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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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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Current I-9 form will Expire August 31, 2019 – What should you do?

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 wlawrence@lgattorneys.com

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The Bottom Line on the Impact of Minimum Wage Hikes on the Restaurant Industry

Minimum wages are rising across the country, with well over a dozen states, plus many cities increasing minimum wages over the past few years.  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.

 The Bay Area of California was one of the first regions to begin increasing minimum wages, and as of January 1, 2018, the minimum wage increased by 37 cents to $13.23 in Oakland, and in San Francisco it rose from $13.00 to $15.00 effective July 1, 2018.

One impact on the restaurant industry is the change from full service restaurants – with hosts and full waiter service – to counter service.  Some restaurants have actually seen such changes result in significant sales increases – by as much as 20% – after the change from full service to counter service.  And at the same time, being able to reduce menu prices due to the ability to cut staff due to the change to a counter service format.  The downside here is that there are fewer jobs available to restaurant workers with owners focused on a lean labor paradigm.  At some restaurants, cooks serve dual roles – both preparing food and delivering it to customers.  Customers are also finding themselves taking on new ‘responsibilities’ such as being able to text additional orders rather than going back in line it they want more food than they originally ordered at the counter.

Thus, the increase in minimum wage has resulted in more satisfied employees (albeit fewer) earning a better living, increased restaurant industry innovation, and restaurants becoming more accessible to the population as whole as a result of lower menu prices.

Seattle became the first major city in the country to pass a $15.00 minimum wage law in 2014.  Large restaurant groups and franchises were particularly concerned about the increase because employers with more than 501 workers were required to increase wages on a set schedule reaching $15.00 per hour this year.  As a result, large Seattle restaurant groups and chains were forced to look for ways to adjust and innovate.  Many felt that increasing menu prices was not an option because of concerns that such increases would result in lower revenue.  So these restaurants did away with discretionary tipping and, instead, implemented set service charges of fifteen or twenty percent.

To offset rising labor costs, some restaurants add a surcharge of three to five percent to customers’ checks.  In March of last year, the Wall Street Journal even ran an article entitled “New on Your Dinner Tab: A Labor Surcharge.”  Restaurant owners found that raising menu prices lead customers to choose less expensive items than they normally would, and that the surcharge helped mitigate the increased costs of doing business.

In addition to raising prices, in order to deal with increased wages in the restaurant industry, some businesses often cope with minimum wage increases by firing staff.  Earlier this year, Red Robin Gourmet Burgers announced it would eliminate busboy positions at 570 restaurant locations. Many single location restaurants have also had to eliminate busboys and other staff positions.  Others have not been able to adapt and have had to close their doors. Some have turned to technology to compensate for the loss of labor and to reduce expenses. Large chains such as Chili’s, Applebee’s, and Olive Garden have replaced some servers with table-side tablets for placing orders and paying bills. 

Technology has also helped other businesses expand.  For example, popular online service, GrubHub, has reduced the number of customers dining out, as consumers can enjoy a restaurant style meal without getting up off their couch.  

The takeaway for restaurants facing increasing minimum wages and labor costs?  Scrutinize your budget and personnel and determine how to satisfy ever-changing employee and customer demands, and be willing to change.

For further information regarding this topic, please contact:

Jonathan M. Weis at jweis@lgattorneys.com or 312-368-0100.

 
 
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Predictive Scheduling Legislation: What You Need to Know to Avoid Costly Surprises

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.

 For more information on this and other issues, contact our office at 312-368-0100 or Jon Weis at jweis@lgattorneys.comFacebooktwitterlinkedinmail

Will 2 Years of Continued Employment Be Enough in Illinois to Enforce a Non-Compete?

The Answer: It’s Complicated.

In 2013, an Illinois Appellate Court in Fifield v. Premier Dealer Services, Inc., decided that absent additional consideration, continued employment for less than 2 years after the restrictive covenant was signed, would not be sufficient to enforce a restrictive covenant. The Fifield decision was unusual because courts often do not consider the adequacy of the consideration ̶ only that there was consideration to support a contract. Often, the promise of continued employment was acceptable. This decision sent shock waves throughout Illinois and required employers to reevaluate the value they were giving employees when entering into restrictive covenants.

Since that decision, Illinois state courts have routinely followed Fifield and applied its bright line test in cases where there is no additional consideration given to the employee except continued employment.

For example:

• October 31, 2017 – Employee signed a restrictive covenant after working for his employer for nearly 12 years and also served on the company’s board of directors. He announced his resignation and left 6 months later. He was finally removed from the Board a year after signing the restrictive covenant. Upon leaving he started a new business that directly competed with his employer. The Court found that the restrictive covenant was not enforceable because he did not work for at least two years after signing the restrictive covenant.
• June 25, 2015 – Employee worked for employer for more than three years and left. After working for the new employer for one day, the employee asked to come back. As a condition of his return, the employer requested he sign a restrictive covenant. The employee quit 18-months later. The Court held that because he did not work at least two years after executing the restrictive there was not sufficient consideration to support the restrictive covenants.

Complicating matters, however, Federal Courts in Illinois have consistently rejected Fifield’s bright line test and adhered to a more comprehensive fact specific analysis. The Federal Court’s decisions believe that the Illinois Supreme Court would not adopt Fifield’s rigid and bright line test and continue to a support a “totality of the circumstances” review. As a result, it has led to decisions that are at odds with the State courts:

For example:

• October 20, 2017 – Employees left after 13-months of employment, took confidential information, and started working for a competitor. Employees argued that Fifield governed and therefore the restrictive covenants were not enforceable. The Court disagreed and rejected Fifield’s bright line test.

• July 24, 2017 – Employee left after working for employer for nearly ten years. He signed a restrictive covenant 16 months prior to leaving. The Court rejected Fifield’s bright line rule. The Court noted that “[f]ive federal courts in the Northern District of Illinois and one federal court in the Central District of Illinois have predicted that the Illinois Supreme Court will reject the Illinois appellate court’s bright-line rule in favor of a more fact-specific approach.”

What does this mean for employers?

Because all Illinois employers should expect that they will have to enforce these agreements in a state court, the Fifield holding must continue to be respected. Employers should review their restrictive covenants to ensure the agreements are carefully drafted to improve enforceability.

Levin Ginsburg has been working with employers for approximately 40 years to help them protect their businesses. If you have any employment or other business related issues, please contact us at 312-368-0100 or email Walker Lawrence at wlawrence@lgattorneys.com

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