USA Regional Employment 2019 Second Edition

Last Updated September 30, 2019

Illinois

Law and Practice

Authors



Ogletree, Deakins, Nash, Smoak & Stewart, P.C. is one of the largest labor and employment law firms representing management. The firm has more than 850 labor and employment lawyers located in more than 50 offices across the United States and in Europe, Canada, and Mexico. Ogletree Deakins has a well-developed footprint and is dedicated to providing professional, cost-effective services across the full spectrum of labor and employment law. The firm represents a diverse range of clients, from start-up companies to Fortune 50 corporations.

In a 'gig' or 'sharing' economy, temporary and flexible positions are common as companies move towards hiring independent contractors and freelancers as opposed to full-time employees. Gig economy companies are penetrating the economy and affecting the job market at a swift rate. These include ride-sharing companies, and other gig entities that connect consumers with providers of services such as on-demand dog walking, food delivery, liquor delivery on demand, and bartending for parties. 

Most of these companies operate through the use of apps accessible through a smart phone or tablet. The customer requests the service and a worker carries out the service, whether it is delivery, chauffeuring, or another freelance service. In some situations, the gig worker interacts with the company exclusively through cyberspace – there are no in-office meetings or training, communication is strictly via email or through social media, and no supplies or equipment are rented by the worker or given by the employee.

The primary employment law issues gig economy companies face is the treatment of these workers as independent contractors. Depending on the state and applicable legal tests, these gig workers may not fit neatly into either the definition of 'employee' or the definition of ''independent contractor'. This results in both intricate legal battles and significant lobbying efforts.

If a gig worker is classified as an independent contractor, the employer does not have to pay minimum wage, overtime, payroll taxes, sick leave, unemployment insurance, workers’ compensation, or health insurance. Many gig companies classify their workers as independent contractors, oftentimes incorrectly.

Illinois agencies apply several tests to determine whether someone is an employee or independent contractor, including the 'ABC' test, adopted by the Illinois Department of Employment Security (IDES) (which administers unemployment compensation) and the Illinois Department of Labor (IDOL) (which enforces Illinois wage and hour laws). This test is difficult for many gig economy companies to satisfy, and individuals are rarely classified as independent contractors when this test is applied. Under the ABC test, to be considered an independent contractor, the individual must:

  • be free from control or direction over the performance of his services, both under his contract of service and in fact; and
  • such service must be performed either outside the usual course of the employer’s business or outside all of the employer’s places of business; and
  • the individual must be engaged in an independently established trade, occupation, profession, or business.

More and more Illinois gig workers have been filing unemployment compensation claims, and the IDES frequently finds that the gig worker is an employee and thus entitled to unemployment benefits. Similarly, temporary or seasonal workers may be deemed employees, especially if the employer is setting the schedule, giving direction and orders, and requiring the workers to comply with its policies.

The “Economic Realities” Test

To determine whether a person is an independent contractor or an employee under various Illinois employment laws, including the Illinois Workers' Compensation Act and the Illinois Human Rights Act (see, for example, 3.1 Legal and Practical Constraints, below), courts apply the 'economic realities test' and consider the following factors:

  • the extent of the company’s control and supervision over the employee;
  • the kind of occupation and nature of skill required, including whether skills were acquired on the job;
  • the company’s responsibilities for the costs of the operation;
  • the method and form of payment and benefits; and
  • the length of the job commitment.

Although the economic realities test requires the evaluation of all factors, the most important factor (and the one accorded extra weight by courts) is the extent of control the employer has over the worker.

Companies found to have misclassified an 'employee' as an independent contractor may be held liable for unemployment compensation and workers’ compensation fines, in addition to possible civil penalties. Thus, a global entity seeking to establish or enhance its Illinois presence must be careful when classifying its workers. Officers and management employees may be personally liable if they wilfully cause the company to fail to make payments into the system. 

In the workers’ compensation context, an employer that knowingly and wilfully fails to obtain insurance may be fined up to USD500 for every day of non-compliance, with a minimum fine of USD10,000. Corporate officers who are found to have negligently failed to obtain insurance are guilty of a Class A misdemeanour. If they are found to have knowingly failed to obtain insurance, they are guilty of a Class 4 felony.

As in the rest of the USA, Illinois has experienced an increase in workplace sexual harassment claims, and such claims routinely result in negative publicity for individuals and companies accused of engaging in, or merely tolerating, sexual harassment. Today, employees and members of the public not only expect employers to promptly and thoroughly investigate harassment claims, they also expect swift and decisive corrective action. Plaintiffs’ attorneys are more than willing to take advantage of this climate to negotiate significant settlements.

Now more than ever, employers in Illinois and elsewhere in the USA should strongly consider measures including:

  • maintaining strong anti-discrimination/anti-harassment/anti-retaliation policies with multiple avenues for employees to raise concerns (among other things, this is critical to assert affirmative defenses to harassment claims);
  • conducting live, in-person anti-harassment training for all employees regularly;
  • training supervisors and managers on how to respond to employee concerns;
  • promptly and thoroughly investigating all claims of harassment, discrimination and retaliation; and
  • planning for public relations emergencies that can crop up quickly and demand co-ordination among legal, HR, and PR professionals to guide external and internal communications.

The federal government and several states have enacted or proposed legislation to dissuade confidential settlement of sexual assault and/or sexual harassment claims due to the 'Me Too' movement. In addition, in December 2017, Congress passed a tax reform bill, which prohibits deductions by employers that require a non-disclosure agreement by the employee in the resolution of sexual harassment or sexual abuse claims.

As discussed more fully below, Illinois has several relevant laws relating to the Me Too movement, including the Illinois Human Rights Act (see 3.1 Legal and Practical Constraints, below), the Illinois Workplace Transparency Act (see 4.3 Discrimination, Harassment, and Retaliation Issues, below), the Illinois Victims Economic Security and Safety Act (see 4.5 Policy Statements, below), the Illinois Equal Pay Act (see 6.7 Possible Relief, below) and the Illinois Right to Privacy in the Workplace Act (see 3.1 Legal and Practical Constraints below).

As in the rest of the USA, private-sector union membership in Illinois has steadily declined over recent decades. For example, it went from 24.2% in 1983 to 9.8% in 2017. Illinois’ private-sector unionization rate, however, remains one of the highest in the country. It increased by 0.1% between 2007 and 2017. Illinois’s private-sector unionization rate is also 3.3% higher than the overall rate in the USA, which was 6.5% in 2017.

Global entities considering establishing a presence in Illinois and the USA may wish to consider the presence or absence of union activities in the immediate surrounding geographic area. Special considerations include the availability of skilled labor, along with an understanding of the targeted labor’s unionization rates. Employers in Illinois and the USA generally prefer to remain union-free, believing this allows for more flexibility in managing the workforce and in adapting to the ever-changing business landscape. However, even in union-free environments, employers must still be cognisant of area union wages, benefits, and terms and conditions of employment as they may factor into future organizing efforts.

Because the National Labor Relations Board (NLRB) is staffed through presidential appointments, it is often criticized for 'flip-flopping' with changes in US political leadership. Former NLRB Chairman Wilma B. Liebman has called for a review and reformation of the NLRB’s approach to decision-making.

The NLRB consists of five members and primarily acts as a quasi-judicial body in deciding cases in administrative proceedings brought under the National Labor Relations Act (NLRA). NLRB members (including its Chairman) are appointed by the President to five-year terms, with Senate consent. The NLRB’s General Counsel is appointed by the President to a four-year term and is responsible for the investigation and prosecution of unfair labor practice cases across the country from their inception at the regional level. The General Counsel is largely responsible for identifying the issues, policy initiatives, and priorities on which the NLRB will focus.

A global entity seeking to establish or enhance its presence within Illinois and the USA should review and consider those NLRB policy initiatives and priorities, which typically align with the party in control of the Presidency. With changes in political leadership, the NLRB General Counsel is likely to redirect the NLRB to move forward on cases where the issues in question call for decisions that are in line with the initiatives and priorities of the controlling party. For example, under the Obama administration, the NLRB issued a decision in Browning-Ferris Industries of California, Inc (2015), adopting an expansive standard for determining when two separate legal entities are deemed to be joint employers of a group of employees – a determination that potentially expanded protection to employees who might not otherwise by covered by certain labor and employment laws and, thereby, subjected employers to greater lability risks.

However, under President Trump’s administration, the NLRB overturned Browning-Ferris in the Hy-Brand Industrial Contractors, Ltd (2017) decision, reverting to a more employer-friendly joint-employer standard. However, the NLRB reversed course again and vacated the Hy-Brand decision due to a conflict of interest concern of one of the deciding NLRB members. In response, the NLRB issued a proposed rule that would restore the definition of joint employer as it stood prior to Browning-Ferris. The NLRB submitted the proposed rule for public comment, and the rule remains pending. The constant shifting in NLRB decision-making has resulted in what some identify as a 'crisis of confidence' in the NLRB.

This illustrates another reason why employers typically prefer non-union operations. The constant shifting in labour policy creates risk and uncertainty and can serve as a deterrent for employers that might otherwise participate in the market to a greater degree. In a non-union operation, management maintains its right to control and direct its workforce according to its needs and the economic space within which it operates.

In Illinois, as in many other states, the nature of the employment relationship hinges, in part, on the purpose for which it is being tested. While an individual will likely be found to be an independent contractor across the board in a majority of cases, an individual could be classified differently for different purposes in cases where the independent contractor status is a close call.

Unemployment, Wage and Hour, Discrimination, Harassment and Retaliation

As discussed above in 1.1 Gig Economy and Other Technological Advances, Illinois agencies apply several tests to determine whether an individual is an employee or independent contractor, including the ABC test (applied by the Illinois Department of Employment Security and Illinois Department of Labor for unemployment benefits and minimum wage and overtime), and the Economic Realities Test (applied for Illinois Human Rights Act and the Illinois Workers Compensation Act claims).

Construction Contractors

In the construction industry, workers are presumed to be employees unless they satisfy the requirements set forth in the Employee Classification Act.

Internships

Illinois follows federal law in determining whether a worker is an intern, and therefore not subject to the Fair Labor Standards Act minimum wage and overtime requirements. Courts utilize the seven-factor 'primary-beneficiaries' test when analyzing whether a worker is a bona fide intern. No single factor, however, is dispositive and the employee/intern distinction is based on the unique circumstances of each case. Generally, however, the primary beneficiary of the internship must be the intern, not the employer.

Joint Employment

Joint employment issues arise in a variety of contexts such as franchisee/franchisor relationships and businesses that utilize workers provided by temporary agencies. Generally, the temporary agency/franchisee is considered the workers’ employer, but joint employment with the franchisor or company at which the temporary worker is providing services may be established under certain circumstances. Courts in Illinois utilize the common law 'economic realities' test to determine whether such joint employment exists. The focus of this test is on the extent of the company’s/franchisor’s control over the employee and emphasizes the key powers of hiring and firing. 

Recommendations

Businesses seeking to establish alternative employment relationships with workers must carefully consider how such relationships are structured. While the analysis varies depending on the circumstances, employers should follow these basic recommendations:

  • consider using independent contractors only for tasks/jobs that are ancillary to the employer’s operations (such as IT, marketing, non-operational maintenance, etc);
  • when contracting with the independent contractor, focus the agreement on the successful completion of projects – not the manner in which such projects are completed;
  • do not limit an independent contractor’s ability to provide services to other employers;
  • ensure that agreements with temporary agencies clearly define that the agency, not the company, is the temporary worker’s employer;
  • when utilizing temporary workers, the agency must be responsible for all discipline and/or discharge – the company can request that a temporary worker be removed from its facility, but the communication with the worker must be handled by the agency; and
  • franchisors should avoid involvement in the employment relationship between the franchisee and its employees – the franchisee must be free to hire, discipline, and/or discharge its employees.

Most states in the USA (including Illinois) presume that employment is 'at-will'. This means that the employer may terminate the employee for any reason or no reason, so long as the reason for the termination does not violate a law, rule, or regulation. Employers and employees can avoid the at-will relationship by entering into a written employment agreement that establishes the employee’s length of employment, notice requirements, the employer’s expectations, and other considerations or terms of employment. 

Employee personnel handbooks or manuals are typically not considered employment contracts; they are documents that establish the employer’s expectations and the non-binding terms of the employee’s employment. An entity that wishes to maintain the at-will employment status should include a disclaimer in the employment handbooks that explicitly says that the document is not an employment contract and that the employee’s employment is at-will.

In establishing its relationship with a new employee, the employer must consider several critical issues.

Wage and Hour Laws

In addition to being subject to the federal Fair Labor Standards Act (FLSA), Illinois employers are governed by the Illinois Minimum Wage Law (IMWL) and the Illinois Wage Payment and Collection Act (IWPCA). The IWPCA imposes rules regarding the timing and conditions for paying employees. These include:

employers must pay employees who are not 'exempt' from the wage and hour laws at least twice per month, and no more than 13 days after the pay period during which the work was performed;

  • at the end of employment, an employer must pay an employee all remaining unpaid wages no later than the next regularly scheduled payroll date;
  • at the end of employment, an employer must pay an employee all accrued but unused vacation time or paid time off;
  • there are various restrictions on how much, and in what circumstances, an employer may deduct money from an employee’s pay cheque.
  • Employers doing business in Illinois should become familiar with the IWPCA; see www.ilga.gov/legislation/.

The IMWL sets a higher minimum wage than that required under the FLSA. For 2019, the federal minimum wage is USD7.25 per hour, and the Illinois minimum wage is USD8.25 per hour. Employees must be paid the minimum wage, except that employers may credit tips toward payment of a tipped employee’s minimum wage – in such a situation, employers may only use the tip as a credit up to 40%. 

To a large extent, the IMWL tracks the FLSA, but it also provides a few protections not found in the federal law. Employers in Illinois must pay one-and-a-half times the regular rate of pay to non-exempt employees who work over 40 hours in a seven-day working week. Overtime issues arise depending on whether the employee is 'exempt' or 'non -exempt'.  Employees who are classified as exempt are not paid overtime. Illinois essentially follows the FLSA in determining how employees should be classified. Serious issues can arise from misclassification, including hefty fines and, if the matter proceeds to litigation, the payment of the employee’s attorneys’ fees.

Breaks and Meal Periods

Unlike many states, Illinois does not require employers to provide breaks to employees. There are two exceptions to this rule:

  • if the employee works 7.5 continuous hours or more, the employee must receive an unpaid meal period of at least 20 minutes and that occurs no later than five hours after the start of the employee’s shift, and
  • employers must provide employees with at least 24 hours of rest in every calendar week.

Employees versus Independent Contractors versus Seasonal Employees

As stated in 2.1 Defining and Understanding the Relationship, above, 'interns', temporary and seasonal employees may still be 'employees' rather than independent contractors under Illinois law. It is critical for employers to carefully consider Illinois’s strict ABC test in classifying its employees.

In addition to US federal immigration laws, global entities should consider several relevant Illinois laws. First, under the Illinois Department of Commerce and Economic Opportunity law, 'unauthorized aliens' cannot participate in certain grant-funded training programs intended “to provide training for employees in fields for which there are critical demands for certain skills”. The term 'unauthorized alien' means that the alien is not at that time either an alien lawfully admitted for permanent residence, or authorized to be employed.

In addition, under the Illinois Right to Privacy in the Workplace Act (IRPWA), Illinois employers must be careful when using employment verification systems. While Illinois employers are not required to enroll in the federal E-Verify Program, certain procedures are required for those who do, including undergoing training on the program. It is a violation of the IRPWA for employers to use the E-Verify Program to screen job applicants prior to hiring, or to look into the immigration status of current employees. Employers may only use E-Verify to check the immigration status of newly hired employees.

US employers should develop policies, practises, and procedures that identify the value of the immigration on-boarding process, recruitment, and retention of skilled foreign professionals, while also maintaining compliance with US and state law.

To a greater extent than many other states, Illinois is home to many unionized businesses, and many large employers in Illinois are used to dealing with unions and taking unionization into account when buying and selling businesses.

When a business’s employees are represented by a union, a purchaser’s legal obligations in the acquisition of a business depend on both the form of the acquisition (eg, a stock purchase versus a merger or an asset purchase) and the nature of the purchaser’s business operations after the transaction is complete. Under National Labor Relations Board (NLRB) precedent, where the acquisition takes the form of a stock purchase, the 'employer' does not change; instead, the entity remains the same and all contractual and statutory obligations of the entity remain intact. A merger is viewed as similar to a stock purchase in that the contractual obligations of the acquiring entity will be unchanged. On the other end, the acquiring entity’s labor law obligations are significantly reduced when the acquisition takes the form of an asset purchase.

In an asset purchase, the acquiring entity has a duty to recognize and bargain with the incumbent union that represented its predecessor’s employees when it is deemed a successor. The NLRB has determined a purchaser is a successor if, after the transaction, there is a substantial continuity of the same business operations. Specifically, “[w]here there is substantial continuity between the predecessor business and the new employer, and where the bargaining unit remains unchanged and a majority of the employees hired by the new employer are represented by the union, the new employer will be obligated to recognize and bargain with the union representing the predecessor’s bargaining unit employees” – N.K. Parker Transport, Inc., 332 NLRB 547, 549-550 (2000). By far, the most significant factor the NLRB considers is continuity in the workforce.

The purchasing entity should note that if it seeks to avoid a bargaining obligation by intentionally failing to hire union members from the predecessor’s workforce, its discrimination transforms the decision into an unfair labor practice under § 8(a)(3) of the National Labor Relations Act (NLRA). The NLRB will hold the new employer to be a successor based on that violation of § 8(a)(3) of the NLRA.

Purchasers who become successor employers have a duty to bargain with the predecessor’s employees but are not required to give them the same working conditions and terms of employment as the predecessor employer. This is critical, as it allows the purchaser to bargain terms and conditions that are in line with its policies and, importantly, its business structure and financial health. However, if the purchaser hires the predecessor’s employees without advising them of any changes in terms and conditions of work, once it has hired enough of the predecessor’s employees to make up a majority of its new workforce, it can no longer change the working conditions unilaterally. In that case, it will have to bargain with the predecessor’s union before instituting any changes.

Employers typically begin the hiring process with an application (online or written). They then select candidates and proceed with interviews. Whether an employer uses phone screening interviews or face-to-face interviews, the interviewing process can provide employers with valuable insights about candidates. Employers should be aware, however, that Illinois imposes a number of restrictions on the types of information that can be sought from candidates and questions that can be asked during this process.

The Illinois Human Rights Act (IHRA) prohibits employers from discriminating against applicants on the basis of race, color, religion, sex, national origin, ancestry, age, order of protection status, marital status, physical or mental disability, military status, sexual orientation, unfavorable discharge from military service, or citizenship status. Employers are also prohibited from discriminating on the basis of pregnancy, childbirth, or related medical conditions. Employers are prohibited from requiring candidates to disclose their status in any of these protected categories. In seeking a candidate, an Illinois employer cannot express directly or indirectly, any preference or limitation as to gender, unless gender is a bona fide occupational requirement (eg, a job posting for a female rest room attendant). 

While an Illinois employer cannot require a candidate to disclose a physical or mental disability, it can uniformly ask all candidates if they can perform the essential functions of the job. An employer may also inquire whether any reasonable accommodation is needed during the hiring process. Similarly, under the IHRA, while an Illinois employer cannot discriminate based on citizenship status, it may uniformly ask candidates whether they are lawfully permitted to work in the USA.

The Illinois Genetic Information Privacy Act, prohibits employers from requiring a candidate to disclose his or her genetic information, genetic testing, or his or her family health history.

Pursuant to the Illinois Right to Privacy in the Workplace Act, an employer may not discriminate in hiring based upon an applicant’s off-the-job use of lawful products like tobacco or alcohol. Beginning January 1, 2020, the Illinois Right to Privacy in the Workplace Act will also protect an applicant’s off-the-job lawful use of recreational cannabis, consistent with the legalization of recreational cannabis in Illinois, starting January 1, 2020.  An employer also cannot inquire whether a candidate has claimed benefits under the under the Illinois Workers’ Compensation Act or Occupational Diseases Act, nor may an employer use such information in determining whether to hire a candidate. An employer cannot request that a candidate provide the password to the candidate’s social media or social networking accounts.

Employers should also be aware that the Illinois Employee Credit Privacy Act prohibits employers from inquiring into or obtaining an applicant’s credit record unless a satisfactory credit history is a bona fide occupational requirement. A satisfactory credit history is a bona fide occupational requirement if one of the following exists:

  • a law requires bonding or other security for the person in the job;
  • the job duties include unsupervised access to cash or marketable assets worth USD2,500 or more;
  • the job duties include signatory power over business assets of USD100,000 or more per transaction;
  • the job is a managerial position involving the direction or control of the business;
  • the job involves access to personal or confidential information, financial information, trade secrets, or state or national security information;
  • the job meets criteria set by the U.S. Department of Labor or Illinois Department of Labor that establishes when a credit history is a bona fide occupational requirement; or
  • the applicant’s credit history is otherwise required by or exempt under other law – employers cannot require employees or applicants to waive their rights under this law.

Employers are often interested in knowing whether a candidate has a criminal history. However, Illinois places a number of restrictions on obtaining such information. Pursuant to the Illinois Job Opportunities for Qualified Applicants Act, an employer with 15 or more employees is prohibited from inquiring into, considering, or requiring disclosure of an applicant’s criminal history or criminal record until the employer has determined that the applicant is qualified for the position and notified the applicant that he or she has been selected for an interview, or, if there is no interview, until after the employer has made a conditional offer of employment to the applicant.

This law is known as a 'ban-the-box' law because it prohibits employers from placing on an application form any question about an employee’s criminal history (eg, "have you ever been convicted of a felony or misdemeanor?"). The City of Chicago expanded the coverage of Illinois’ ban-the-box law to private employers that are licensed in Chicago and/or maintain a facility within city limits and that have fewer than 15 employees.

While it is permissible to subject an individual to a criminal background check after a conditional offer of employment has been made, the IHRA prohibits employment discrimination based upon an applicant’s arrests or an applicant’s criminal history that is expunged, sealed, or impounded. An employer is not, however, prohibited from using other information that indicates the person actually engaged in the conduct for which he or she was arrested.

An employer does not violate the IHRA by relying on a conviction or other proven criminal behavior when making an employment decision, however, employers should be mindful of the United States Equal Employment Opportunity Commission’s position on the consideration of conviction records in employment discrimination under Title VII of the Civil Rights of 1964, that convictions should only be considered when job-related and consistent with business necessity.

Many employers subject candidates to pre-employment testing such as personality, job aptitude, drug, medical and psychiatric testing. There is no law in Illinois that either requires or prohibits private employers from using such testing. Employers utilising such tests, however, should follow federal guidelines and ensure that the test is job related, consistent with business necessity, and does not have a disparate impact on individuals in a protected class. 

Employers who use pre-employment drug testing should also be aware of the Illinois Compassionate Use of Medical Cannabis Pilot Program Act, 410 ILCS 130, et seq. Pursuant to this law, an employer cannot refuse to hire a candidate based on his/her status as a registered qualifying patient under the pilot program , unless doing so would put the employer in violation of federal law (eg, subject to losing federal funding or federal contracts). In addition, the amendments to the Illinois Right to Privacy in the Workplace law prohibits employers from refusing to hire candidates based on his or her lawful use of recreational cannabis outside of work. Employers can still maintain zero tolerance policies prohibiting the use of all illegal drugs, including medicinal and recreational cannabis, provided the policy is enforced in a nondiscriminatory manner. 

Many employers have historically inquired about a candidate’s prior salary history. The Illinois Governor recently signed into law amendments to the Illinois Equal Pay Act. Effective September 29, 2019, the Illinois Equal Pay Act will prohibit an employer from:

  • screening job applicants based on their wage or salary history by requiring that the wage and salary history of an applicant satisfy minimum or maximum criteria;
  • requesting or requiring wage or salary history as a condition of being considered for employment, as a condition of being interviewed, as a condition of continuing to be considered for an offer of employment or an offer of compensation; or
  • requesting or requiring that an applicant disclose wage or salary history as a condition of employment.

The amendments to the Illinois Equal Pay Act will also make it unlawful for employers to seek the wage or salary history of a job applicant from any current or former employer. The amendments to the Illinois Equal Pay Act do not prevent the employer from engaging in discussions with an applicant regarding the applicant’s compensation expectations and do not prevent the employee from voluntarily, and without prompt, disclosing his or her current or past wage or salary history. If the employee voluntarily discloses such information, the employer cannot consider the disclosure as a factor in determining whether to offer an applicant a job.

Illinois courts intensely scrutinize restrictive-covenant agreements (ie, agreements restricting post-termination competition and solicitation (employees and clients) because they operate as a partial restraint of trade.

A restrictive covenant, ancillary to a valid employment relationship, will be upheld if the restraint is reasonable. A restrictive covenant is reasonable only 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 protection of the employer’s legitimate business interest is paramount to this rule. Application of the formula must be flexible; it must be decided on an ad hoc basis.

Whether the employer has a legitimate business interest in need of protection is based upon the totality of the circumstances of the individual case. “Factors to be considered in this analysis include, but are not limited to, the near-permanence of customer relationships, the employee’s acquisition of confidential information through his employment, and the time and place restrictions.” Because this analysis is so fact-specific, it is likely that a court could find the same agreement to be enforceable and unenforceable in different cases depending on the individual facts of those matters.

Assuming that the employer has a legitimate business interest for imposing a restrictive covenant, the specific restraints must still be reasonably necessary (ie, narrowly tailored) for the protection of the employer’s business from unfair or improper competition. This is measured by hardship to the employee, effect on the general public, and the reasonableness of time, territory, and activity restrictions.

  • Time: one to two years (as a practical matter judges prefer one year or less).
  • Geography: co-extensive with the area in which the employer is doing business and where employee is working for the employer. 
  • Scope: must be limited to activities employee performed, or customers with whom employee had contact, at the employer; a blanket ban on 'all activities for competitors' or 'all customers' is 'blatant overbreadth' which 'goes far beyond the standard for acceptable activity restrictions'. 

Employment alone (even at-hire) is insufficient consideration to support a restrictive covenant agreement unless the employment continues for two years or more (Illinois state courts) or a 'substantial period' – ie, more than 12 months (Illinois federal courts). Illinois courts have not provided any material guidance as to how much consideration is appropriate. It is a fact-specific inquiry, focusing on the level or position, compensation, and scope of the covenant. In principle, the higher the position, the more money will be required.

Illinois courts are permitted to strike overly broad portions of a restrictive covenant agreement or make 'minor' language adjustments ('blue pencil'). However, Illinois courts will not blue pencil agreements that contain significant deficiencies, such as agreements that prohibit soliciting 'any customer' or agreements unlimited in geographic scope as to employee solicitation. Substantial revisions “would eliminate any incentive for employers to compose their restrictive covenants in compliance with the law”.

In 2016, Illinois enacted the Illinois Freedom to Work Act. It bans certain Illinois employers from entering into non-compete agreements with 'low-wage employees' and declares such agreements to be 'illegal and void'. Low wage is defined as the greater of minimum wage or USD13.01 an hour.

In addition to allowing employers to protect confidential information by agreement or policy, Illinois protects trade secrets under the Illinois Trade Secret Act (ITSA), which largely adopts, and mirrors, the Uniform Trade Secrets Act (UTSA) that is adopted by most states. The ITSA defines trade secrets as: "technical or non-technical data, a formula, pattern, compilation, program, device, method, technique, drawing, process, financial data, or list of actual or potential customers or suppliers, that: (1) is sufficiently secret to derive economic value, actual or potential, from not being generally known to other persons who can obtain economic value from its disclosure or use; and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy or confidentiality".

The ITSA provides for certain remedies for misappropriation of trade secrets, including injunctive relief, damages and attorneys’ fees. With respect to attorneys’ fees, a court may award attorneys’ fees if it finds that the plaintiff acted in bad faith when filing the lawsuit. 

Illinois also recognizes the 'inevitable disclosure' doctrine, and courts may grant injunctive relief to prevent the threatened misappropriation of an employer’s trade secrets in cases where an employee possesses extensive and intimate knowledge about his or her former employer’s strategic goals, pricing, customers, marketing plans, etc. Additionally, the individual’s new employer may also be held liable for the misappropriation of a trade secret as a consequence of hiring the employee and placing him or her in a position that would result in the inevitable disclosure of the former employer’s trade secrets.

Global entities seeking to establish or enhance their presence in Illinois should also be aware that the federal Defend Trade Secrets Act of 2016 (DTSA) also protects their trade secrets. The DTSA largely mirrors the UTSA but, among other things, it additionally allows employers to protect their rights in federal court, provides for ex parte seizure of misappropriated property, and affords immunity to whistleblowers.

With respect to employee privacy, under Illinois law, employers may not 'eavesdrop' or record employee conversations except where the employer is engaged in telephone solicitation, marketing or opinion research, or bank or credit card administration. Video surveillance, on the other hand, is generally permissible as long as the employer does not surveil employees in locker rooms, rest rooms, changing rooms, or other private areas without the employee’s consent.

Employers who collect and use employee’s biometric data – fingerprints, iris or face scans, voiceprints, etc – must also comply with Illinois’ Biometric Information Privacy Act (BIPA). Considered one of the most restrictive such laws in the country, the BIPA requires that business protect biometric data in the same measure as it protects other sensitive or confidential information. BIPA also imposes numerous technical restrictions on the employer’s collection and use procedures, and requires that employers obtain informed written consent of the employee prior to collecting biometric data.

Employers in Illinois are also prohibited from requiring employees or applicants to disclose or provide access to any personal social networking accounts or websites. See the discussion of rights and responsibilities of employers in pre-employment testing and background screening in section 3 Interviewing Process, above; see also the discussion of class and collective actions in 6.6 Class or Collective Actions, below.

A global entity seeking to establish or increase its presence in Illinois should be aware of the several anti-discrimination, harassment, and retaliation laws in Illinois. As previously stated above in 3.1 Legal and Practical Constraints, the Illinois Human Rights Act (IHRA), protects employees from discrimination and retaliation in hiring, termination, and the terms, privileges, and conditions of employment, and prohibits retaliation. Protected categories include prohibiting discrimination on the basis of: race, color, religion, national origin, ancestry, sex, age with respect to individuals 40 years and older, marital status, order of protection status, disability, military status, sexual orientation, unfavorable discharge from the military, citizenship, pregnancy, childbirth, or medical or common conditions related to pregnancy or childbirth, arrest record, or expunged or sealed convictions.

The IHRA applies to an employer that employs 15 or more employees within Illinois during 20 or more weeks in a calendar year. However, note that the IHRA applies to an employer with one or more employees if the unlawful discrimination alleged is based upon a physical or mental disability or sexual harassment. The IHRA’s definition of employee will include unpaid interns, but only with respect the IHRA’s sexual harassment prohibitions. The IHRA also prohibits pregnancy discrimination by all employers with one or more employees.

Also relating to anti-retaliation, the Illinois Whistleblower Act (IWA) prohibits employers from making, adopting, or enforcing any rule, regulation, or policy preventing an employee from disclosing information to a government or law enforcement agency if the employee believes that the information discloses a violation of state or federal law, rule, or regulation.

The IWA protects employees who engage in whistleblowing activities from retaliation. Employers with one or more employees in Illinois who are employed on a full-time, part-time, or contractual basis are subject to the IWA. Under the IWA, the employer may not threaten retaliation or retaliate against an employee who discloses this information. Employers are also prohibited from retaliating against an employee who refuses to participate in an activity that would result in unlawful conduct.

Illinois also has a retaliatory discharge law where employers may not discriminate or retaliate against an employee who exercises his/her rights under the Illinois workers’ compensation law. Illinois courts have additionally recognized common law retaliatory discharge claims that involve allegations that the employer discharged the employee in violation of a public policy (but not necessarily a law).

Effective January 1, 2020, the Illinois Workplace Transparency Act requires all employers to provide employees with sexual harassment training. The Illinois Department of Human Rights will produce a model sexual harassment preventing training program, which will include, at a minimum:

  • an explanation of sexual harassment;
  • examples of conduct that constitutes unlawful sexual harassment;
  • a summary of relevant federal and state provisions concerning sexual harassment, including remedies available to victims of sexual harassment; and
  • a summary of responsibilities of employers in the prevention, investigation, and corrective measures of sexual harassment.

The Illinois Workplace Transparency Act also requires all Illinois employers to disclose annually to the Illinois Department of Human Rights the total number of adverse judgments or administrative rulings during the preceding year. The Act also confers the Department of Human Rights with the authority to request that employers responding to a charge of discrimination to submit the total number of settlements entered into during the preceding five years that relate to any alleged act of sexual harassment or discrimination.

Managing compliance with federal and state safety requirements is central to maintaining workplace safety and reducing the risk of safety hazards in the workplace. There are both federal and state obligations about which the global entity must be aware when establishing operations in the USA. The Occupational Safety and Health Administration (OSHA), the federal agency overseeing workplace safety, covers most private sector employers and workers throughout the USA, either directly through federal OSHA or through an OSHA-approved state plan. State-run OSHA programs must be at least as effective as the federal OSHA program. To date, 26 states, Puerto Rico, and the Virgin Islands have OSHA-approved state plans. OSHA law requires employers to provide a workplace void of safety hazards by, for example, providing safety training to workers in a language and vocabulary they can understand, keeping records of work-related injuries and illnesses, performing safety tests in the workplace, and providing protective gear.

Where an employee suffers a workplace injury or illness, depending on the jurisdiction, an entity may be subject to a worker’ compensation claim. In Texas, workers’ compensation coverage is voluntary for most employers. On the other end, in states such as Michigan, all private employers with three or more employees (or under certain circumstances with fewer) are covered and, as such, required to obtain and maintain insurance for workplace injuries resulting in incapacity or death. Similarly, in California, all private and public employers with one or more full or part-time employees are covered.

There are some nuances to Illinois law relating to benefit plans and COBRA. The Affordable Care Act (ACA) requires each state to establish its own Health Insurance Marketplace (or Exchange). Illinois established a state-federal partnership marketplace called “Get Covered Illinois”. There is no state law requiring employers to offer group healthcare insurance to their employees, although most employers do provide this benefit. Under the ACA, all insurance companies are required to offer the same health coverage to same-sex spouses as they do for opposite sex spouses. Married same-sex couples and their dependents can also enroll in a plan together. But self-insured plans are not subject to state insurance laws and, therefore, may not be required to cover same-sex spouses. Note that an employer that offers healthcare benefits to same-sex partners needs to ensure appropriate tax treatment for such benefits.

Group health policies issued to employers generally must include continuation coverage under COBRA. While Illinois generally follows federal law, Illinois continuation coverage generally lasts up to 12 months, but may end sooner due to an employee’s failure to pay required premiums. In Illinois, an employer must notify eligible individuals of their right to Illinois continuation coverage. Also note that Illinois has a Spousal Continuation Law, which provides continuation coverage for the covered spouse and dependent children who lose coverage due to the retirement or death of the employee, or the divorce from the employee. Illinois follows federal ERISA law.

Various legal requirements can make it difficult for employers to terminate employees.

If a global entity seeking to establish or enhance its presence in Illinois has unionized employees, it must review and comply with any provisions in applicable collective-bargaining agreements (CBA). A CBA is a labor-union contract that governs union employees’ wages, benefits, management rights, and working conditions. As noted above, Illinois employees are presumed to be at-will – meaning an Illinois employer is able to discharge (without liability) an employee with or without giving notice, for any reason or no reason at all, so long as it is not unlawful. But, as discussed below, a CBA may change that presumption. Many CBAs have a provision that requires 'just cause' before an employer may terminate or discipline a unionized employee. If the employer terminates such an employee without just cause, the employer may incur legal liability.

In the non-union sector, employers and employees can choose to alter the default at-will employment status by entering into a written agreement. Such agreements may establish a set term of employment and/or require one or both parties to provide a predetermined notice before ending or not renewing the employment relationship. These agreements often include provisions defining certain conduct that justifies termination 'for cause'. If an employer terminates an employee for cause, typically the agreement will not require the employer to pay any severance to the discharged employee. But where an employer wants to end the employment for any non-cause reason, the typical arrangement under these agreements will require the employer to pay severance to the employee.

In those situations (when an employer terminates an employee without cause under an employment agreement), the employer will want to enter into a separation or severance agreement under which the employee agrees to release all claims they may have against the employer. Those claims may arise under statutes (like the Civil Rights Act, the Age Discrimination in Employment Act (ADEA), or the Illinois Human Rights Act, common law (like retaliatory discharge), a contract, or other regulations. Importantly, such an agreement cannot forbid the employee from communicating directly with a federal, state, or local agency (eg, the Equal Employment Opportunities Commission or the Securities and Exchange Commission) concerning a possible violation of law or regulation. In addition, a separation, severance, or other settlement agreement can only require the employee, former employee, or prospective employee to keep harassment or discrimination allegations confidential if:

  • confidentiality is the documented preference of the employee and is mutually beneficial to both parties;
  • the employer notifies the employee in writing of his or her right to have an attorney representative review the agreement before execution;
  • there is valid, bargained for consideration in exchange for the confidentiality;
  • the agreement does not waive any claims of unlawful employment practices that accrue after the date of execution of the agreement;
  • the employee is provided 21 days to consider the agreement before execution; and
  • the employee has 7 calendar days following the execution of the agreement to revoke the agreement, and the agreement is not effective or enforceable until the revocation period expires.

An employer may not unilaterally include any clause in a settlement agreement that prohibit the employee from making truthful statements or disclosures regarding unlawful employment practices.

If the separated employee is 40 years old or older, the agreement must contain explicit review and revocation periods. In this regard, Illinois follows the federal ADEA and the Older Workers’ Benefit Protection Act. The employer must advise the employee in writing to consult with an attorney before executing the agreement and must provide the employee at least 21 days to consider whether to accept or reject the agreement. The employee may execute the agreement before the 21-day period is over, and after the employee agrees to the waiver of claims, the employee then has seven days to revoke that agreement. If the employee does not revoke his/her agreement within seven days of execution, it becomes enforceable.

In return for execution of such an agreement, the employee receives consideration, or severance pay. Some employers offer non-monetary incentives, such as a neutral job reference.

Sometimes an employer terminates more than one employee at a time. Illinois employers who are planning a lay-off must consider the Illinois Worker Adjustment and Retraining Notification Act (WARN). Illinois WARN differs from the federal WARN in several ways: 

First, Illinois WARN applies to employers with 75 or more full-time employees. These employers must provide advance notice of 60 days before a pending plant closure or mass lay-off. Second, Illinois WARN defines 'mass lay-off' as one that affects at least one-third of full-time employees and at least 25 full-time employees; or at least 250 full-time employees. Furthermore, Illinois WARN requires that employers both give advance notice of a relocation and provide written notice to affected employees and their unions, to the Illinois Department of Commerce and Economic Opportunity, and to the chief elected official of the unit of local government within which the closing or lay-off is to occur. If the Illinois employer receives state or local economic development incentives, it must also give notice to other government officials, such as the Governor, the Speaker and Minority Leader of the House of Representatives, and the President and Minority Leader of the Senate. Illinois WARN also grants the Illinois Department of Labor the authority to examine an employer’s books and records in connection with any investigation.

Sometimes terminated employees decide to sue their former employer. An important advance consideration for employers is whether to implement an arbitration policy or agreement, which may include a class-action waiver. These devices can help limit costly and lengthy litigation in court. Recently the Supreme Court of the United States upheld class-action waivers in arbitration agreements and held that class actions are not concerted activities protected by Section 7 of the National Labor Relations Act. In other words, a policy or agreement under which the employee agrees to forego a class or collective action and resolve any employment-related claims through arbitration on an individual basis, is enforceable. 

Effective January 1, 2020, recent amendments to the Illinois Workplace Transparency Act will prohibit non-negotiated agreements that require discrimination and harassment claims to be arbitrated as a condition of employment. Discrimination and harassment claims may be arbitrated so long as the agreement is in writing, demonstrates actual, knowing, and bargained-for consideration from both parties, and acknowledges the right of the employee or prospective employee to:

  • report any good faith allegation of unlawful employment practices to any appropriate federal, state or local government agency enforcing discrimination laws;
  • report any good faith allegation of criminal conduct to any appropriate federal, state, or local official;
  • participate in a proceeding with any appropriate federal, state or local government agency enforcing discrimination laws;
  • make any truthful statements or disclosures required by law, regulation or legal process; and
  • request or receive confidential legal advice.

Another consideration for employers with unionized workforces is the federal Employee Retirement Income Security Act statute, which can impose liability on employers who withdraw from an underfunded multi-employer pension plan. A multi-employer pension plan is a plan created during collective bargaining with a union and typically requires an employer to make contributions to the fund on behalf of unionized employees who perform work covered under the CBA. Employers must be aware of and follow strict timing deadlines to preserve any right to challenge the assessment of withdrawal liability, and any challenge is subject to mandatory arbitration.

As a final consideration, Illinois employers must be aware that when an employee’s employment ends – either because of a termination or voluntary resignation – the employer must promptly pay the employee his final compensation (ie, wages, earned commissions, earned bonuses, and the monetary equivalent of accrued but unused vacation and earned holidays).

Unlike most of the world, the majority of states in the USA (including Illinois) operates under the at-will employment doctrine. As discussed in 2.2 Alternative Approaches to Defining, Structuring and Implementing the Basic Nature of the Entity, Illinois is such a state. However, the employer and employee can change and define the terms of employment, including the at-will presumption, by contracting for a 'just cause' standard for discharge. Another exception to the at-will presumption is recognized when an employee is discharged solely for exercising a statutory right. In Illinois, this concept is identified as 'retaliatory discharge'. To sustain a viable retaliatory discharge cause of action in Illinois, a plaintiff must assert that his or her discharge was in violation of clearly mandated public policy.

However, where a contract exists between the employer and the employee for a 'just cause' standard or for a definite term and where the employer has not reserved the right to terminate the employee prior to the end of the contract term, the employee may not be terminated except for-cause or by mutual agreement. Terminating the employee without cause or mutual agreement subjects the employer to a breach of contract claim, dictated by state law. To establish a breach of contract claim in Illinois, a plaintiff must establish:

  • a valid and enforceable contract;
  • performance by the plaintiff;
  • breach by the defendant; and
  • injury arising as a result of the breach.

Whether a personnel/employee handbook constitutes an employment contract by which an employee can bring a claim against an employer varies widely by state. As such, an employer should include a statement in any personnel/employee handbook or policy that the handbook or policy does not constitute an employment contract.

As previously stated, a collective bargaining agreement between an employer and a labor union is another example of a contractual agreement to modify the at-will relationship. Typically, the labor agreement identifies infractions that are subject to progressive discipline leading up to termination. Where the termination falls outside of the 'just cause' provision and the progressive discipline scheme therein, the aggrieved party (or the union) may file a grievance under the grievance-arbitration provisions of the labor agreement that may culminate in damages, including reinstatement and back pay. It is customary for the collective bargaining agreement to include an alternative dispute resolution process, including mediation and/or arbitration conducted by an external alternative dispute resolution forum.

As discussed in 2.2 Alternative Approaches to Defining, Structuring and Implementing the Basic Nature of the Entity, an employer’s personnel/employee handbook or manual is not an enforceable contract if the employer includes a clear and conspicuous disclaimer that the handbook is not a contract and merely contains guidelines or policies. To ensure this, the disclaimer must be unambiguous so that no employee could reasonably construe the handbook as a contract. 

Personnel/employee handbooks should also include anti-harassment, anti-discrimination and anti-retaliation policies, including proper reporting mechanisms and potential disciplinary measures. For employees who are represented by a labor union, the collective bargaining agreement also operates as an employee handbook and usually provides clauses prohibiting discrimination in the workplace.

Employees who believe they have been subjected to discrimination, harassment or retaliation in the workplace should report the alleged conduct consistent with the reporting mechanisms set forth in the employer’s personnel/employee handbook. Employees still have an unfettered right to pursue administrative remedies. 

Employment discrimination, harassment and retaliation claims typically arise under a federal, state or municipality statute. In Illinois, many municipalities have their own laws prohibiting discrimination, harassment and retaliation, and administrative agencies that are responsible for investigating complaints that are filed with them. As previously stated, employers should be mindful of the Illinois Human Rights Act (IHRA) (see 3.1 Legal and Practical Constraints), which prohibits employment discrimination on the basis of race, color, religion, sex, national origin, ancestry, age, order of protection status, marital status, physical or mental disability, military status, sexual orientation, unfavorable discharge from military service, or citizenship status. Employers are also prohibited from discriminating on the basis of pregnancy, childbirth, or related medical conditions. 

Individuals (both current and former employees) can file a charge of discrimination with the Illinois Department of Human Rights (IDHR), a state agency, which is responsible for administering the IHRA. A charge must be filed within 180 days of the last alleged discriminatory act. 

The IDHR will investigate the charge, which usually requires the employer to submit a statement of position that sets forth the employer’s facts and defenses, respond to a lengthy questionnaire, and produce critical business documents. The IDHR generally requires the employer and complaining individual engage in a fact-finding conference, a single-day meeting between the parties and the IDHR investigator where the allegations and defenses are discussed, the investigator interviews key witnesses, and informal settlement negotiations occur. After the conference, the IDHR investigator may interview additional witnesses and ask the employer to respond to a Request for Information, which requires the employer to produce additional information the investigator believes is critical to the investigation.

After completing its investigation, the IDHR makes a finding of 'probable cause' or 'lack of substantial evidence'. If an individual receives a probable cause finding, the individual has 90 days to file a lawsuit in state court or a complaint with the Illinois Human Rights Commission (IHRC), a quasi-judicial agency. If an individual receives a lack of substantial evidence finding, the individual has 90 days to either file a request for review with the IHRC or to file a lawsuit in state court. An individual must exhaust administrative remedies before filing a lawsuit. 

Under the IHRA, an individual who successfully brings a claim before the IHRC or state court, can be awarded actual pay damages (back pay, front pay, lost fringe benefits), reinstatement, compensatory damages, and attorneys’ fees and costs. Punitive damages are not recoverable under the IHRA. However, unlike its federal counterpart (Title VII), there is no cap on compensatory damages. 

An Illinois employer should also include several Illinois-specific personnel handbook policies:

  • supplemental harassment policy: if the employer receives any money from the State of Illinois or a state agency, whether as a public contractor, recipient of grant money, etc, it must include language on how the employee can make a report directly to the Equal Employment Opportunity Commission or its state counterpart, the Illinois Department of Human Rights;
  • pregnancy discrimination and accommodation policy: the IHRA pregnancy accommodation amendments require employers to include a statement of employee rights in their handbooks, along with a required posting (which must also be included in an employer’s handbook);
  • Victims’ Economic Security and Safety Act: an employee handbook must include information that states that an employer provides four weeks of unpaid leave during a 12–month period for employers with 1-14 Illinois employees, eight weeks for employers with 15-49 employees, or 12 weeks for employers with 50 or more employees to an employee who is a victim of domestic or sexual violence.

Employers in Illinois should also include other leave of absence policies, including with respect to: jury duty, voting, school visitation, blood donation, and child bereavement. 

Lastly, employers should make sure that all government non-discrimination notices are posted in a conspicuous location that is accessible for employees.

Virtually all employers in Illinois must comply with the Illinois Minimum Wage Law (IMWL) and the Illinois Wage Payment and Collection Act (IWPCA) in addition to the federal Fair Labor Standards Act (FLSA). The IMWL requires employers to pay employees a minimum wage of USD8.25 per hour. Employers should be aware that if they employ individuals in the City of Chicago, the minimum wage for 2019 is USD13.00 per hour. The minimum wage for individuals working in Cook County is USD12.00 per hour for 2019. Illinois is set to annually increase the state’s minimum wage until it reaches USD15.00 per hour in 2025. Both the City of Chicago and Cook County enacted ordinances where the minimum wage will progressively increase on an annual basis through 2020. 

Like the FLSA, the IMWL and local municipal ordinances require employers to pay employees overtime compensation at a rate of one-and-one-half times the employee’s regular rate for hours worked in excess of 40 hours per working week. Like the FLSA, the IMWL also provides for exemptions from minimum wage and overtime requirements for certain executive, administrative, and professional employees.

The IWPCA establishes when, where and how often wages must be paid to employees performing work in Illinois. An employer is required to notify an employee in writing, at the time of hiring, of the rate of pay. An employer cannot change an agreement regarding the payment of wages and compensation without first notifying the employee prior to the effective date of the change. An employer must place the arrangement in writing at the time of the change and present the change to the employee unless it is impossible to do so.

With few exceptions, employers are required to pay all wages earned at least semi-monthly. Wages also must be paid no later than 13 days after the end of the pay period in which they were earned. When an employee separates (either through resignation or termination) final compensation (which includes earned bonuses, earned commissions, and any earned but unused vacation pay) must be paid on the next regularly scheduled payday. 

Employers cannot require that employees must be paid through direct deposit. An employer must offer employees the ability to be paid in a form that the employee can readily convert into cash without the need for a personal bank account. When offering direct deposit, an employer also cannot require that the employee maintain an account at a certain financial institution. When paying an employee, an employer must also provide a pay stub that contains an itemized statement of deductions for each pay period; an employer can make that stub available through a software system or an email attachment, but it has to be an actual stub. 

An employer cannot withhold an employee pay cheque or make deductions from wages pending the return of uniforms, tools or any other employer-owned equipment. Employers also cannot make deductions from wages for uniforms, cash or inventory shortages, or for damage to an employer’s equipment or property, unless the employee signs an express written agreement allowing the deductions at the time the deduction is made. Such authorization must be given freely and without coercion. 

An employer may only make wage deductions when:

  • required by law (eg, taxes);
  • to the benefit of the employee (eg, health insurance premiums);
  • when there is a valid wage assignment or a court-ordered wage deduction; and
  • when the employee gives express written consent at the time the deduction is made.

When making a deduction, an employer cannot make a deduction that would be more than 15% of an employee’s gross wages and a deduction cannot result in an employee being paid less than minimum wage.

Regardless of an employee’s status as either an exempt administrative employee, executive or professional, the IWPCA requires every employer to make and maintain, for a period of not less than three years, true and accurate records for each employee, including:

  • the name and address of the employee;
  • the hours worked each day in each working week;
  • the rate of pay;
  • copies of all notices provided to the employee that are required under the law; and
  • the amount paid each pay period and all deductions made from wages or final compensation.

If an employer provides paid vacation to its employees, the employer must maintain, for a period of not less than three years, true and accurate records of the number of vacation days earned for each year and the dates on which vacation days were taken and paid.

Unlike the FLSA, the Illinois One Day Rest in Seven Act (ODRISA), 820 ILCS 140, et seq, requires that every employer must provide an unpaid meal break of at least 20 consecutive, uninterrupted, minutes to any employee who works a continuous period of 7.5 hours or longer. The meal break must be taken no later than five hours after the start of the work period. ODRISA also requires, with few exceptions, that an employer must provide employees with at least 24 consecutive hours of rest during every calendar week. 

Employees claiming violations of the IMWL, IWPCA or the ODRISA may file a complaint with the Illinois Department of Labor or bring a lawsuit in state or federal court. Employers subject to such claims face damages equal to the amount of the unpaid or underpaid wages, along with costs and attorneys’ fees, and damages of 2% of the amount of any underpayment for each month following the date of payment during which any underpayments remain unpaid. If a claim for unpaid wages is brought on behalf of an employee by the IDOL, the IDOL may also seek an additional penalty of up to 20% of the underpayment.

Under the IWPCA, if the IDOL finds a violation of the law, it will assess a non-waivable administrative fee against the employee. This fee is USD250 if the amount of wages owed is less than USD3,000, USD500 if the amount owed is more than USD3,000 but less than USD10,000, and USD1,000 if the amount owed is more than USD10,000.

There are other claims brought by employees that do not involve discrimination or harassment. As previously discussed above in 4.3 Discrimination, Harassment and Retaliation Issues, the Illinois Whistleblower Act (IWA) prohibits retaliation against an employee who discloses information in a court, administrative hearing, before a legislative commission or committee, or in any other proceeding. In this situation, the employee must have reasonable cause to believe that the information discloses a violation of a state or federal law, rule or regulation.

The IWA also prohibits retaliation against an employee who refuses to participate in an activity that would result in a violation of a state of federal law, rule, or regulation. A violation of the IWA is considered a Class A misdemeanour. Violations of the IWA also subject the employer to various damages: reinstatement, back pay with interest, and attorneys’ fees and costs.

In Illinois, retaliation claims are not always statutory. Illinois common law allows for 'common law retaliatory discharge' claims. These claims arise when the alleged retaliation is not linked to discrimination or harassment, but is rather a violation of public policy. There is no exact explanation for a clear mandate of public policy, but the matter “must strike at the heart of a citizen’s social rights, duties, and responsibilities” before a cause of action will be allowed. Illinois courts have recognized common law retaliation claims for exercising workers’ compensation rights and for reporting criminal activity to an outside agency.

Courts generally deny a cause of action when only private interests are at stake. A cause of action may also be denied if a statutory remedy is available to an employee. While attorneys’ fees are not recoverable for common law retaliatory discharge, a successful plaintiff may recover lost wages and, if warranted, punitive damages against the employer.

Alternative Dispute Resolution (ADR) forums incorporate procedures that move disputes from the public judicial venue into a private venue. Generally, ADR is any procedure, agreed to by the parties of a dispute, in which they use the services of a neutral party to assist them in reaching agreement and avoiding litigation. ADR includes mediation, arbitration, conciliation, negotiated rulemaking, neutral fact-finding, and mini-trials. All of these ADR forums are permitted in Illinois. Over the past few decades there has been a dramatic increase in the use of mediation and arbitration to resolve employment disputes in the USA. The growth of ADR is due in significant part to employer-promulgated dispute resolution systems.

Mediation is a voluntary and informal process in which a neutral third party assists the disputing parties in reaching a negotiated settlement. Arbitration is a process in which the parties refer their disputes to an arbitrator who reviews the evidence, listens to the parties, and then makes a decision. The arbitration process is more formal than mediation and is less formal than a courtroom trial (with lax or no application of legal rules of evidence) and is often less expensive. Federal, state and local governmental agency and judicial forums offer disputing parties the opportunity to engage in such ADR mechanisms.

In the labor arena, ADR coexists with the collective bargaining agreement. Nearly every labor contract contains a grievance procedure wherein employees are entitled to challenge employer actions they feel violate their contractual rights by way of the grievance-arbitration scheme in the contract. The final step of the grievance procedure is almost always binding arbitration. The National Labor Relations Board, in turn, will defer to the arbitral decision if the party requesting deferral shows that:

  • the arbitrator was explicitly authorized to decide the unfair labor practice issue;
  • the arbitrator was presented with and considered the statutory issue, or was prevented from doing so by the party opposing deferral; and
  • NLRB law reasonably permits the award issued by the arbitrator.

Class and collective actions can be brought in Illinois. Typical class or collective actions assert claims for unpaid wages and/or systemic discrimination. Illinois employers have also recently faced a rash of class action lawsuits alleging violations of Illinois’ Biometric Information Privacy Act (BIPA), discussed in 4.2 Privacy Issues. These cases attack the employer’s policies surrounding the use, storage, and destruction of data as well as failures to obtain the proper informed consent prior to collection of biometric data. Therefore, employers utilizing biometric data for time clocks or other purposes must be familiar with the BIPA and the requirements it imposes.

Following the United States Supreme Court’s recent decision upholding class action waivers in arbitration agreements, employers across the country – including those in Illinois – may mitigate their risk of costly class or collective lawsuits by entering into individual arbitration agreements that include class action waivers. As with any contract, arbitration agreements that include class action waivers must be supported by consideration. Under Illinois law, continued employment is sufficient consideration for arbitration agreements.

As noted in 6.2 Discrimination, Harassment and Retaliation Claims, under the Illinois Human Rights Act, an individual who successfully brings a claim can be awarded actual pay damages (back pay, front pay, lost fringe benefits, reinstatement, compensatory damages, and attorneys’ fees and costs. Punitive damages are not recoverable under the IHRA. However, unlike its federal counterpart (Title VII), there is no cap on compensatory damages. 

As also discussed in 6.3 Wage and Hour Claims, employers are subject to statutory and actual penalties and damages in connection with violations of the Illinois Minimum Wage Law, Illinois Wage Payment and Collection Act or the Illinois One Day Rest in Seven Act.

As discussed in 6.4 Whistle-blower/Retaliation Claims, the Illinois Whistleblower Act allows back pay, reinstatement or front pay, actual damages, costs and attorney’s fees. Illinois common law retaliatory discharge permits similar damages as well as punitive damages, though attorneys’ fees are not typically recoverable under common law claims.

Potential penalties for an employer’s violation of the Illinois’ Right to Privacy in the Workplace Act include actual damages plus costs; for a willful and knowing violation of this Act, USD200 plus costs, reasonable attorneys’ fees, and actual damages; for a willful and knowing violation of the E-Verify procedures, USD500 per affected employee plus costs, attorneys’ fees, and actual damages.

Under the Illinois Equal Pay Act, an aggrieved employee may recover the entire amount of the underpayment together with interest and reasonable attorneys’ fees. An employer may be subject to a civil penalty of up to USD2,500 for each violation for each employee. If the employer retaliates against the employee, the employer could be liable for a civil penalty of up to USD5,000 for each violation for each employee. The IEPA allows the employee to recover back pay, front pay, pre-judgment interest, damages for all employment benefits employee lost, any other recoverable compensatory damages, reasonable attorneys’ fees and costs, and liquidated damages.

The general presumption is that US laws do not apply beyond US territorial jurisdiction unless the US Congress clearly expresses its intent for extraterritorial application. There are only a few instances where it has done so and, even then, only under specific circumstances.

In 1991, the US Congress enacted Section 109 of the Civil Rights Act extending application of Title VII (prohibiting discrimination on the basis of enumerated protected characteristics) beyond the USA to US citizens employed outside the USA by US companies. With respect to US citizens employed outside the USA by non-US companies, Title VII applies only if the non-US employer is shown to be under the 'control' of a US company. Four factors are considered in determining whether there is sufficient 'control':

  • interrelation of operations;
  • common management;
  • centralized control of labor relations; and
  • common ownership or financial control of the employer and the non-US company.

No single factor is more important than another and not all factors are required for a determination. Title VII does not apply to employees of non-US companies where the non-US company is not controlled by a US company. Title VII does not apply to non-US employees regardless of whether the employer is a US company or controlled by a US company. Note, however, that extraterritorial application will not apply if compliance of the US law would violate the law of the country in which its workplace is located.

The Age Discrimination in Employment Act (prohibiting employers from discriminating against employees or prospective employees aged 40 or older) limits extraterritorial application similar to Title VII above.

The Americans with Disabilities Act (prohibiting discrimination against a 'qualified individual' with a disability) limits extraterritorial application similar to Title VII above.

There is generally no extraterritorial application of the Fair Labor Standards Act (FLSA) to employment entirely outside the USA. However, the Wage and Hour Division of the Department of Labor has interpreted the FLSA as applying to an employee who performs a portion of his or her work during any week in the USA, even if the remainder of the work for that week is performed outside of the USA.

The Labor Management Relations Act (LMRA) has no extraterritorial application. However, the National Labor Relations Board has held that the LMRA applies to employees within US territories (but not US citizens working abroad).

The Railway Labor Act, the Occupational Health and Safety Act and the Employee Retirement Income Security Act have no extraterritorial application. Other statutes have no reference to extraterritorial application and so extraterritoriality is not presumed, including Workers Adjustment and Retraining Act, and the Family Medical and Leave Act.

Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

155 N. Wacker Dr.
Chicago
IL 60606

312 558 1220

client.services@ogletree.com www.ogletree.com
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Ogletree, Deakins, Nash, Smoak & Stewart, P.C. is one of the largest labor and employment law firms representing management. The firm has more than 850 labor and employment lawyers located in more than 50 offices across the United States and in Europe, Canada, and Mexico. Ogletree Deakins has a well-developed footprint and is dedicated to providing professional, cost-effective services across the full spectrum of labor and employment law. The firm represents a diverse range of clients, from start-up companies to Fortune 50 corporations.

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