting your business, reach out to Walker R. Lawrence (firstname.lastname@example.org), a partner in Levin Ginsburg’s employment law practice, or Joseph A. LaPlaca (email@example.com), an associate attorney at Levin Ginsburg.
An often overlooked contract provision has now gained the spotlight in the wake of the COVID-19 pandemic. Parties to a contract are now considering whether a contractual force majeure (French for “superior force”) clause will play a critical role in determining whether or not performance is still required. Force majeure provisions typically consist of boilerplate language that generally excuse performance for “acts of God or other unforeseen circumstances that make performance impossible” but may also contain specific language identifying several events that could constitute a force majeure such as “acts of government,” “war,” “famine,” “hurricanes,” or “acts of terrorism.” Depending on the jurisdiction, not all force majeure provisions are created equal.
In order for force majeure to be applicable to a contract under Illinois law, the agreement must explicitly contain such a provision. If no provision exists, force majeure cannot be utilized as an excuse for non-performance. If a contract has a force majeure clause, depending on the jurisdiction, the party seeking to invoke the clause must typically demonstrate that the force majeure event was one of the events contemplated by the language of the provision, the event was unforeseeable at the time of contract, and that the event materially impacted, or rendered impossible, performance. Additionally, the affected party may be required to make a bona fide effort to perform under the contract and in doing so demonstrating that performance is impossible. Finally, if the force majeure clause contains a notice provision, it must be strictly complied with.
Even if a force majeure provision does not cover the COVID-19 pandemic, the parties to the contract may also have to contend with excused performance under Article 2 of the Uniform Commercial Code (for the sale of goods) or the common law doctrines of impossibility of performance or commercial frustration. Article 2 of the UCC codifies a form of force majeure for performance that has been made impracticable “by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order.” Alternatively, the common law doctrines of impossibility of performance or commercial frustration require a fact intensive analysis. However, the commonality of both doctrines is a need for an unforeseeable event such as COVID-19.
If you have questions regarding how the COVID-19 crisis may impact contractual performance, please contact either:
Howard L. Teplinsky at: firstname.lastname@example.org or (312) 330-6472
Roenan Patt at: email@example.com or (312) 368-0100
or any of Levin Ginsburg’s business attorneys.
In his letter enclosing his $1,396 check, taxpayer asserted unilaterally that “we are now concluded on this tax return issue” and that he would not “have any more issues with IRS” regarding 2006. But there can be no settlement unless there is mutual assent to its terms, which taxpayer has not shown. To demonstrate assent by the IRS, taxpayer must do more than show that the IRS cashed his check. No compromise was implied by “the government’s acceptance and cashing” of taxpayer’s check.
Once assessed, a disputed tax liability may be compromised by the IRS under Code section 7122. Taxpayer was free to propose an offer-in-compromise during the proceeding by submitting Form 656, Offer in Compromise, together with supporting financial information. But he declined to request a collection alternative of any sort, insisting instead that he had no liability for 2006 whatsoever.
Taxpayer’s argument is meritless. A disputed tax liability may be settled by agreement between taxpayer and the IRS. A settlement of a case pending in Court is a contract that “may be reached through offer and acceptance made by letter, or even in the absence of” a written instrument. Taxpayer did not settle his 2006 tax liability with IRS counsel. Rather, his case was tried in Court and he lost.
Even if the IRS employee were thought to have made a settlement offer, no settlement of any kind is binding on the IRS unless it is duly authorized and properly memorialized, as “This Court has repeatedly declined to enforce a settlement agreement when the person entering into the agreement on behalf of the Commissioner lacked the authority to bind the” IRS. Taxpayer has supplied no reason to believe that his IRS correspondent had the requisite settlement authority.
Taxpayer relied solely on its unilateral statement that the issues were all resolved. It did not follow any of the procedures available to it. In short, taxpayer had proffered no plausible evidence of a settlement. Thus, the court held for the IRS.
Morris R. Saunders, firstname.lastname@example.org.
In typical California fashion, the state is leading the charge toward developing law that would regulate the Internet of Things (“IoT”). IoT devices typically include any device that connects to the internet, such as phones, tablets, home security systems, Amazon “Alexa” and other similar convenience items, thermostats, baby monitors, and even connected home security systems.California SB-327 has passed the California House and Senate and looks like it may soon be signed into law by the Governor. Although not effective until January 1, 2020, the law requires that manufacturers of IoT devices implement certain reasonable security measures into the devices themselves. It also requires manufacturers to force users to customize the password for their device, among other things.
While the law has been recently criticized for being too broad (i.e. not defining “reasonable” security measures), lawyers and tech specialists recognize that a law that is too specific in dictating tech measures may not be a “fit” for all devices. Not to mention that such measures may be outdated solutions by the time the device enters the market. Thus, it seems a balance between vagueness and specificity in the law must be struck. We expect to see some tweaks to this law prior to the final version going into effect in 2020.
Though no other state has yet passed any similar laws to the California bill, Congress has proposed an IoT bill called the SMART IoT Act (H.R. 6032) which would force the Department of Commerce to conduct a study of the IoT industry, providing the precursor to perhaps a federal IoT law.
If you have additional questions about navigating the laws relating to IoT devices, or any other cyber security legal issue, please do not hesitate to contact us at 312-368-0100 or email@example.com
In approximately a dozen states and a number of smaller municipalities across the U.S., initiatives have been introduced that would allow state and local governments to dictate how restaurants (and retailers) schedule their employees. Some view this approach as interfering with employers’ rights to control the workplace, while others view it as a necessary tool to protect the rights of food industry and other retail workers. The impetus for the new rules – often referred to as predictive scheduling laws – emanates from the fact that workers often have very little ability to make adjustments to their work schedules in order to meet their responsibilities outside of work. Unpredictable and unstable work schedules have been fairly well documented in the food service and preparation industries, as well as in retail and custodial occupations.
Predictive scheduling laws and proposals generally include certain common provisions: (i) advance posting of schedules, (ii) employer penalties for unexpected schedule changes, (iii) record-keeping requirements, and (iv) prohibitions on requiring employees to find replacements for scheduled shifts if they are unable to work. In Congress, the pending Schedules That Work Act would require that schedules be provided in writing two weeks in advance with penalties for changes made with less than 24 hours’ notice. As those changes are implemented, restaurant owners are finding that they must make significant adjustments to how they run their businesses in order to stay in business.
“On-call” or “predictive scheduling” activists argue that retail employers too often use scheduling practices that directly interfere with employees’ personal lives and ability to plan around their work hours, while others believe government intervention in the scheduling of employees through a one-size-fits-all approach intrudes on the employer-employee relationship and creates unnecessary mandates on how a business should operate. Many in the food service industry are concerned that predictive scheduling legislation will impede employers’ need to adapt to changing conditions in a store, particularly small, independently owned businesses that have limited staff and resources and may not be able to afford the penalties related to violations. Some employees have also voiced concern that they could lose some of the flexibility that attracted them to the food service industry in the first place.
There are a variety of common components of predictive scheduling legislation.
- Employee Scheduling Requests. Giving employees the right to make scheduling requests without employer retaliation. Employers would be required to consider scheduling requests from all employees and provide a response. In some instances (for healthcare issues for example), the employer would be required to grant the request unless there is a bona fide business reason not to do so—e.g., an inability to reorganize work among existing staff or the insufficiency of work during the periods the employee proposes to work. The right to request provision can be found in laws recently enacted in Vermont, New Hampshire, Seattle, Washington, and San Francisco and Emeryville, California. (Similar laws have been in place for more than a decade in the United Kingdom.)
- Shift Scheduling Changes. Requiring employers to be pay employees for a minimum of four hours of work or the minimum number of hours in the scheduled shifts, whichever is fewer, when an employee is sent home from work early without being permitted to work his or her scheduled shift. In addition, if an employee is required to call in less than 24 hours before the start of a potential shift to learn whether he or she is scheduled to work, an employer could be required to pay the employee a premium, equivalent to one hour of pay. This provision is found in eight states and the District of Columbia.
- Split shift pay. If an employee is required to work a shift with nonconsecutive hours with a break of more than one hour between work periods, an employer could be required to pay the employee a premium for that shift, equivalent to one hour of pay. Provisions like this exist in District of Columbia and California.
- Advance notice of schedules. When an employee is hired, an employer could be required to disclose the minimum number of hours an employee will be scheduled to work. If that minimum number changes, the employer could be required to give the employee two weeks’ notice of the new minimum hours before the change goes into effect. In addition, employers can be required to give employees their work schedules two weeks in advance and, if an employer makes changes to this work schedule with notice of only 24 hours or less, the employer could be required to pay the employee a premium, equivalent to one hour of pay. San Francisco, Seattle, New York City, and Emeryville, California have enacted laws to require employers to provide two weeks’ advance notice of schedules to employees in certain large retail and/or food service establishments.
In order to handle predictive scheduling mandates, business owners should explore software options and even retaining outside vendors that provide scheduling and labor management solutions. A lack of training or understanding of predictive scheduling can be detrimental to a business’ bottom line, and scheduling practices can have a dramatic impact on labor costs. As with most new legal developments in the food service industry (or any industry for that matter), training and education is key.
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.
• 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:
• 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 firstname.lastname@example.org
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 email@example.com.
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 firstname.lastname@example.org or 312-368-0100