Employers Continue To Struggle With Employee Leave Laws That Protect Parents In The Wake Of Schools Reopening
With the start of the school year upon us, employers continue to struggle with employee leave laws that protect parents. In response to the pandemic, Congress passed sweeping legislation (the Family First Coronavirus Response Act or FFCRA) that provides, among other benefits, up to 12 weeks of paid leave for parents who are unable to work (or telework) to care for their child because their child’s school or day care is 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.
However, FFCRA did not anticipate the hodgepodge of school reopening plans that may lead to an employee staying home to care for their child, but which are not covered by the FFCRA. As a result, the win-win situation the FFCRA was intended to create may not be available.
FFCRA’s benefits were far-reaching (our original blog about it is here). FFCRA created two new benefits for employees who worked for employers with less than 500 employees: (1) Emergency Family Medical Leave (FMLA+) and (2) Emergency Paid Sick Leave (EPSL). Among other things, FMLA+ and EPSL provided paid benefits for employees who need to care for a child whose school or childcare provider is unavailable or closed for COVID-19 related reasons. Accordingly, if a qualified employee met the requirements of FMLA+ and EPSL, that employee would be eligible to take 12 weeks of job protected leave paid at two-thirds of the employee’s regular rate of pay. The employer would be reimbursed by a tax credit.
After the legislation was passed, the U.S. Department of Labor (DOL) provided additional clarity (or in some cases muddied the waters) with regulations and FAQs. The DOL provided that the employee had to provide the following information:
- The name of the child being cared for;
- The name of the school, place of care, or child care provider that has closed or become unavailable; and
- A statement from the employee that no other suitable person is available to care for the child.
Accordingly, FFCRA benefits are only available if the school is closed or unavailable.
Schools Begin to Reopen
Each school district has its own unique plan for reopening its schools, but many of them allow parents the option of choosing either a full remote learning experience or in-person learning. In this situation, under the current regulations and guidance from the DOL, a parent who chooses not to send their child to school would not qualify under FFCRA because the school is neither “closed” nor “unavailable.”
Accordingly, it is critical for employers to ensure they understand all the facts around an employee’s request to claim FFCRA benefits. If an employer pays an employee who does not qualify under FFCRA, the employer would be ineligible to receive the 100% tax credit for payments and would be on the hook for these payments.
To address this dilemma, employers must develop FFCRA policies requiring employees to complete proper leave request forms. These forms must be carefully drafted to comply with the DOL’s regulations (which limit the information an employer can require), but also provide sufficient information to protect the employer. In this situation, an employer would have written documentation from any employee who was paid FFCRA benefits to minimize the risk that the employer would not qualify for the 100% tax credit. As this situation continues to evolve, it is important that employers stay vigilant in this ever-changing landscape and work closely with their employment lawyer. If you have any questions about the FFCRA or any other employment laws, please reach out to Walker R. Lawrence, a partner in the employment law practice at Levin Ginsburg, at 312-368-0100 or email@example.com.
When disaster such as fire, explosion, or other event strikes and damages a business to the point of interrupting operations, the business owner will turn toward its insurance policy and business interruption coverage (if available) to alleviate the financial fall out. Business interruption policies generally provide coverage for lost income and extra expenses that a business sustains due to a “covered peril” (i.e. an explosion or fire) that “causes direct physical injury or damage” to the business’s real or personal property. Some business interruption policies also provide insurance coverage for indirect losses due to acts of “civil authority” or “supply chain disruptions.” Conversely, some business interruption policies contain exclusions for damages caused by a virus.
In the new COVID-19 world, businesses are now asking whether a pandemic is a “covered peril” or whether a government ordered shut-down triggers insurance coverage. Many businesses that have been deemed “non-essential” by state governments have either been closed or have had a substantial reduction in business revenue (such as restaurants providing only for curb-side or delivery). Businesses that have paid their insurance premiums for years have turned to their insurers for coverage and finding declination letters instead of open arms. Many insurers have taken the position that businesses closed by government action have not sustained damage that caused “direct physical injury or damage” to the business’s real or personal property. Insurance companies have argued that because the closure was to prevent exposure to COVID-19, the interruption is not a “covered peril.” Additionally, many business interruption policies contain a “viral exclusion” that insurers are invoking to deny coverage.
Several businesses have sought court relief upon learning that their insurers have denied coverage. Insurance coverage and bad faith lawsuits have already been filed in several states, including Illinois, California, and Missouri, challenging the insurers’ decision to deny coverage. Arguments advanced by the businesses include the claim that COVID-19 causes physical damage to the businesses’ real property because the virus physically infects and stays on the surfaces of objects or materials for weeks. Insurers will vigorously defend these coverage challenges and it is expected that litigation will be ongoing for years.
Because an insurance policy is a contract, the language contained in the policy itself is the best place to begin the coverage analysis. While reviewing your policy, some of the key questions to ask are:
- Do you have business interruption coverage?
- Does your policy specifically have coverage for a viral outbreak or pandemic?
- Does your policy allow for coverage for acts of “civil authority” or “supply chain interruption?”
- Does your policy exclude coverage for viral outbreak?
If you have questions regarding your insurer’s coverage obligation with respect to the COVID-19 crisis, please contact:
The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) is now effective. The Act made various changes to rules regarding qualified retirement plans as well as some changes to 529 plans. The following are but a few of the changes:
IRAs and other Qualified Retirement Plans
Under the SECURE Act, the general rule is that after an employee or IRA owner dies, the remaining account balance must be distributed to designated beneficiaries within 10 years thereafter. This rule applies regardless of whether the employee or IRA owner dies before, on, or after the required beginning date, unless the designated beneficiary is an eligible designated beneficiary.
An eligible designated beneficiary is: (1) the surviving spouse of the employee or IRA owner; (2) a child of the employee or IRA owner who has not reached majority; (3) a chronically ill individual; or (4) any other individual who is not more than ten years younger than the employee or IRA owner. Under the exception, following the death of the employee or IRA owner, the remaining account balance generally may be distributed (similar to present law) over the life or life expectancy of the eligible designated beneficiary, beginning in the year following the year of death.
Previously, an employee or IRA owner had to withdraw required minimum distributions (RMD) in the year they turned age 70 1/2. The SECURE Act increases that age to 72.
Employer-sponsored retirement plans are now available to long-term part-time workers, with a lower minimum number of hours worked. The SECURE Act drops the threshold for eligibility down to either one full year with 1,000 hours worked, or three consecutive years of at least 500 hours.
Under Internal Revenue Code section 529, a person may contribute to an account for a designated beneficiary’s qualified higher education expenses. Distributions (including any attributable earnings) from a 529 plan are not included in gross income if such distributions do not exceed the designated beneficiary’s qualified higher education expenses. For distributions made after Dec. 31, 2018, section 529 education savings accounts may cover costs associated with registered apprenticeships, and up to $10,000 of qualified student loan repayments (principal or interest). A special rule for qualified student loan repayments allows such amounts to be distributed to a sibling of a designated beneficiary (i.e., a brother, sister, stepbrother, or stepsister). The deduction for interest paid by the taxpayer during the tax year on a qualified education loan is disallowed to the extent the interest was paid from a tax-free distribution from a 529 plan.
If you would like to discuss any of these changes or if you have other questions regarding retirement planning or 529 plans, please contact Morris Saunders or any of our partners at Levin Ginsburg, 312-368-0100.
Every business with employees should have an employee handbook. An employee handbook is essential because it helps employees to understand what their rights are, what the company’s human resource processes and policies are, standardizes company policies and reduces human resource’s time resolving issues. Handbooks and policies are also often required if an employer wants to take advantage of certain defenses or protections. One very common provision in an employee handbook is a statement advising the employee that nothing contained in the handbook creates a contract between the parties, and the handbook does not alter the “at will” nature of the employment. Recently in Bradley v. Wolf Retail Solutions I, Inc., the United States District Court for the Northern District of Illinois held that because a company’s handbook disclaimed all contract rights, the company could not require its employees to arbitrate their claims, despite the fact that the handbook provided that employees’ claims were to be arbitrated.
In Bradley, the plaintiff filed a class action lawsuit alleging that the employer did not pay overtime under the Fair Labor Standards Act and the Illinois Minimum Wage Law. The handbook contained a dispute resolution provision stating that the employee agreed to mediate any dispute with the company and if not successful, the company and employee agreed to submit the dispute to arbitration. The plaintiff received a digital version of the handbook and signed it by clicking a box next the statement: “I have read, understood and accept the terms and conditions stated in this handbook.” The company filed a motion to compel the plaintiff to arbitrate her claims. The court refused to compel arbitration.
In denying the company’s motion to compel, the court stated that because arbitration is a matter of contract, i.e., the parties must first agree to arbitrate in order to be required to go to arbitration, and a party cannot be compelled to arbitrate a dispute when there’s no valid contract to do so. It was, therefore, incumbent upon the employer to prove the existence of a valid contract to arbitrate. The employer pointed to the dispute resolution provision in the handbook, arguing that the employee acknowledged receipt of the handbook and agreed to the policies therein. The court reasoned, however, that the employer could only rely on the dispute resolution clause in the handbook if the handbook is, in fact, a contract. The court found that because the handbook stated “in no uncertain terms” that it is not an employment contract, the company could not require the employee to arbitrate the dispute.
The question is obvious. How can you force an employee to arbitrate claims, thereby eliminating a public record of the proceedings and keeping the case from a jury, when your handbook does not create any contractual right to do so? Similar to your ability to enforce a non-compete with an at-will employee, a separate arbitration agreement will likely be enforceable if the agreement is a stand-alone contract and where consideration is given for the agreement. The consideration may be in the form of a payment, the right to continued employment, or even the agreement to arbitrate a claim itself can be sufficient consideration. In any event, do not assume that your employees will be compelled to arbitrate, rather than litigate, their class action lawsuits if the “agreement” is contained in the employee handbook where no contract is created. Employers have run into similar problems when an employee uses confidential information, but the only confidentiality provision is within the handbook (which by its nature is not a contract). It is also important to ensure that any arbitration agreement with an employee be carefully crafted to eliminate any class or collective claims.
For more information, please contact:
Howard Teplinsky at: firstname.lastname@example.org or 312-368-0100.
On November 26, 2019 the Chicago City Council amended its Minimum Wage Ordinance to accelerate its $15/hour minimum wage hike four years ahead of schedule. Instead of tying the increases to CPI in 2020, the amendment will increase the minimum wage to $14/ hour on July 1, 2020 and to $15/hour July 1, 2021.
The update also increases the minimum wage for tipped workers to $8.40 an hour on July 1, 2020 and requires that it be set to 60% of the City of Chicago minimum wage going forward. On July 1, 2021 it will increase to $9 per hour. Employers can still use a tip credit to make up the difference, but employers will be required to true up any payments if the tip credit is not enough to cover for all hours worked, including overtime pay.
These changes will not immediately impact small businesses with less than 20 employees. Small businesses will only be required to increase the minimum wage to $13.50/hour on July 1, 2020 and $0.50 per year until it reaches $15 per hour in 2023. Employers will less than four employees are not covered by the minimum wage ordinance.
Finally, the City of Chicago’s changes will also eliminate the youth minimum wage exemption by 2025 and will increase the youth minimum wage to $10 per hour on July 1, 2020 until it reaches $15 per hour by 2024.
A breakdown of the relevant wage rates is below:
These changes are in addition to the update to the Illinois Minimum Wage Law that was enacted early this year in February. We provided a comprehensive updated on those changes in April, and you can read more about that here. Please contact us if you need any assistance complying with the Illinois or Federal Minimum wage and overtime laws at 312-368-0100 or Walker R. Lawrence at email@example.com
As the owner of a corporation, when you set up your business, you and your lawyer believed that you had taken all necessary steps to protect your personal assets. After all, the primary reason you set up a corporation was to shield your own assets from your business’s creditors. In order to ensure that your assets are safe from the corporation’s creditors, you need to do more than just fill out the Secretary of State’s paperwork. The corporation must conduct itself as an entity separate and apart from you as the owner.
A recent decision provides a “textbook” example of how an owner of a corporation can put his own assets at risk simply by the way he conducted his company’s business. In Puntillo v. Dave Knecht Homes, the plaintiffs were a married couple who entered into a contract with a home builder, a corporation. The defendants, David and Karen Knecht, were the beneficiaries of a trust that held the home builder’s shares of stock. They were, in essence, the owners of the home-builder corporation. After the home was completed, it was riddled with defects and the couple obtained a judgment against the corporation. Thereafter, the corporation dissolved and the couple was unable to enforce their judgment. In the midst of all of it, a new corporation, Dave Knecht Homes, was created with similar ownership, management, staff, purpose and resources as the now asset-less builder. The defunct builder and the new company used the same line of credit. Beginning in 2006, Dave Knecht’s personal line of credit began funding the now defunct builder’s operations. After the new corporation, Dave Knecht Homes, came along, it also used the same credit line. After being unable to collect on its judgment against the out-of-business builder, the plaintiffs sued Dave Knecht Homes and its owners Dave and Karen Hecht personally. The plaintiffs claimed the new company was merely a successor to the defunct corporation and the corporate veil between the individuals and the successor, Dave Knecht Homes, should be “pierced,” allowing the plaintiffs to go after the individual owners for a corporation’s debt.
Generally, a corporation that purchases the assets of another corporation is not liable for the debts or liabilities of the selling corporation. There are, however, four exceptions to this general rule of successor corporate nonliability: (1) where an express or implied agreement of assumption of the liability exists; (2) where the transaction amounts to a consolidation or merger of the purchaser or seller corporation; (3) where the purchaser is merely a continuation of the seller; or (4) where the transaction is for the fraudulent purpose of escaping liability for the seller’s obligations. In this case, the plaintiffs successfully argued that Dave Knecht Homes is a “mere continuation” of the former company and the court agreed. The continuation exception applies when the purchasing corporation is “merely a continuation or reincarnation of the selling corporation.” In other words, the purchasing corporation maintains the same or similar management and ownership, but merely wears different clothes. The Illinois Supreme Court has made it clear that “[t]he exception is designed to prevent a situation whereby the specific purpose of acquiring assets is to place those assets out of the reach of the predecessor’s creditors.” To determine whether one corporate entity is a continuation of another, courts consider “whether there is a continuation of the corporate entity of the seller—not whether there is a continuation of the seller’s business operation.” Thus, the plaintiffs were permitted to look to the assets of the new company to satisfy their judgment. Unfortunately for the Knechts, it didn’t end there.
The plaintiffs also argued that the out-of-business corporation served as the Knecht’s “alter ego” and that the court should pierce the defunct builder’s corporate veil and impose individual liability against the Knechts. A court may disregard a corporate entity and pierce the veil of limited liability where the corporation is merely the alter ego or business conduit of another person or entity.” This doctrine imposes liability on the individual or entity that “uses a corporation merely as an instrumentality to conduct that person’s or entity’s business.” In Illinois, courts use a two-prong test to determine whether to pierce the corporate veil: “(1) there must be such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist; and (2) circumstances must exist such that adherence to the fiction of a separate corporate existence would sanction a fraud, promote injustice, or promote inequitable consequences.
The court found that the Knechts exercised control over the new builder and treated the company’s assets as their own, causing the company to pay significant sums of money for their own personal expenses including federal and state income tax payments, landscaping for their personal residences; personal life insurance premiums and attorney’s fees. Moreover, the Knechts caused the failed company to pay their personal expenses using David Knecht’s credit line. By causing Knecht’s former company to pay their significant personal expenses, the Knechts treated the company’s assets as their own. The court pierced the corporate veil of Dave Knecht Homes (who it imposed successor liability upon) and allowed the plaintiffs to enforce their judgment against David Hecht Homes and the individual defendants.
In order to insulate yourself from personal liability, as a business owner, the way that you run the business is as important as setting up the corporation in the first place.
For more information, please contact:
Howard Teplinsky at: firstname.lastname@example.org or 312-368-0100.
The current I-9 form that is approved for use by the U.S. Citizenship and Immigration Services (USCIS) is set to expire on August 31, 2019. USCIS has not finalized the next version and in previous years, USCIS has directed employers to continue using the expired form (available at its website) until an updated version is approved. However, once it is approved, employers must start using the updated form with respect to all employees it hires on or after the date such form becomes available.
If you have any questions regarding employment issues, please contact Walker R. Lawrence, or any of our lawyers in our employment law practice at Levin Ginsburg at 312-368-0100. You may reach Walker directly via email at email@example.com
Morris Saunders will be a presenter at two upcoming seminars for the National Business Institute. Both seminars are being held at Illinois Business & Industry Services located at 1100 East Warrenville Road, Suite 150 Naperville IL 60563. The first seminar is titled “Trusts: The Ultimate Guide” where Morris will be giving two presentations. The first is titled “Medicaid Planning Trusts”, and will take place on September 24th from 1:30-2:30. The second presentation is titled “Other Trust Structures and Issues.” and will also take place on September 24th immediately after the first presentation from 2:45-3:30.
The second seminar is titled “Medicaid Planning” and Morris’s presentation is called “Excluded vs. Countable Assets.” This presentation will take place on October 24th from 10:15-11:15.
The internet has unquestionably provided unparalleled access to information to the public, both consumers and businesses, not seen since Johannes Gutenberg invented the printing press. One such benefit of the access the internet has provided is in real estate. Several websites now allow users to get estimates on almost every property imaginable. Zillow is one of these websites which provides “Zestimates.” Although this knowledge can be useful to potential purchasers, some owners may take issue with these valuations. This exact situation occurred in Patel v. Zillow, Inc.
In Patel v. Zillow, Inc., the United States Court of Appeals for the Seventh Circuit reviewed the dismissal of a lawsuit brought by homeowners who took issue with Zillow’s “Zestimate” of their property that they were trying to sell. Before the lawsuit was filed, they learned that Zillow’s “Zestimate” of their property was below their asking price. Zillow’s “Zestimate” listed the property at approximately $160,000 less than Plaintiffs’ listing. Plaintiffs contended that the “Zestimate” scared away potential buyers. Plaintiffs asked Zillow to increase the “Zestimate” or to remove them from the database. Zillow declined. Plaintiffs filed their lawsuit.
Plaintiffs brought suit under the Illinois Real Estate Appraiser Licensing Act contending that Zillow was appraising real estate without a license. Plaintiff also filed claims under the Illinois Uniform Deceptive Trade Practices Act and under the Illinois Consumer Fraud and Deceptive Business Practices Act. Plaintiffs argued that Zillow’s “Zestimate” was unfair and misleading. The District Court (the trial court) dismissed all of Plaintiffs’ claims.
The Seventh Circuit upheld the trial court’s decision. The Seventh Circuit noted that the Illinois Real Estate Appraiser Licensing Act did not create a cause of action for a private citizen. More importantly, as to Plaintiffs’ claims under the Deceptive Trade Practices and Consumer Fraud Acts, the Court stated that these acts deal with statements of fact and that Zestimates are opinions, not fact. Accordingly, where a valuation is explicitly labeled as an estimate, there is no deception.
If your business has current litigation, including claims under the Illinois Uniform Deceptive Trade Practices Act or Illinois Consumer Fraud and Deceptive Business Practices Act, or your business would like a complimentary business “check-up” to help spot any potential liability under those acts, please contact Roenan Patt. (312) 368-010; firstname.lastname@example.org or any of our business attorneys.
It is an all too common scenario these days with mortgage foreclosures still commonplace in Chicago: someone leases a single family home or condominium unit (used for residential purposes) from the then owner of the property. Subsequent to this lease being executed and the tenant taking possession, the owner goes into default on his or her mortgage, the owner’s lender, i.e., a bank, files a judicial foreclosure action and, as is often the case, the bank becomes the owner of the property. Typically in these scenarios the bank will have a court appointed receiver manage the property during the foreclosure process and/or hire a manager subsequent to the foreclosure process to manage the property and address any tenant issues.
As the lease nears expiration, the tenant, who is likely aware of the foreclosure, inquires of the former owner and the bank, as to the status of his or her security deposit (which, for higher-end properties in Chicago, can easily exceed $5,000.00). The former owner, if they respond at all, tells the tenant about the foreclosure and that the former owner has no assets in any event, and that the tenant should contact the bank to get their security deposit. Upon contacting the bank, the bank responds that the former owner’s security deposit was never transferred to it during the course of the foreclosure or at any other time, and that the tenant should seek the return of their security deposit from the former owner. A conundrum is afoot. Is the tenant simply out of luck? The answer to this question has not been specifically addressed by the Illinois courts; however, the Chicago Residential Landlord and Tenant Ordinance (RLTO) likely gives us the answer, and it is not good for the bank.
The RLTO has long been the bane of many landlords’ existence in the City of Chicago, but it could quick become a thorn in the side of foreclosing lenders as well.
According to the City, the purpose of the RLTO is “to protect and promote the public health, safety and welfare of [the City of Chicago’s] citizens, to establish the rights and obligations of the landlord and the tenant in the rental of dwelling units, and to encourage the landlord and the tenant to maintain and improve the quality of housing.” (RLTO, Section 5-12-010).
In our situation above (which is, by the way, a real life situation), the tenant realizes that his former landlord is still liable under the RLTO for the security deposit. At the same time, however, the tenant understands that the former landlord is unlikely to have the security deposit and unlikely to have the assets to satisfy a judgment if the tenant were to sue the former landlord under the RLTO. Therefore, the tenant looks to the bank for the return of his or her security deposit.
Unfortunately for the bank, the RLTO does appear to cover this set of facts and subject the bank to liability for the return of the security deposit. In fact, not only can the bank be liable to the tenant for the return of his or her security deposit but, like any landlord, the bank can be subject to severe penalties should it fail to comply with the relevant terms of the RLTO with respect to the security deposit. The liability stems from the RLTO defining “landlord” as including the original landlord’s successor in interest, i.e., the bank in this instance.
Based on the provisions of the RLTO, whether or not the bank received the security deposit from the original landlord, it would be liable to the tenant for the maintenance and return of the security deposit.
Section 5-12-80(e) of the RLTO further provides that:
[t]he successor landlord shall, within 14 days from the date of such transfer, notify the tenant who made such security deposit by delivering or mailing to the tenant’s last known address that such security deposit was transferred to the successor landlord and that the successor landlord is holding said security deposit. Such notice shall also contain the successor landlord’s name, business address, and business telephone number of the successor landlord’s agent, if any. The notice shall be in writing.
If the bank fails to follow these precise requirements, it would further violate the RLTO. In terms of penalties for violation of the RLTO, the bank is subject to strict liability damages in an amount equal to two times the security deposit plus interest and attorneys’ fees and costs.
The bank is now left with the option to defend a lawsuit initiated by the tenant, which the tenant has a likelihood of winning and to then being awarded his or her attorneys’ fees and costs, or coming out of pocket for the security deposit, thereby hopefully being able to negotiate with the tenant to avoid the severe penalties imposed by the RLTO.
Any lender foreclosing on a property covered by the City of Chicago RLTO would be well-advised to become familiar with the ordinance and do everything possible to comply with its terms.
For more information, please contact:
Jonathan Weis at: email@example.com or 312-368-0100.