Harvard Business School Professor Clayton Christensen pioneered “disruption theory” as a tool to improve decision-making. To summarize his work, disruptive innovation creates a new value network, eventually disrupting an existing market value network, with a resulting displacement of established market-leading firms, products, and/or practices.
COVID-19 is indeed disruptive. While some businesses made smart pivots to adapt and continue operations, others viewed this disruption as temporary and did little. But as the pandemic rages on in the United States, with volatile and piecemeal progress, one thing is clear: we’re in this for the long haul.
Business leaders must now restudy the wave of disruption, survey the best practices elsewhere, and make long-term pragmatic changes to the way business is done. This will mean change to where we work and how we interact with our customers and colleagues. Businesses focused on riding this wave are considering the following approaches.
In-person is yesterday; virtual (eg, FaceTime and Zoom) is the future. Office-based businesses are shifting toward partial or complete remote work. This shift to remote work may come at significant upfront costs, including significant investments in technology, infrastructure, and policy changes. But, long-term, companies that move in that direction will reduce overhead on office space and expand their talent pool hiring without regard to location, while offering the added perk of flexible work. That part is easy; the harder part comes in balancing when and how much in-person collaboration is needed.
Business Model Changes
For many companies, the pandemic highlighted organizational inefficiencies. This forced companies to take a more active approach in assessing and making decisions on their staffing, on their business model, and on the location of their business sites. Tents in restaurant parking lots may be temporary but is the shift to e-retailing only temporary? Illustrative of the issues posed by this COVID disruption are those being asked in that retail space; eg, is the future in online and telephonic customer service and sales teams? Each industry now faces its own essential questions.
Enhanced Safety Protocols
Historical models suggest that pandemics are not short-lived; eg, the Great Flu of 1917-19. Businesses that do not go fully virtual must invest in thoughtful, flexible, and implementable safety measures to guard against community spread of COVID-19. There are employee safety issues here, issues of legal liability to customers and business guests, and brand damage for any entity that is labelled as a “Typhoid Mary” – a super-spreader of COVID-19. Such measures include providing the right quality personal protective equipment to employees, installing Plexiglas barriers, increased sanitization, and policies (supported by paid sick leave) to monitor that employees who come to work are healthy and to require employees to stay home when ill.
In 1858, Abraham Lincoln gave a famous speech with the tag line that “a house divided against itself cannot stand.” And, yet, for nearly 250 years, this country has been a house divided about some key issue. It is a house that is constantly wobbling and staggering from controversy to controversy. That is the first lesson to absorb.
The second lesson to operating in the USA is to understand its lack of uniformity on those issues. Philosophically, the social justice issues of “Black Lives Matter” should be unanimously embraced. Emotionally, however, it generates a high level of controversy. Ditto for “Me Too,” where the confirmation of Justice Kavanaugh revealed America’s divide on that issue.
The third lesson is that controlling Americans midstream in those socio-political debates via work rules is a fraught enterprise. Today, Whole Foods is facing a class-action lawsuit for disciplining its employees for wearing Black Lives Matter face masks in violation of a company rule that prohibits slogans, logos, or advertising unrelated to the company.
It is now essential that businesses develop a prowess and a sensitivity regarding these issues. When to set a rule and when to waive a rule are both equally important. These social movements each arise out of discrimination. And the proscriptions on employment discrimination are core concerns for human resources in the USA.
Those concerns are complicated by the fact that US laws do not permit reverse discrimination.
It is equally illegal to hire only whites or only blacks for vice-presidential positions. There is no legal safe harbor for hiring more blacks during an outcry of improper treatment of African-Americans by policy, nor is there a safe harbor for assuming that all men accused of sexual harassment are ipso facto guilty.
This dilemma emphasizes both the importance and the delicacy needed in managing diversity, equity, and inclusion (DEI) programs. Doing so requires patience as well as openness in educating the workforce through training. Properly done, this is an effort in managing processes; when it becomes an exercise in meeting quotas, the legal risk escalates exponentially.
In the entertainment sector, actors are demanding “inclusion riders” to require cast and crew meet certain standards for diversity. This merely illustrates Lincoln’s warning: this is a noble goal that – unless adroitly handled – will be viewed as an objectionable quota prompting litigation with claims of reverse discrimination. Thus, the final lesson is to be cautious.
Computer technology launched the "gig" economy with its use of contractors engaged by the task instead of employees paid by the hour, the day, or the week. Other aspects of computer technology have facilitated a work-from-home culture during the COVID-19 pandemic for employers utilizing traditional employees. Each of those aspects of computer technology raises distinct legal challenges.
The key issue for the gig economy is whether those contractors should, in fact, be treated as employees. This is, of course, a burning crisis for the leading gig platforms in California, where both case law and statutory law have coalesced to impose high hurdles to continuing to run a gig business with independent contractors. Illinois has not reached that point.
However, Illinois is not uniform in its classification tests. Under the Illinois Human Rights Act, the “economic realities” test applies, with the most important factor being the extent of control the hiring entity has over the worker. Meanwhile, the Illinois Department of Employment Security and the Illinois Department of Labor apply the “ABC” test.
Under the ABC test, to be considered an independent contractor, the individual must:
This ABC standard (which is the current test in California) is difficult for gig economy companies to satisfy. Misclassification of employees as independent contractors is a multilevel risk with tax exposures, wage exposures, and liability under an array of employment statutes never contemplated in establishing that relationship.
Meanwhile, businesses with traditional workforces have discovered that working remotely is feasible. Fears of lessened productivity have been challenged by actual productivity. Zoom calls have replaced in-person meetings; thought leaders are now asking whether Zoom will reduce business trips post-pandemic.
Not all businesses, of course, can operate remotely and some bifurcate; eg, United Airlines is live at the airport but remote at its Chicago corporate headquarters. As the pandemic continues or as the remote model continues post-pandemic, there will be both practical and legal issues to address.
Practical issues include how to train and integrate new hires, how to motivate effectively from distance, and what this opportunity means for revamping business models. Legal issues include how to manage time reporting to ensure proper payment for all hours worked and how to protect confidential data across an array of personal computers.
Perhaps, United and Uber may each be shifting. Legal changes will prompt gig companies to question their reliance on contractors. At the same time, experience with remote technology will prompt traditional employment companies to question their reliance on the traditional in-person office. Might both look more alike than different in a few years?
COVID-19 has inhibited and delayed union-organizing efforts. This is a function of state and local orders limiting large gatherings, the number of businesses that are closed or operating remotely, and suspensions of activity at the National Labor Relations Board (NLRB) (although the Board has since resumed representation elections).
The long-term effects of COVID-19 on unionization remain to be seen. There has been an overall decline in unionization in the private sector; today, less than 7% of the private sector workforce are covered by union contracts but there are differences in union density by location and by industry.
Certain business loans made available through the CARES Act were intended to aid unionization efforts. Employers applying for CARES loans were required to certify that they “will remain neutral in any union-organizing effort for the term of the loan.” The impact of this requirement is unclear at this stage; to date, it has not produced any noticeable surge in union organizing.
Even if union organizing increases, it is possible that union membership will decline. This is because of the pandemic’s harder impact on certain sectors of the economy. For example, the hospitality industry is significantly unionized but is also one of the hardest hit by the virus: the hotel industry may not recover to pre-COVID-19 employment levels until 2023.
There are, however, opportunities for unions.
As COVID-19 persists and workers fight for better protective gear and increased workplace safety, union initiatives to educate this new class of “essential workers” on organizing and its benefits are progressing with these safety concerns as their flagship issue. Today, there is no clear evidence of union success based on such efforts but union organizers play the long game.
COVID-19 is shaping up to be a central issue in the 2020 presidential race. This pandemic has enhanced the political polarization in the American population to the point that wearing or not wearing a mask is a political statement. Voters' views on the pandemic may be outcome dispositive in that election.
This impacts labor law in the USA because members of the NLRB are appointed by the president. Each change of presidential administration results in appointees who, over time, change the case law. Today, decisions of the Obama Board are being reversed by the Trump Board, with those to be reversed potentially by the Biden Board?
This flip-flopping is always temporary and makes planning difficult. Today’s NLRB case law may well not be the controlling law when a case that arises from today’s business decisions is tried and heard at the NLRB. Caution is needed in making business plans based on the volatility and short shelf life of NLRB case authority.
Another aspect of the presidential election’s impact on labor relations is the candidates’ positions on the Protecting the Right to Organize (PRO) Act. The PRO Act would codify worker-friendly changes to the law, shifting more power to workers and penalizing companies more harshly. Trump opposes this law; Biden favors this law.
Meanwhile, the general counsel (the NLRB’s chief prosecutor) has issued advice memos carving out COVID-19 exceptions. For example, one memo amends the rule forbidding unilateral changes without bargaining with the union: “an employer should be permitted to, at least initially, act unilaterally during emergencies such as COVID-19 so long as its actions are reasonably related to the emergency situation.”
The primary employment structure in the United States, including Illinois, is employment under the “at-will” rule. This default rule permits terminating the employment relationship at any time, with or without notice, and with or without cause. This is in stark contrast to the structure in place in most countries.
Employers are free to utilize contracts that limit their rights to terminate but need not do so. In order to preserve at-will status, global entities establishing a presence in Illinois and the USA should ensure that any communications or documents relating to applicants or employees do not inadvertently create contractual rights and specifically restate that employment is at-will.
Companies in the early stages of operations often use professional employer organizations (PEOs). Under this structure, the PEO is a joint employer and pays the employees, provides their health and welfare benefits, and handles various HR-related functions. A service agreement addresses commercial terms between the parties, including allocation of liabilities.
In recent years, companies have also experimented with alternative structures, such as independent contractors, consultants, gig workers, freelancers, or project workers. Those are synonyms: in each, the individual is not treated as an employee of the company. These structures are cheaper because the company does not provide benefits or pay employment taxes.
Recent legal developments have questioned the viability of these alternatives. Many states, including Illinois, have adopted the strict ABC test for determining contractor status under certain laws whereby a worker is presumed to be an employee unless the company can show all three prongs:
The second prong of the ABC test is the most difficult to prove because almost invariably the consultant’s services are related to a company’s usual course of business. Practically speaking, if the ABC test applies, a company’s use of contractors is limited to ancillary functions. Even without the ABC test, using contractors for core functions is adventurous strategy.
COVID-19 travel bans have created myriad difficulties for global companies. These limit the normal visitation between home and branch offices. These bans also impact reductions in force involving employees with nonimmigrant visas, since those employees will generally have to leave the USA within 60 days.
As another example, if an employee is in the process of obtaining a nonimmigrant visa but has sheltered in place outside of the United States, the individual cannot enter the USA until after December 31, 2020. Even then, there are safety concerns given that COVID-19 remains unchecked in the USA at anywhere near the levels elsewhere.
Each state has developed its own rules relating to COVID-19, which generally cover issues such as which businesses must be closed or limited, along with general rules on social distancing and wearing masks. Some cities, including Chicago, have their own health orders in place, demanding even more than their state orders.
For example, the City of Chicago has implemented travel orders requiring quarantine upon entry into the jurisdiction. This requires travelers entering or returning to the city from jurisdictions (including neighboring states) experiencing a surge in COVID-19 cases to quarantine for 14 days. There are fines but enforcement is negligible.
Business travel and business-related immigration will be significantly impacted throughout the pandemic. Absent a vaccine, the only precedent is the Great Flu pandemic of 1917-19. These limits, in short, are likely to continue well into 2021 until a vaccine is widely accepted as safe and proven to be effective.
It will be necessary to plan to manage US operations remotely for much longer. The fact that many entities have been successfully doing just that – conducting internal and external meetings, presentations and working sessions via videoconference – raises the question of whether this might not only be the “new normal” but also a more efficient and desirable system.
Stateside, employers look routinely to the Centers for Disease Control and Prevention (CDC) for guidance on how to operate safely and for forecasts of what to expect next. Business executives responsible for US operations and markets should have its website on their favorites bar to stay current: www.cdc.gov.
COVID-19 appears to be causing lower wage settlements. For the first time since 2011, the average wage increases in union contracts has fallen in consecutive quarters, with the second quarter of 2020 at 3.1%, down from 3.3% in the first quarter (which, in turn, was down from 3.5% in the third and fourth quarters of 2019).
Some bargaining agreements are being extended “as is” because the pandemic makes gathering to bargain in person too hazardous. Thus, numbers from the third and fourth quarters may confirm this wage trend. Yet, less wages may not reflect a decrease in the overall economic package, as labor unions redirect their bargaining demands to focus on healthcare and time off.
Collective bargaining about non-economic issues has become more important but tends to be localized; contract clauses on the equalization of overtime, for example, are added where employees have grown dissatisfied with how management handled that aspect of their work life. But COVID has created novel problems that are more than local and thus some generic issues for this next round of bargaining. International unions such as the Teamsters and Steelworkers are providing national guidance for local bargaining.
Over the next year, there will be a widespread focus in bargaining on the employer’s obligation to provide (and pay for) personal protective equipment (masks, gloves, etc) as well as to modify workstations to permit distancing. Concomitantly, there will be demands for “hazard pay” for jobs involving customer (or, more starkly, patient) contact, as well as the right to refuse to work.
The bargaining results achieved on these issues will affect union contracts for years to come.
COVID-19 will also influence attempts to unionize, with workplace safety and job security assurances as pitch points to organize non-unionized workers. Unions have historically offered the highest value proposition as a means of job security and worker safety so this is a time that is ripe due to the pandemic and the responding shutdown orders causing job losses.
Perceived inaction by government authorities will add impetus to such organizing drives and may create a unique opportunity for unions to thrive. Any such union success will increase the business incentive to substitute capital for labor. Robots have already replaced more manufacturing jobs than offshoring, and automation is expanding rapidly in every aspect of the economy, including the service sector.
Employers are prohibited under the Illinois Human Rights Act from discriminating against applicants based on race, color, religion, sex, national origin, ancestry, age, order of protection status, marital status, physical or mental disability, military status, sexual orientation, pregnancy, or unfavorable discharge from military service. That law also bars employers from asking about an applicant’s arrest record.
Each of these categories is a subject area where inquiries either on applications or in interviews are often problematic. For example, asking about age creates evidence that older applicants will be rejected due to age discrimination. Asking about a job-related ability (eg, “can you lift 40 lbs?”) is permissible but asking about disabilities (eg, “have you ever had back surgery?”) may be unjustified.
Other Illinois laws also regulate employers’ actions during the hiring process.
Reasonable restrictive covenants can be enforced in Illinois. Such a covenant is reasonable if it “(1) is no greater than is required for the protection of a legitimate business interest of the employer-promisee; (2) does not impose undue hardship on the employee-promisor; and (3) is not injurious to the public.”
The prevention of ordinary competition from a former employee is not a legitimate interest, and courts will not enforce a contract merely to prohibit ordinary competition. There must be some greater basis of employer need.
Even if the employer does have a legitimate business interest to support a restrictive covenant, the actual terms of the restriction must be reasonable in time, in geography, and in scope of the activity restrained.
Beyond that framework, there are three other recurring issues in Illinois cases.
Biometric technology (eg, fingerprint or facial recognition) is now commonplace in employment timekeeping systems and, in some situations, for other purposes. Employers using this technology in Illinois must comply with Illinois’ Biometric Information Privacy Act (BIPA), which imposes a series of requirements, including:
There is an epidemic of class-action lawsuits in Illinois over alleged BIPA violations. Most commonly, those violations center on the failure to obtain written consent from the affected employees. Such class actions pose a significant exposure to employers with biometric timekeeping systems.
BIPA creates a private cause of action for any person “aggrieved” by violations. The Illinois Supreme Court held in Rosenbach v Six Flags Entertainment Corp., 129 N.E.3d 1197 (Ill. 2019), that a plaintiff need not suffer any actual harm to be considered an “aggrieved” person who has standing to sue under BIPA.
There is a USD1,000 statutory penalty for each violation. Lawsuits allege a separate violation for each time an employee uses biometric data to clock in or out. Thus, in a simple situation of in and out only once per day, there is USD10,000 exposure for each employee for each week. A settlement of USD3.2 million for 4,000 current and former employees of the Corner Bakery restaurants is illustrative of the risk of noncompliance.
Outside of biometric privacy, Illinois has no other statutes affecting employment privacy. Illinois does not currently have a law comparable to the EU’s General Data Protection Regulation (GDPR) or to California’s Consumer Privacy Act (CCPA). There are pending proposals in the Illinois legislature to enact a law in Illinois like the CCPA but no such law has yet passed.
There is nonetheless a common law tort remedy available to employees whose privacy is invaded by their employer. For example, in Lawlor v North American Corp., 2012 IL. 112530 (2012), an ex-employee prevailed in such a claim where her employer hired detectives to impersonate her in order to get her phone records to check whether she had been directing business to competitors.
Social change inexorably alters the workplace. For example, studies of “implicit bias” have affected training for over a decade. This remains a factor in both internal discussions and in training, even though its impact as legal evidence was marginalized in Wal-Mart v Dukes, 564, U.S. 338 (2011).
Similarly, the Me Too movement brought renewed attention to the handling of harassment claims, especially internal investigations. Consider one simple but significant alteration. Historically, internal investigations failed to evaluate credibility; “he said/she said” disputes resulted in no action. No more; today’s best practice is to make sound credibility judgments.
Both of those social changes filtered quickly into the workplace because of media exposure. When rank-and-file workers incorporate key terms into their own vocabulary and their own grievances, corporate human resources must immediately adapt. Further, at that point, public accusations referencing key terms such as Me Too risk brand damage in media coverage.
Black Lives Matter has now moved into the collective consciousness of workers and corporate decision-makers. Initially, businesses focused on brand protection. This included public statements recognizing the problem of racial injustice or committed to helping combat racial injustice via donating to organizations specializing in combatting racial injustice.
The select employers who stand out as leaders in the fight for racial justice have done much more. Such standout employers have implemented concrete measures calculated to bring about meaningful, positive, and long-lasting change to improve racial equality in their own workforce, all the way to the C-suites. Those concrete measures have included the following.
Nationally, the Occupational Safety and Health Administration (OSHA) oversees workplace safety. While its statute’s most-cited requirement is that employers must provide employees with workplaces free from recognized hazards, OSHA has published only recommendations, not requirements, regarding COVID-19 safety.
States have inconsistent regulations on COVID-19 safety. Requirements for masks are not uniform and have been changing as case counts ebb and flow. That same pattern of change recurs in determinations of which businesses are “essential” and can remain open. Given that, location selection based on state regulation of COVID-19 safety just isn’t feasible.
Each state administers a workers’ compensation program to reimburse workers for injuries and illnesses “arising in and out of the course” of employment. Each state’s law defines what is covered, how claims are litigated, and when workers’ compensation is no longer “exclusive”; ie, when employees may sue in court for workplace injuries or illnesses.
Establishing that an injury occurred at work is oft-litigated but especially difficult to prove for cases of COVID-19. As a result, Illinois and some other states have created a rebuttable presumption that COVID-19 is covered by workers’ compensation. Illinois’ statute applies only to individuals diagnosed between March and December 2020.
The concept of a “public nuisance” tort exists but is loosely defined as an “unreasonable interference with a right common to the general public.” In Illinois case law, it pops up periodically; eg, the unsuccessful suit by the City of Chicago against gun manufacturers and distributors for their contribution to violence.
COVID-19 has inspired suits in Illinois and elsewhere advancing legal claims that an employer’s inadequate response to COVID-19 creates a public nuisance. These suits seek injunctive relief to force the defendant employer to modify its conduct. Each such suit is fact-intensive; so far, there are few such cases and no clear legal pattern.
McDonald’s franchisees in Illinois faced such a public nuisance suit. There, a judge granted a preliminary injunction finding that the possibility of infection was “highly probable” due to inadequate training on implementing McDonald’s facially satisfactory COVID protocols. That public nuisance injunction required more training on social distancing and required enforcement of masking standards. At the same time, these employees’ negligence claims were dismissed as speculative.
COVID-19 has created new considerations for multinational employers looking to create a presence in the United States. Decision-makers for such employers deciding where in the United States to locate should now consider the following issues related to employee compensation and benefits.
Beyond those, the traditional compensation considerations remain: where is there a capable workforce with sufficient capacity to recruit the team needed, what is the cost of living there and how will it impact salary cost, what is the impact of state income tax on take-home earnings and how will it impact salary cost, etc.
COVID-19 may affect employee preferences in compensation. Experiences during the pandemic (including media coverage) provide a constant reminder of the importance of health insurance as a benefit and of the significance of liberal leave policies (especially for families with school-age children whose education is now homebound).
When termination of an employee is up for discussion, there are a series of key questions.
First, is this employee other than at-will? Some employees may have a written contract requiring termination only for cause; others may be covered by union contracts that likewise impose a just cause standard.
Second, how have comparable situations been handled? Given the risk of employment discrimination claims, it is important to assess if like violations of work rules are being treated alike. Is this a violation for which termination without prior warnings is standard procedure?
Third, is this part of a larger pattern of layoffs that might trigger WARN notices for a mass layoff? There are 90-day “look-forward” and “look-back” provisions under the Worker Adjustment and Retraining Notification Act to determine if its requirements for 60 days' advance notice must be met.
Fourth, is this employee subject to a non-compete or with access to trade secrets? Such employees should be reminded of their obligations; likewise, there need to be protocols to stop access to computer systems and to retrieve information upon termination.
Fifth, what will be owed to this employee on termination? Illinois law treats accrued vacation as a wage that must be paid on termination. There may also be other entity-specific or employee-specific issues; eg, bonus or stock grants.
Sixth, what is the best timing? Balance caution in giving a final warning versus other risks. Employees who sense that termination is imminent often take steps that make termination more difficult by filing workers’ compensation claims or applying for FMLA (the Family and Medical Leave Act) leave.
Seventh, prepare for the inevitable. Is the paperwork ready to provide the requisite notices for insurance benefit continuation under COBRA (the Consolidated Omnibus Budget Reconciliation Act)? Has a decision been made on how to handle requests for references from future employers? What will be said to the Illinois Department of Employment Security in response to any application for unemployment benefits?
Finally, is this a situation where there is a reason to propose a severance agreement in trade for a release and perhaps other items? If so, is this an individual who is 40 or older (where compliance with the release standards under the Older Worker Benefit Protection Act will be necessary to make the release effective as to age discrimination claims)? Is confidentially desirable? If so, can this severance package be structured to comply with the Illinois Workplace Transparency Act to achieve that goal?
When termination occurs during the COVID-19 pandemic, there is one additional consideration: is termination actually necessary? Many employers have opted for furloughs rather than terminations when forced to cut back during this pandemic. There are practical and legal advantages to furloughs when there is an appreciable likelihood of calling back these employees in short order.
Illinois is an at-will employment state. No written contracts of employment are required; plus, in the absence of a contract, the legal presumption is that the employee or the employer may terminate the employment relationship at any time and for any reason. Employment contracts exist but only for segments of the workforce (eg, teachers, entertainers, professional athletes, and C-suite executives).
Terminated employees sometimes claim that there is an implied contract based on noncontractual documents (and less often based on an oral promise, which is difficult to enforce due to the statute of frauds). In Illinois, an employee handbook or other policy statement may rebut the at-will presumption. In other words, the handbook provisions or policy statements may constitute an implied employment contract.
For example, in Duldulao v Saint Mary of Nazareth Hospital Center, the Illinois Supreme Court held that an employee handbook may create enforceable contractual rights if the traditional requirements for contract formation are present: (i) a clear promise, (ii) dissemination in a manner that the employee reasonably believes it to be an offer, and (iii) acceptance by commencing or continuing to work after learning of that text.
Employers post-Duldulao routinely incorporate an at-will disclaimer in offer letters, handbooks, or other company policy manuals to avoid that result. There is wide flexibility in styling such disclaimers but those typically not only announce at-will status but also foreclose any alteration except by a signed written contract: "Your employment with [employer name] is at will. You have the privilege to terminate your employment at any time and for any reason; [employer name] will have that same privilege. Nothing in this handbook alters that privilege. Rather, the at will employment status may be altered only in a written agreement which is signed by you and by the President of [employer name]."
If a contract exists, the employer may face liability for breach. In Illinois, a plaintiff must establish (i) a valid contract, (ii) his or her performance, (iii) breach by the employer, and (iv) resultant injury. Contract damages are economic damages only; there is no recourse to damages for emotional distress, reputational loss, or punitive damages.
But, the absence of a contract claim does not mean the absence of liability for an employment termination. There may be other claims applicable; eg, discrimination claims, claims under other statutes (such as WARN for an improper plant closing), or tort claims. In comparison, contract claims are rare in Illinois.
COVID-19 is unlikely to impact the use of contracts or the frequency of contract claims.
The Illinois Human Rights Act tracks federal law in prohibiting discrimination and harassment based on age (40 and over), disability, race, color, religion, national origin, and sex (including pregnancy and sexual orientation), as well as related retaliation. Uniquely, Illinois also adds more protected categories, including “actual or perceived” membership in those categories.
Illinois also proscribes the use of arrest records in employment decisions (unless required by law), and the use of limits on languages being spoken (unless work-related). It also expands who is liable with coverage of conspiracies to retaliate as well as aiding and abetting of unlawful discrimination. Unlike federal law, Illinois does not cap non-economic damages.
Employees must file an administrative charge with the Illinois Department of Human Rights but then can acquire the option to file suit in court with a jury trial. Cases litigated at the Department are processed by administrative law judges with no jury. Discharge claims are most common but discrimination can be alleged over other issues, too.
Sometimes, the numbers belie the assumptions on what drives charges. For example, the latest annual report of the Department shows a decrease in the number of charges in recent years: 2,442 in fiscal year 2018 versus 2,748 in 2017 and 2,914 in 2016. Likewise, the impact of Me Too is not seen in those numbers, with only 425 charges of harassment versus 889 charges of retaliation.
Perhaps these numbers are muted by the availability of filing with the parallel federal agency instead or by a time lag between social movements such as Me Too and the actual filings. Perhaps, however, actual litigation choices are made for reasons separate and distinct from what plays in media headlines.
Anecdotally, Black Lives Matter might well be expected to increase the number of charges of race discrimination. COVID-19 might well be expected to increase the number of charges of disability discrimination or sex-plus discrimination (so-called caregiver discrimination). However, numbers are not yet available to confirm that hypothesis.
There is now a separate consideration for handling all employment agreements, including agreements settling discrimination claims. Under Illinois’ Workplace Transparency Act, no agreements may restrict reporting unlawful conduct to government officials for investigation. Likewise, an employer may not unilaterally include any clause in a settlement agreement that prohibits truthful statements or disclosures regarding unlawful employment practices.
Under the Workplace Transparency Act, agreements may only include promises of confidentiality if:
Failure to comply renders any promise of confidentiality unenforceable.
Like many states, Illinois has laws providing more than the federal Fair Labor Standards Act (FLSA). For example, the Illinois Minimum Wage Act (IMWA) not only parallels the FLSA in mandating overtime for hours in excess of 40 per week but also imposes a minimum wage of USD10 per hour in 2020 (and increasing annually), which is higher than the federal standard.
There is a separate law, the Illinois Wage Payment and Collection Act (IWPCA), that establishes when, where, and how often wages must be paid. Recent amendments to the IWPCA also require employers to reimburse necessary expenditures or losses incurred by employees within the scope of employment.
Then, there is the Illinois One Day Rest In Seven Act (IODRISA), which provides employees with a minimum of 24 hours of rest in each calendar week and a meal period of 20 minutes for every 7.5-hour shift. Employees may, however, voluntarily work on their designated day off.
Operating during the COVID-19 pandemic adds to compliance burdens under these laws. When employees work from home, tracking time becomes more fraught. Employers must refine or adapt systems to ensure that all time worked is reported and paid, that meal breaks are available, and that the workweek is confined to six days. While these issues exist in a traditional workplace, the opportunity for missteps heightens where there is no line-of-sight supervision.
There are additional considerations if an employer reduces salaries or reduces hours due to COVID-19 for overtime-exempt employees. Shifting week by week destroys the salary basis for exempt status. Further, if an exempt employee’s salary is reduced, it cannot be reduced below the statutory level for the salary basis test (USD684) without losing exempt status.
Finally, certain localities have paid sick leave ordinances. In Cook County (Chicago and its immediate suburbs), employers are required to provide 40 hours of paid sick leave in each 12-month period of their employment. This sick leave can be used by employees affected by COVID-19 in addition to leave provided by the federal Families First Coronavirus Response Act.
Enforcement of these laws is double-tracked. The Illinois Department of Labor (ILDOL) has investigative and enforcement authority; individual employees can seek relief from ILDOL. Separately, employees have the right to sue in court for violations; class-action suits are common and are the high-risk lawsuit for employers in this context.
In terms of exposure, Illinois law has some unique features.
The IWPCA has a ten-year statute of limitations: far longer than the typical employment statute (eg, three years under the IMWA). It also allows for recovery beyond actual damages: a penalty of 2% of that amount for each month those wages have been left unpaid.
The IMWA now has a provision for treble damages. It also allows for recovery beyond those damages: a penalty of 5% of the amount of actual damages for each month those wages have been left unpaid.
The Illinois Whistleblower Act prohibits retaliation against an employee for disclosing information in a court, commission, or administrative forum that she has reasonable cause to believe violates a state or federal law, rule, or regulation. The Act also prohibits retaliation against an employee for refusing to participate in an activity that would result in such a violation.
Employees in Illinois can also bring common law claims for certain retaliatory discharges. To state a claim, an employee must allege that (i) the employer discharged the employee, (ii) in retaliation for the employee’s activities, and (iii) the discharge violates a clear mandate of public policy.
Illinois courts have recognized such common law claims where an employee is terminated for filing a workers’ compensation claim and where the employee reported potentially illegal conduct internally at work or externally to government authorities. While the concept of “public policy” is broad and open-ended, Illinois courts have been cautious in expanding the reach of this common law tort.
There are differences between the two types of claims. Common law claims are limited to discharge, while the Illinois Whistleblower Act proscribes any retaliatory conduct. Additionally, common law claims permit recovery of punitive damages, but do not allow for recovery of attorney’s fees, while the Whistleblower Act allows fee recovery but not punitive damages.
Employees who face adverse employment actions after raising COVID-19 safety concerns may seek protection under the Illinois Whistleblower Act. However, more specific protections have been enacted by the City of Chicago. There, a new ordinance prohibits retaliation against an employee who remains home to comply with public health orders or for other COVID-19-related reasons.
Violations of this Chicago ordinance will subject employers to penalties or fines, and the ordinance provides a private right of action to seek reinstatement, damages equal to three times the full amount of the employee’s wages that would have been owed absent the retaliatory action, actual damages, and attorney’s fees and costs.
There are also whistle-blower provisions embedded in other Illinois laws but limited to specifically protected employee action under those statutes. For example, that is true of the Illinois Nursing Home Care Act, the Illinois Wage Payment And Collection Act, the Illinois False Claim Act, and the Illinois Toxic Substance Disclosure Act.
Implicit bias has long been a feature of workplace training. So has sexual harassment; the Me Too movement has merely amplified the need for better training on and handling of reports of alleged harassment. That training ranges from online programs requiring less than an hour to full-day seminars.
There is no federal law mandating harassment training. There are, however, state laws in California, Connecticut, Delaware, Illinois, Maine, and New York. Such laws are a starting point, but will not suffice for those employers seeking to provide an inclusive culture for women and a workplace that reverses the history of tolerating sexual harassment in all its forms.
More suggestions on training in light of the Black Lives Matter movement are set out in 4.3 Discrimination, Harassment, and Retaliation Issues. Such training informs the workforce and sets a tone that discriminatory behavior will not be tolerated, thereby driving compliance. Plus, training creates an opportunity to connect in smaller groups and encourage reporting early to facilitate quick corrections.
Senator Kamala Harris’ current dilemma illustrates the spillover from Black Lives Matter to dispute resolution. Her husband’s law firm has arbitration agreements with its employees permitting private resolution of discrimination claims. She is now being called upon to denounce her husband’s law firm for its use of arbitration.
This will not be the only attempt to shame an employer out of its chosen dispute resolution system.
Such systems are fair and perfectly proper; their use is guaranteed by the Federal Arbitration Act. But the free speech rights of employees and public interest groups still permit efforts to huff employers into backing down (as happened to Mayor Bloomberg during the presidential debates earlier in the year over his business’ usage of nondisclosure agreements).
There have been efforts in certain states to ban arbitrations of sexual harassment or other discrimination cases. There is no such law in Illinois. But a New York law with such a ban was struck down by a federal court judge in Latif v Morgan Stanley & Co., LLC (S.D.N.Y. 2019). Such state laws are pre-empted by the Federal Arbitration Act.
Another aspect of these social movements has been legislation limiting or banning nondisclosure agreements in settling such claims. Illinois does have such a law: the Illinois Workplace Transparency Act (which is detailed in 6.2 Discrimination, Harassment, and Retaliation Claims). That law permits confidentiality but only if certain conditions are met.
Class actions and collective actions are procedural vehicles for bringing large numbers of employees into court as plaintiffs. The difference is between opt-out (class actions) and opt-in (collective actions). It takes an affirmative act for an employee to opt out of a class and an affirmative act to opt into a collective. The numbers who do are typically small: opt-out rates in class actions are less than 5%, while opt-in rates in collectives are estimated at under 30%.
Collective actions are a unique feature of the FLSA. Such suits are widespread (almost 10,000 per year) and challenge issues of statutory noncompliance; eg, classification of which jobs are overtime exempt, calculation of overtime rates, and/or “off-the-clock” time. The implementation of work-from-home schemes during COVID-19 will add more such off-the-clock claims.
Class actions appear routinely for other statutory employment claims.
COVID-19 has prompted closings and mass layoffs. Those create the potential for class actions under WARN if the mandated 60 days’ advance notice was not given. The applicability of the statutory exception for unforeseen business circumstances is a defense but the exposure risk of 60 days’ pay for each affected employee may prompt settlements.
Employment discrimination has long been a mainstay for class actions. An easy illustration is the pending class action by the USA women’s soccer team in their claim for gender equality with the USA men’s team in terms of pay. Other discrimination class actions challenge discrimination in promotions, hiring, or terminations. Statistics are typically critical in such cases.
Another federal statute that is driving class-action claims is the Fair Credit Reporting Act, which imposes detailed procedural requirements when employers utilize background checks in hiring. Locally, the most frequent class action for Illinois employers has been litigation under the Illinois Biometric Information Privacy Act, which caught employers by surprise with its requirements (eg, written consent) for use of biometric timekeeping systems.
Employers seeking to avoid class claims have made arbitration agreements with each employee a condition of employment. Such agreements include waivers of any class or collective actions. The US Supreme Court has approved the use of arbitration in employment and class-action bans in arbitration agreements. However, whether arbitration is the right solution for any given business requires weighing.
Employment law remedies begin with “make-whole” relief: putting the aggrieved employee in the same position that would have occurred but for the employer’s violation of the law. This involved back pay (minus any interim earnings) plus reinstatement. That scheme is the original baseline for employment discrimination claims but it has been expanded.
Now, Title VII also permits damages for emotional distress and punitive damages (albeit subject to a cap of USD300,000 per plaintiff). Other discrimination statutes (eg, the Illinois Human Rights Act for emotional distress) permit such relief but with no caps. Plus, when reinstatement is not feasible, there are also claims for front pay under all these statutes.
There are, however, other remedial systems that are specific to individual statutes.
Some employment statutes utilize an alternative system of actual damages and then an additional equal amount as “liquidated damages.” This is the format for violations of the FLSA and for subsequent statutes that have adopted its enforcement system: the Equal Pay Act, the Age Discrimination In Employment Act, and the FMLA.
Still other statutes have implanted a penalty per violation system. The Fair Credit Reporting Act has minimum statutory damages from USD100 to USD1,000 per violation. BIPA has penalties of USD1,000 for negligent violations and USD5,000 for intentional or reckless violations. OSHA also has penalties.
WARN is unique among the federal employment statutes in its remedial provisions. There, the remedy is 60 days' pay for each employee in a plant closing or mass layoff who was not given the advance notice mandated by this federal law.
Under Illinois law, there is now a treble damage provision under the IWMA along with 5% of any such underpayment for each month following the date of payment during which such underpayments remain unrectified. The IWPCA adds an additional 2% per month penalty.
This is further complicated in a single-plaintiff case when violations of multiple statutes or of statutes plus common law claims are added to the mix. Class and collective actions expand exposure; there, the individual exposure is multiplied by the number of class members.
Finally, it is important to add that employment statutes almost always allow employees who prevail to receive their attorney's fees awarded in addition to their damages; in contrast, employers are almost never entitled to their fees as a prevailing party. This is a significant consideration in whether to settle claims and when to settle.
Legal Developments in Illinois Affecting Employee Mobility
Any company considering doing business in Illinois faces numerous questions: is there a market fit for the product or service? Can the company find the right person to lead the business? What steps does the company need to take to be successful in the days, weeks, months, and years ahead? Aside from those important business issues, employers also must tackle various legal issues.
This article focuses on three legal issues related to employee mobility law in Illinois, all of which are key to starting and maintaining a workforce in the state. First, there is the current split between state and federal courts in Illinois regarding sufficient consideration for restrictive covenant agreements (ie, non-compete restrictions and employee or customer non-solicit restrictions). Second, there is the “inevitable disclosure” doctrine under trade secret law and its impact on employers’ ability to hire employees from competing companies. Third, there is the legal framework to evaluate what conduct new employees can engage in when subject to employee or customer non-solicit restrictions with their previous employer.
Illinois restrictive covenants: how much consideration is enough?
Illinois employers typically have an interest in protecting their proprietary information, and that interest often manifests in the form of a non-compete agreement for executive or senior-level employees. That interest is further amplified for companies that are new to Illinois who do not want to hire an executive, disclose the company’s trade secrets and business plans, and then have that same person quickly leave to start a competing company.
One key legal issue relates to whether the initial job offer is sufficient consideration for an enforceable restrictive covenant. Fifield v Premier Dealer Servs., Inc., 993 N.E.2d 938, 943 (Ill. App. Ct. 2013) is an often-cited decision holding that “there must be at least two years or more of continued employment to constitute adequate consideration in support of a restrictive covenant.” Fifield ultimately found that an employee’s non-solicitation and non-compete restrictions were unenforceable because the employee resigned after working for just three months, which was “far short of the two years required for adequate consideration under Illinois law” (id).
Post-Fifield there are two main issues: (i) whether there is a two-year bright-line test that the employee must be employed that long for a restrictive covenant to be enforceable (regardless of whether it is a termination or voluntary resignation) and (ii) whether the court will examine consideration beyond continued employment – a signing bonus, training, extra vacation days, etc – in determining whether the covenant is enforceable.
On the bright-line issue, there is a split, with many Illinois federal courts rejecting the bright-line test in favor of a fact-specific analysis, which often considers whether the employee voluntarily resigns or was employed for a substantial period of time. For example, a federal court in R.J. O'Brien & Assoc., LLC v Williamson, 2016 WL 930628 (N.D. Ill. Mar. 10, 2016) rejected the two-year bright-line rule in favor of a fact-specific test where the former employee quit after one year to work for a competitor. That court found that the restrictive covenant had adequate consideration because the former employee was paid a generous salary and sponsored into a commodity trading association, noting that “two years may be sufficient to find adequate consideration, but it is not always necessary” (id at *3); see also Cumulus Radio Corp. v Olson, 80 F. Supp. 3d 900, 905-09 (C.D. Ill. Feb. 13, 2015) (rejecting the two-year bright-line test and finding that 21 months of continued employment and the fact that the employee voluntarily resigned constituted adequate consideration; noting that it need not consider whether the contract “was supported by additional consideration such as compensation, training, and client entertainment benefits”).
State courts, however, have followed Fifield and held that insufficient consideration existed for a non-compete restriction where, for example, the employee resigned 19 months into employment and the only consideration was the initial job offer; see Prairie Rheumatology Assoc., S.C. v Francis, 24 N.E.3d 58, 62 (Ill. App. Ct. 2014) (rejecting former employer’s argument that the following were sufficient consideration: “assistance in obtaining hospital membership and staff privileges, access to previously unknown referral sources and opportunities for expedited advancement”).
On the issue of consideration beyond continued employment, Illinois state and federal courts generally express a willingness to examine what consideration beyond initial employment – a bonus, extra vacation days, training, sponsorship into a program, etc – is sufficient for a restrictive covenant:
In sum, consideration issues will bedevil employers seeking to enforce a restrictive covenant in Illinois. Prudent employers now consider offering additional consideration for all restrictive covenants, especially non-competes since they are more burdensome than a customer or employee non-solicit. This additional consideration could be in the form of a signing bonus, a promotion, an end-of-year bonus, specialized training, etc.
With that consideration in place and fully reflected in the text of the employment agreement, the next step is customizing restrictions that are reasonable in defining the banned activities, the time period of restriction, and the scope (geographical or otherwise) of the banned activities. But without sufficient consideration, all employers run the risk of employees leaving before two years of employment in order to join or start a competing business.
Inevitable disclosure: a non-compete in disguise?
Beyond the traditional non-compete, Illinois employers must be aware of the concept of inevitable disclosure, both as a weapon (against former employees) and as a threat (against new employees hired from competitors). Under the inevitable disclosure doctrine, a plaintiff can “prove a claim of trade secret misappropriation by demonstrating that defendant’s new employment will inevitably lead him to rely on the plaintiff’s trade secrets” (PepsiCo, Inc. v Redmond, 54 F.3d 1262, 1269 (7th Cir. 1995)).
PepsiCo is the landmark case in Illinois on inevitable disclosure. There, the former employee worked for PepsiCo managing its sports drink All Sport for all of California. He had knowledge of the strategic plan, annual operating plan, and market attack plans for the All Sport drink, but he was not subject to a non-compete. The former employee accepted a position of vice president of sales for Gatorade at Quaker Oats. PepsiCo filed a lawsuit against the employee for trade secret misappropriation, alleging that the employee was unfairly armed with its plans for distribution, packaging, pricing, and marketing – ie, “PepsiCo finds itself in the position of a coach, one of whose players has left, playbook in hand, to join the opposing team before the big game” (id at 1270).
Without a non-compete, the former employee should have been free to work for Quaker Oats, right? Wrong. The district court enjoined the former employee from working for Quaker Oats for a period of six months, and the Seventh Circuit affirmed because of “the demonstrated inevitability that Redmond would rely on... trade secrets in his new job at Quaker” (id at 1271).
In the years since PepsiCo, Illinois courts have both granted and denied injunctions under the inevitable disclosure doctrine. Courts consider three factors in determining whether disclosure of trade secrets is inevitable: (i) the level of competition between the former employer and the new employer, (ii) whether the employee’s position with the new employer is comparable to the position he or she held with the former employer, and (iii) the actions that the new employer has taken to prevent the former employee from using or disclosing trade secrets of the former employer. The mere fact that a person takes a similar position at a competitor does not, without more, make it inevitable that he or she will use or disclose trade secret information.
The application of those factors is best illustrated by surveying sample cases.
Granting an injunction for a former employer
Risk of disclosure in a new job
Theft of documents before leaving
Denying an injunction for a former employer
No risk of disclosure in the new job
No theft of documents
This post-PepsiCo case law in Illinois provides important guideposts.
Injunctions are more likely when the former employee took trade secret information before leaving to work for a direct competitor in a similar role. When hiring, employers should make sure that new employees do not bring any trade secret documents from a former employer. Conversely, former employers may want to run forensic computer analysis on departing employees who join competitors in positions that could potentially harm the business.
Injunctions are unlikely where the two companies do not substantially compete or when the trade secrets are not specific. A reliance on general business practices and processes is not detailed enough to support inevitable disclosure of trade secrets.
Injunctions can be obtained in inevitable disclosure cases even without a non-compete.
Sometimes, it is possible to enjoin a former employee from working entirely (see PepsiCo); alternatively, an injunction might ban working in a specific division of the business (see Tate & Lyle).
Non-solicitation: what does it mean to “solicit”?
Beyond issues concerning full-on restrictive covenants (“thou shalt not work for anyone in the widget industry for...”) and inevitable trade secret disclosure, employers also need to consider their smaller siblings: restrictions on soliciting the former employer’s customers and restrictions on soliciting the former employer’s employees.
Here are three guidelines to keep in mind.
First, solicitation in Illinois “does not hinge on who contacts whom” (Gateway Systems, Inc. v Chesapeake Systems Solutions, 2010 WL 3714588 (N.D. Ill. Sept. 14, 2010)). Instead, Illinois courts “have defined solicitation to encompass any direct contact that the recipient would understand as a solicitation for business” (id). Thus, a former employee can violate a non-solicit even if he or she contacts clients “merely to inform them he has changed employers, as the clients might understand that as a request to move with him to the new company” (YCA, LLC v Berry, 2004 WL 1093385 at *10 (N.D. Ill. May 7, 2004)).
Second, solicitations sent during the restricted period, “even if the person is only soliciting the recipient to give... business after the non-solicitation period expires” can violate a non-solicit restriction (Henry v O'Keefe, 2002 WL 31324049, at *5 (N.D. Ill. Oct. 18, 2002)). In Henry, the court found that the former employee had violated her non-solicit by sending out letters saying that she could not work for clients for another year but asking them to keep her in mind if other companies needed her help. The court granted an injunction for the former employer because the employee’s communications were “fairly understood, and the Court believes it was intended, as a solicitation for a business relationship that would take effect following the prohibited period in the Agreement – and thus was a prohibited solicitation whether or not O’Keefe subjectively intended to violate the Agreement’s terms” (id).
Third, general advertisements to the public are not solicitations. In Smith, Waters, Kuehn, Burnett & Hughes, Ltd. v Burnett, 548 N.E.2d 1331 (Ill. App. Ct. 1989), the court denied an injunction and found that the individual did not violate a non-solicitation restriction by placing general advertisements in newspapers because solicitation “implies personal petition and importunity addressed to a particular individual to do some particular thing” that was not met with a general newspaper advertisement (id at 1336).
With these guidelines, employers should screen new hires to determine whether the new employee is subject to any such restrictions. Then, employers must be sure to monitor any new employee activity that potentially constitutes solicitation of former employees or customers. Illinois courts' broad view of what it means to “solicit” necessarily creates legal risk for employers that makes such screening and monitoring a worthwhile precaution.