The Illinois legislature recently passed HB2862 amending the Day and Temporary Labor Services Act (the “Act”). If signed by Gov. J.B. Pritzker in its current form as expected, it will have significant implications for staffing agencies and their clients (i.e. employers that use staffing agencies to supplement their workforce with non-employee, temporary workers). Gov. Pritzker has 60 days from June 16, 2023, to sign the bill. Once signed, the bill takes effect immediately.

Importantly, the amendments do not alter who is covered under the Act or their corresponding definitions. Under the Act:

• “Day and temporary labor service agency” (“Labor Service Agency”) means “a person or entity engaged in the business of employing day or temporary laborers to provide services, for a fee, to or for any third party client pursuant to a contract with the day and temporary labor service agency and the third party client.”
• “Third-party client” (“client company”) means “any person that contracts with a day and temporary labor service agency for obtaining day or temporary laborers.”
• “Person” means “any natural person, firm, partnership, co-partnership, limited liability company, corporation, association, business trust, or other legal entity, or its legal representatives, agents, or assign.”
• “Day and temporary labor” means “work performed by a day or temporary laborer at a third party client, the duration of which may be specific or undefined, pursuant to a contract or understanding between the day and temporary labor service agency and the third party client. ‘Day and temporary labor’ does not include labor or employment of a professional or clerical nature.”

While below is a summary of the amendments in their current form, if Gov. Pritzker signs the bill into law, additional guidance will be needed from the Illinois Department of Labor (the IDOL), the administrative agency tasked with interpreting and enforcing the Act. Such guidance likely will be in the form of IDOL webinars, FAQs, and/or regulations. 

Day or temporary laborers’ right to refuse a placement if there is a labor dispute

The amendments provide that Labor Service Agencies will be prohibited from sending a day or temporary laborer to a client company’s workplace if there is “a strike, a lockout, or other labor trouble” occurring at the time of the placement, unless the Labor Service Agency provides the laborer “at or before the time of dispatch, a statement, in writing and in a language that the day and temporary laborer understands, informing the day or temporary laborer of the labor dispute and the day or temporary laborers’ right to refuse the assignment without prejudice to receiving another assignment.” The amendments do not define “other labor trouble,” leaving such interpretation to the IDOL, who likely will interpret broadly.

Thus, the amendments will require Labor Service Agencies to obtain information relating to any such occurrences at their client company’s workplace before placing a day and temporary laborer there. The amendments do not appear to address a client company’s failure or unwillingness to provide such potentially confidential information to a Labor Service Agency. Arguably, however, a Labor Service Agency could seek redress under Section 95 of the Act, which provides, “A day and temporary labor service agency aggrieved by a violation of this Act or any rule adopted under this Act by a third party client may file suit in circuit court of Illinois, in the county where the alleged offense occurred or where the day and temporary labor service agency which is party to the action is located.” Guidance will be needed from the IDOL to address this scenario.

A separate notice violation will be assessed against a Labor Service Agency for failing to provide a laborer with the required information each time it is required to do so.

Equal Pay for Equal Work

The amendments will require a Labor Service Agency to pay “a day or temporary laborer who is assigned to work at a [client company] location for more than 90 calendar days … not less than the rate of pay and equivalent benefits as the lowest paid directly hired employee of the [client company] with the same level of seniority at the company and performing the same or substantially similar work on jobs the performance of which requires substantially similar skill, effort, and responsibility, and that are performed under similar working conditions.”

In the absence of client-employee/comparator, the amendments will require the Labor Service Agency to pay the day or temporary laborer “not less than the rate of pay and equivalent benefits of the lowest paid direct hired employee of the company with the closest level of seniority at the company.” The amendments provide that Labor Service Agencies will have the option to pay the individual the cash equivalent of the actual cost of benefits, in lieu of providing the actual benefits.

The amendments will impose obligations on the client company to assist the Labor Service Agency to comply with the Act’s requirements of determining what constitutes “equal pay for equal work.” Specifically, the amendments provide that if a Labor Service Agency makes a request to a client company “to which a day or temporary laborer has been assigned for more than 90 calendar days, [the client company] shall be obligated to timely provide the day and temporary labor service agency with all necessary information related to job duties, pay, and benefits of directly hired employees necessary for the day and temporary labor service agency to comply.” The amendments provide that a client company’s failure to provide a Labor Service Agency (who makes such a request) with any the required information will be deemed in violation of the Act and subject to a $500 penalty and attorneys’ fees and costs.

The IDOL will need to provide guidance on what specific benefits a Labor Service Agency is required to provide to eligible day or temporary laborers, such that they can make proper requests to client companies for that information, and how to quantify the cash equivalent of the actual cost of such benefits, should they opt to pay the cash equivalent instead of providing the actual benefits. The IDOL also will need to provide guidance on all relevant factors for determining who is a proper comparator and who ultimately makes that determination (e.g. the Labor Service Agency or the client company).

Labor Service Agencies and client’s safety and health practice required responsibilities

The amendments will require Labor Service Agencies to do the following:

• Inquire at the start of any contract for placement about a client company’s safety and health practices and hazards at the workplace where the work is to be performed to assess the safety conditions, workers’ tasks, and safety program. A Labor Service Agency could request to conduct the inquiry at the actual workplace where the work will be performed. If at any time during the contract the Labor Service Agency becomes aware of job hazards at the workplace that are not mitigated by the client company, it will be required to apprise the client company of any such job hazards, urge the client company to correct the job hazards and document their efforts. Failure of a client company to remedy the job hazard will require the Labor Service Agency to remove the day or temporary worker from the worksite;
• Provide the day or temporary laborer with “general awareness safety training for recognized industry hazards” the laborer may encounter at the worksite – offered in the preferred language of the laborer and at no cost to the laborer;
• Provide the client company with a general description of the training program, including topics covered, at the start of any placement contract;
• Provide day and temporary laborers with the IDOL’s hotline number to report safety hazards and concerns as part of their on-boarding documents; and
• Inform day and temporary laborers to whom they may report safety concerns at the client company’s workplace.

The amendments will require client companies to:

• Document and inform Labor Service Agencies about anticipated job hazards day and temporary laborers are likely to encounter in the workplace;
• Review the Labor Service Agency’s “general awareness safety training” to determine if the training addresses recognized hazards of the industry;
• Provide training tailored to the particular hazards at the worksite;
• Document and maintain records of site-specific training and provide the Labor Service Agency with confirmation within three business days of the training;
• If during the contract, the client company changes the day or temporary laborers’ job tasks or work location, and in doing so, “new hazards may be encountered,” the client company will be required to inform the Labor Service Agency and the laborers of such changes, inform each of “new hazards not previously covered” before the laborer starts the new tasks, and “update personal protective equipment and training for the new tasks.” If the training is not sufficient, the laborers or the Labor Service Agency may refuse a new job task at the worksite.
• If the client company is supervising a day or temporary laborer (which could lead to a joint-employer determination), the amendments will require it to provide the laborer with worksite specific training and permit the Labor Service Agency to visit the worksite to confirm that the client’s training is sufficient.

At a minimum, the IDOL will need to provide guidance on assessing what constitutes a job hazard under the Act and provide template training materials for Labor Service Agencies and client companies to use to comply with the Act’s requirements.

Increased Fees and Penalties

The amendments will increase the non-refundable annual registration fee that Labor Service Agencies are charged for registering with the IDOL to $3,000 (currently $1,000) and $750 (currently $250) for each branch office or other location where the Labor Service Agency regularly contracts with day or temporary laborers.

Under the amendments, Labor Service Agencies and client companies will be subject to civil penalties between $100 and $18,000 (up from not more than $6,000) for violations found in the first audit conducted by the IDOL or determined in a court in a civil action brought by an “interested party” (see below) or by the Illinois Attorney General, and between $250 and $7,500 (up from not more than $2,500) for each repeat violation found by the IDOL or a circuit court within three years of the first audit.

A client company will be subject to civil penalties of between $100 and $1,500 (up from $500) for each day it contracts with a Labor Service Agency that is not registered with the state. The amendments provide that each violation of the Act will be viewed as separate and distinct violations for each day the violation continues or for each temporary laborer who is aggrieved.

Finally, the amendments provide that the Illinois Attorney General may request that a circuit court suspend or revoke the registration of a Labor Service Agency for violating any portion of the Act or when warranted by public health concerns.

Civil litigation initiated by an “interested party”

The amendments create a private right of action for any “interested parties” who have a “reasonable belief” that a Labor Service Agency and/or client company has violated the Act in the preceding three years, thus giving “interested parties” standing to file a lawsuit against one or both to aggrieve the alleged violation. The amendments define “interested parties” as “an organization that monitors or is attentive to compliance with public or worker safety laws, wage and hour requirements, or other statutory requirements.”  

Prior to filing a lawsuit, the amendments will require the interested party to first submit a complaint to the IDOL and obtain a notice of right to sue from the IDOL. The IDOL will provide the Labor Service Agency and/or client company with an opportunity to contest and/or cure the alleged violation. Importantly, however, even if the IDOL finds there to be no violation or the violation is cured, the interested party can still receive a right to sue notice from the IDOL and file a lawsuit. If an interested party files a lawsuit and is successful, it is entitled to 10 percent of any statutory penalties assessed (see above), as well as attorneys’ fees and costs in bringing the lawsuit. The remaining 90 percent of the assessed statutory penalties will be deposited in the Child Labor and Day Temporary Labor Services Fund.

With the ability to recover attorneys’ fees, plaintiff’s law firms likely will join forces with interested parties to pursue litigation and recover attorneys’ fees, considering the minimal threshold of a “reasonable belief” necessary to initiate action with the IDOL, and the ability to sue, regardless of the outcome or steps taken to cure at the IDOL stage.

The amendments will certainly change the temporary worker landscape for staffing agencies and companies using staffing agencies for temporary workers. As set forth above, while the IDOL will need to provide guidance on, among other things, the equal pay and equal benefits, and safety training and notice requirements, staffing agencies and their clients should not delay in complying until such guidance is issued, as such guidance could take several months after the amendments go into effect to be issued.

Staffing agencies and/or employer-companies using staffing agencies for laborers with questions about how the Act affects them may contact a member of Greensfelder’s Employment & Labor practice group.  

Scott Cruz will present to the Illinois Manufacturers’ Association on the amendments to the Day and Temporary Labor Services Act as part of a webinar program at 10 a.m. July 25. For more information or to register, please visit https://illinoismanufacturersassociation.growthzoneapp.com/ap/Events/Register/VPN6djXP

A new federal law goes into effect June 27, 2023, related to covered employers’ obligations to provide pregnancy accommodations to employees and job applicants.

As we previewed in our 2023 Federal Employment Law Forecast, Congress passed the Pregnant Workers Fairness Act (PWFA) as an amendment to the government funding bill, which President Biden signed on December 29, 2022. The law charges the EEOC with issuing regulations interpreting the PWFA, although the EEOC has not yet indicated when it will do so.

The PWFA requires employers with 15 or more employees to provide reasonable accommodations to qualified job applicants and employees with known limitations related to pregnancy, childbirth, or related medical conditions, unless the accommodation will cause the employer an undue hardship.

Before the PWFA, the federal Pregnancy Discrimination Act expanded Title VII’s prohibition of discrimination on the basis of sex to encompass pregnancy discrimination. The Americans with Disabilities Act (ADA) provided protection to job applicants and employees with pregnancy-related medical impairments that constitute a disability under the ADA or in situations where accommodations were made for other nonpregnant workers. The PWFA now expands a covered employer’s obligations to provide accommodations to pregnant applicants and employees. The PWFA also prohibits an employer from retaliating against an employee for requesting a reasonable accommodation or reporting or opposing unlawful discrimination under the PWFA.

Examples of reasonable accommodations that may be available to applicants and employees under the PWFA include a light-duty assignment that does not involve heavy lifting; allowing additional, longer, or more flexible breaks to eat, drink, rest, or use the bathroom; ergonomic accommodations; schedule changes (including shorter shifts, part-time work, or a later start time); providing time off for medical appointments; and providing leave for an employee who does not qualify for leave under the Family and Medical Leave Act to physically recover from childbirth. The PWFA essentially mirrors the protections provided for disabled employees under the ADA, but on a temporary basis. The PWFA also assimilates the ADA’s interactive process and does not require modification of an employee’s essential job functions.

Employers with questions about how the PWFA affects their organization may contact a member of Greensfelder’s Employment & Labor practice group.

Important update on the Illinois Paid Leave for All Workers Act: The Illinois Department of Labor (IDOL) has issued its first set of frequently asked questions addressing the Act, with more to come. The full FAQs can be found here, and a summary of key points is below.

As covered in our previous blog post, the Act requires most Illinois employers to provide their employees working in Illinois with up to 40 hours of paid leave they can take for any reason during a designated 12-month period.

As part of the FAQs, the IDOL confirmed that the Act’s requirement of 40 hours of paid leave (or a pro rata number of hours accumulated at one hour for every 40 hours worked) also will apply to part-time workers, not just full-time. The IDOL also confirmed that employers whose existing paid leave policies already offer at least 40 hours of paid leave will not be required to offer an additional 40 hours once the Act becomes effective January 1, 2024.

Further, as it pertains to salaried/exempt employees (i.e., those not eligible for overtime under the Fair Labor Standards Act), the IDOL will deem them to work 40 hours in each workweek for purposes of paid leave time accrual, even if they regularly work 40 or more hours in a workweek. Conversely, if salaried/exempt employees’ regular workweek is less than 40 hours, their paid leave time accrues based on the number of hours in their regular workweek.

Finally, for employers located in Cook County, Illinois, municipalities that previously opted out of the Cook County Earned Sick Leave Ordinance, those employers will be required to comply with the Act as of January 1, 2024.

While this is a good start, there are many unanswered questions for which the IDOL will need to provide guidance in the form of FAQs or through rulemaking, hopefully before January 1, 2024. Stay tuned for additional updates.

Employers with questions about how the Act affects them may contact a member of Greensfelder’s Employment & Labor practice group.

Jennifer Abruzzo, general counsel for the National Labor Relations Board (NLRB), issued a memorandum on May 30, 2023, finding that except in limited special circumstances, non-competition agreements – including the act of merely giving employees non-competition agreements or maintaining existing ones – violate Sections 7 and 8 of the National Labor Relations Act (Act). The memorandum states, “Except in limited circumstances, I believe the proffer, maintenance, and enforcement of such agreements violate Section 8(a)(1) of the Act.”

Further, even though the NLRB is focused on employee organizing and the right to collective bargaining and on low- and middle-wage workers, the memorandum suggests a broader reach.

The memorandum is not the federal government’s first attack on non-compete agreements. The Federal Trade Commission (FTC) recently published for comment a proposed rule that would ban all forms of non-competition agreements except in the context of the sale of a business. While the comment period has ended, the FTC has yet to issue its final rule, which is almost certain to face challenge in the courts. Moreover, non-disclosure agreements and statutory trade secret protections would still be available to employers.

In her memorandum, Abruzzo found that “[g]enerally speaking, non-compete agreements between employers and employees prohibit employees from accepting certain types of jobs and operating certain types of businesses after the end of their employment.” She went on to say that “[n]on-compete provisions are overbroad, that is, they reasonably tend to chill employees in the exercise of Section 7 rights, when the provisions could reasonably be construed by employees to deny them the ability to quit or change jobs by cutting off their access to other employment opportunities that they are qualified for based on their experience, aptitudes, and preferences as to the type and location of work.”

The five types of activities protected under Section 7 of the Act that Abruzzo believes are chilled by non-competes are:

• “concertedly threatening to resign to demand better working conditions.”
• “carrying out concerted threats to resign or otherwise concertedly resigning to secure improved working conditions.”
• “concertedly seeking or accepting employment with a local competitor to obtain better working conditions.”
• “soliciting their co-workers to go work for a local competitor as part of a broader course of protected concerted activity.”
• “ seeking employment, at least in part, to specifically engage in protected activity with other workers at an employer’s workplace.”

Abruzzo conceded that there may exist “special circumstances” that justify the infringement of employee rights, however, “a desire to avoid competition from a former employee is not a legitimate business interest that could support a special circumstances defense.” Further, she believes some of the traditional legitimate business interests, such as retaining employees or protecting special investments in training, are unlikely to justify an overly broad non-compete “because U.S. law generally protects employee mobility, and employers may protect training investments by less restrictive means, for example, by offering a longevity bonus.” Finally, Abruzzo stated that “employers’ legitimate business interest in protecting proprietary or trade secret information can be addressed by narrowly tailored workplace agreements that protect those interests.”

Despite the above, Abruzzo concludes her memorandum stating that not all non-compete agreements necessarily violate the Act. While the memorandum does not go into detail, she does say that non-compete agreements may not violate the Act where:

• “employees could not reasonably construe the agreements to prohibit their acceptance of employment relationships subject to the Act’s protection”;
• “provisions that clearly restrict only individuals’ managerial or ownership interests in a competing business, or true independent-contractor relationships”; or
• “a narrowly tailored non-compete agreement’s infringement on employee rights is justified by special circumstances.”

There are, however, a few things employers should keep in mind with respect to Abruzzo’s memorandum.

• The Act only applies to certain categories of employees. For example, employees who fall within the Act’s definition of “supervisor” are not protected by it. Similarly, management employees are generally not within the Act’s coverage.
• Abruzzo’s memorandum merely reflects her opinion of how the NLRB should rule if faced with a case involving a non-compete agreement. The NLRB, a five-member panel that interprets the Act, has not ruled on the matter.
• NLRB decisions are subject to challenge in the federal courts. Thus, if the NLRB chooses to adopt Abruzzo’s position, a court challenge is likely to follow.

In light of Abruzzo’s memorandum and the FTC’s recently proposed rule, what are the action items for employers?

• Employers who have entered into non-competition agreements with employees should closely follow any new developments on these issues.
• Employers who have entered into non-competition agreements with employees should revisit those agreements to determine whether this memorandum and/or the FTC Rule affect them, as it is likely they are impacted by at least one of these.
• Employers who regularly have employees enter into non-competition agreements at the start of their employment should determine whether that is a practice they should continue or if there is some other means to protect their business.
• Where employers decide they will continue to use non-competition agreements, they should revisit those agreements to ensure they are narrowly tailored.
• Employers should review their employee confidentiality agreements to ensure they are written so that they are enforceable as a means of protecting their business and that they are taking the appropriate steps to make sure such agreements are enforceable.
• If employers do not regularly use employee confidentiality agreements, they should determine whether such agreements should be used to help them protect their competitive advantage.

The Illinois Department of Labor (IDOL) recently adopted new regulations governing several provisions under the Illinois Wage Payment and Collection Act (IWPCA). Among them, the IDOL adopted new regulations that:

1. create a five-factor test for determining when work-related expenses incurred by an employee primarily benefits the employer, such that the employer is required to reimburse the employee for those specific expenditures;
2. clarify when employers may be liable for payment of employee expenses that exceed amounts set forth in the employer’s written expense reimbursement policy;
3. create new recordkeeping requirements relating to employee-incurred expenses;
4. clarify when an employee may file a claim with the IDOL seeking reimbursement of expenses;
5. clarify what constitutes an enforceable wage deduction agreement for deductions occurring over a defined period; and
6. create enhanced penalties for violations of the IWPCA.

The new regulations took effect March 31, 2023.

Initially, it is important to understand the distinction between laws and regulations. Laws are generally the product of written statutes passed by the U.S. Congress or state legislatures, for example. Regulations, conversely, are standards and rules adopted by administrative agencies (here, the IDOL) that govern how laws (here, the IWPCA) will be enforced by the agency (here, the IDOL). Like laws, regulations are codified and published so that parties (here, employers) are on notice regarding what is and is not legal. And regulations often have the same force as laws, because, without them, regulatory agencies such as the IDOL would be hindered in their enforcement of the laws for which they are tasked with enforcing.

Reimbursable Expenses – New Five-Factor Test

As it relates to an employer’s obligation to reimburse employees for work-related expenses, Section 9.5 of the IWPCA provides:

 An employer shall reimburse an employee for all necessary expenditures or losses incurred by the employee within the employee’s scope of employment and directly related to services performed for the employer. As used in this Section, “necessary expenditures” means all reasonable expenditures or losses required of the employee in the discharge of employment duties and that inure to the primary benefit of the employer.

Prior to the new regulations, the IDOL offered no written guidance for employers to use in determining if a particular work-related expense an employee incurred was for the “primary benefit” of the employer. Fortunately, that has changed with the adoption of the new regulations. The regulations create the following five-factor test for employers to use in making this determination:

1. Whether the employee has any expectation of reimbursement;
2. Whether the expense is required or necessary to perform the employee’s job duties;
3. Whether the employer is receiving a value that it would otherwise need to pay for;
4. How long the employer is receiving the benefit; and
5. Whether the expense is required of the job.

The new regulations also provide that no single factor is determinative; rather, “the analysis should focus on the extent to which the expense benefits the employer and its business and business model.” Employers should immediately revise their written expense reimbursement policies to incorporate the above five-factor test into the policy and should begin applying these factors in making any such relevant determinations. If employers do not have such a policy, they should create one with the assistance of employment counsel.

Reimbursable Expenses – New Written Expense Policy Guidance

It is strongly recommended that all employers have in place a written expense reimbursement policy. Strict adherence to the policy is also strongly recommended, based on the possible ramifications under the new regulations for any variance from the policy, especially as it relates to reimbursable expense amounts.

The new regulations provide that even if an employer’s written expense reimbursement policy establishes specifications or guidelines for reimbursable expenditures, but the employer, “through direct authorization or practice,” allows for reimbursement of amounts that exceed those specified in its written policy, the employer will be liable for full reimbursement of such expenses.

Thus, employers must be diligent in strictly following their policy. Employers must understand that if they deviate from their written policy in any material way, for example, by authorizing and/or approving expenses that exceed the amounts set forth in their policy, this may result in the IDOL finding an employer-approved change to the policy, whether intended or not, and requiring the employer to pay the full amount of the reimbursement owed to the employee.

Reimbursable Expenses – New Recordkeeping Requirements

The new regulations require employers to keep the following records regarding employee expenses, all of which must be maintained for three years:

• All policies regarding reimbursement;
• All employee requests for reimbursement;
• Documentation showing approval or denial of reimbursement; and
• Documentation showing actual reimbursement and supporting documents.

Thus, it is imperative that employers inform any individuals in their organization (e.g., managers, payroll, etc.) who review or approve/deny employee expense reimbursement requests of the new recordkeeping rules. Employers should also update their document retention policies to comply with these new recordkeeping requirements.

Reimbursable Expenses – Denial of Requests for Reimbursements

The new regulations provide that once an employer denies an employee’s request for reimbursement of expenses, or fails to respond to an employee’s request for reimbursement of expenses (no time period provided in the new regulations), and the expenses are of the nature “that should have been reimbursable” under the new five-factor test, an employee may file a claim  under the IDOL for reimbursement.

Employers should therefore explain in their written policy the process for reviewing and approving/denying reimbursement requests. The policy should also include the anticipated period of time it will take to review and make a reimbursement determination, so as to preempt an employee from hastily filing a claim with the IDOL that alleges a failure to respond.

Deduction of Wages from Employee Paychecks

Prior to the new regulations, an employer could lawfully deduct wages from an employee’s paycheck when, for example, the employer and employee entered into a cash advance repayment agreement, the cash advance was to be repaid through payroll deductions until the amount was repaid, the same amount was to be deducted each pay period, and the agreement allowed for voluntary withdrawal for the deduction.

The new regulations require more for such agreements to be enforceable under the IWPCA. Wage deduction agreements must now specify a “defined duration” of time for the deductions, not to exceed six months.  Thus, employers should no longer solely indicate, for example, that “the agreement remains in place until the amount is repaid;” rather, and for example, employers should specify  a defined duration (e.g., next six pay periods, beginning May 1 and ending July 31, etc.) to indicate the exact period in which the deductions from the employee’s paycheck will occur.

New Enhanced Penalties for IWPCA Violations

The new regulations provide that if the IDOL determines an employer violated the IWPCA because the employer owes wages or final compensation (defined under the IWPCA to include, among other things, expense reimbursements) to the employee, damages will no longer be assessed at 2 percent of the amount owed. Now, damages will be assessed at 5 percent of the amount owed, multiplied by the number of months between when the violation occurred and when the employer pays the amount owed.

Accordingly, employers should exercise caution in denying reimbursement expenses, especially in the absence of a written policy delineating such reimbursable expenses, and especially if there is a good faith basis to deem the expense request reimbursable under the new five-factor test.

If you have questions about the new regulations, please contact one of the attorneys in our Employment & Labor group.

The National Labor Relations Board (NLRB) issued a decision on February 21, 2023, that restored pre-Trump era precedent and prohibits employers from offering employees severance agreements that contain broad confidentiality and non-disparagement provisions.

In the case at issue, McLaren Macomb and Local 40, RN Staff Council Office and Professional Employees International Union, AFL-CIO, 372 NLRB No. 58 (2023) (McLaren), the issue was whether Michigan hospital operator McLaren Macomb violated the National Labor Relations Act (NLRA) when it offered severance agreements with broad confidentiality and non-disparagement requirements to 11 employees furloughed because of the COVID-19 pandemic.

The confidentiality provision contained in the agreement stated, “The Employee acknowledges that the terms of this Agreement are confidential and agrees not to disclose them to any third person, other than spouse, or as necessary to professional advisors for the purposes of obtaining legal counsel or tax advice, or unless legally compelled to do so by a court or administrative agency of competent jurisdiction.” The non-disclosure provision provided, in relevant part, “At all times hereafter, the Employee agrees not to make statements to Employer’s employees or to the general public which could disparage or harm the image of Employer.” The agreement further provided that payment of the severance was conditioned on the employee signing the agreement, and that the employee could face monetary and injunctive sanctions if he or she breached the confidentiality and non-disparagement provisions.

The NLRB took issue with the provisions and found they interfered with employees’ statutory rights by prohibiting communications about the employment relationship, including statements claiming that the employer violated the NLRA.

Unfortunately, the McLaren decision left many questions unanswered, such as whether the NLRB will apply its ruling retroactively and whether an overly broad confidentiality or non-disparagement clause will invalidate an entire severance agreement.

Accordingly, on March 22, 2023, NLRB General Counsel Jennifer Abruzzo issued a guidance memorandum (GC 23-05) addressing some of these questions. We have summarized the most important takeaways from the McLaren decision and the memorandum below:

• Although the NLRB’s focus is on unions and union employees, non-union employees still have rights under the NLRA. As such, the McLaren decision applies to all employers regardless of whether they have a union-represented workforce. Similarly, the McLaren protections extend to current and former employees.

• McLaren does not prohibit confidentiality and non-disparagement clauses in severance agreements altogether. Permissible confidentiality provisions are those that are narrowly tailored to restrict an employee from disclosing proprietary information or trade secrets for a specific period of time based on legitimate business justifications. The NLRB also indicated that requiring confidentiality with respect to the financial terms of a non-NLRB settlement agreement would not interfere with an employee’s NLRA Section 7 rights. A lawful non-disparagement clause is one that prohibits defamatory statements about the employer (defined as being maliciously untrue, such that they are made with knowledge of their falsity or with reckless disregard for their truth or falsity).

• The mere act of offering a severance agreement with overly broad confidentiality and non-disparagement clauses violates the NLRA. This means, even if an employee does not sign the severance agreement, an employer’s conduct in providing the agreement is still unlawful. Also, employees cannot voluntarily choose to enter into such an agreement with these provisions or request broad confidentiality or non-disclosure requirements on their own.

• The McLaren decision applies retroactively. Accordingly, severance agreements entered into prior to February 21, 2023, and containing unlawfully broad non-disclosure and non-disparagement provisions violate the NLRA. However, there is a six-month statute of limitations that applies to the act of offering of an agreement. As such, an employee’s time to file an unfair labor charge expires six months from the date they were provided with the agreement to sign. Alternatively, maintaining and/or enforcing a previously executed severance agreement with unlawful provisions continues to be a violation, and a charge alleging such would not be time-barred. If a former employee breaches a non-disparagement or confidentiality provision in a severance agreement signed prior to February 21, 2023, the employer should not take legal action to enforce the provision or address the breach without careful consideration.

• Generally, an unlawful confidentiality or non-disparagement provision will not invalidate an entire severance agreement, regardless of whether there is a severability clause included. GC Abruzzo explained that Regions usually make decisions based solely on the unlawful provisions and would seek to void just those as opposed to the entire agreement.

• McLaren does not apply to severance agreements issued to supervisors except in limited circumstances. While the protections of the NLRA do not generally extend to supervisors, (the definition of “employee” under the act was amended more than 70 years ago to exclude “any individual employed as a supervisor”), supervisors are protected against retaliation for refusing to commit an NLRA violation at an employer’s direction. As such, McLaren’s prohibitions against broad confidentiality and non-disparagement provisions in severance agreements do not apply to supervisors unless 1) a supervisor refuses to proffer an unlawfully overboard severance agreement to an employee at the employer’s request, or 2) a supervisor is offered an unlawfully overbroad severance agreement that would prevent the supervisor from discussing his or her refusal to commit an NLRA violation (i.e. participating in an NLRB proceeding). The NLRA defines supervisor as “any individual having authority, in the interest of the employer, to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees, or responsibly to direct them, or to adjust their grievances, or effectively to recommend such action, if in connection with the foregoing the exercise of such authority is not of a merely routine or clerical nature, but requires the use of independent judgment.”

Perhaps the most important takeaway from the McLaren decision and GC Abruzzo’s memorandum is that employers can continue to include confidentiality, non-disclosure and non-disparagement clauses in their severance and separation agreements, however, the scope of those provisions will largely depend on the particular facts of each circumstance in which an agreement is offered. If you have questions about how to address past severance agreements issued prior to McLaren, or if you need assistance drafting compliant agreements going forward, please contact one of the attorneys in our Employment & Labor group.

The Illinois Supreme Court resolved a critical question in Illinois Biometric Information Privacy Act (BIPA) cases with an answer that threatens to devastate companies and drive settlement values in pending cases through the roof: a separate claim under the statute accrues each time a private entity scans or transmits an individual’s biometric information.

The 4-3 opinion in Cothron v. White Castle System, Inc., issued on February 17, 2023, took up a certified question from the Seventh Circuit Court of Appeals: “Do section 15(b) and 15(d) claims accrue each time a private entity scans a person’s biometric identifier and each time a private entity transmits such a scan to a third party, respectively, or only upon the first scan and first transmission?” The case arises from a putative class action case in which the plaintiff, a former White Castle employee, claims the restaurant chain violated BIPA when it introduced a system that required her to scan her fingerprints, without first obtaining her consent, in order to access company computers and paystubs.

Finding for the BIPA plaintiff, the Illinois Supreme Court focused on the language of the Act and agreed that the acts of collection and capture do not “happen only once.” Instead, it found that in Cothron’s case, “collection and capture” occurred each and every time she scanned her finger to access the company’s computer system. The court agreed with the federal district court’s earlier decision, quoting its observation that “[e]ach time an employee scans her fingerprint to access the system, the system must capture her biometric information and compare that newly captured information to the original scan (stored in an off-site database by one of the third parties with which White Castle contracted).”

The decision concludes that BIPA provides more than just a one-time liquidated penalty — a statutory violation exists with each and every subsequent scan, collection, or disclosure: “We believe that the plain language of section 15(b) and 15(d) demonstrates that such violations occur with every scan or transmission.”

The court considered arguments made by White Castle and amici that “allowing multiple or repeated accruals of claims by one individual could potentially result in punitive and ‘astronomical’ damage awards that would constitute ‘annihilative liability’ not contemplated by the legislature and possibly be unconstitutional” given that BIPA provides liquidated damages of $1,000 or $5,000 “for each violation.” The court acknowledged its crippling effect but found that the language of the Act supports its conclusion, regardless of the resulting harsh, unjust, or unwise consequences. Instead, the court explained that it had previously warned of severe penalties under BIPA and contends that without them, there would be little incentive for companies to comply. Of course, that does nothing to address defendants that allegedly violated the statute well before any of those Illinois court decisions.

As the slimmest of silver linings for defendants, the court noted that in a class action, a court has discretion to award damages that fairly compensate the class and deter future violations without destroying a defendant’s business and that the liquidated damages are discretionary — not mandatory. The court noted that “there is no language in the Act suggesting legislative intent to authorize a damages award that would result in the financial destruction of a business.” For what it’s worth, plaintiff’s counsel acknowledged during last year’s oral argument before the court that “astronomical damages are not proper under the statute” after the justices signaled discomfort with viewing liquidated damages on a per-scan basis. He suggested that trial courts could use their discretion to apply “other more rational methods” to calculate damages. Still, no defendant will be eager to test this discretion.

Going no farther to address this significant concern that will have very real consequences on defendants, the court punted the issue by concluding that excessive damage awards are a policy-based concern best left to the legislature. It concluded by focusing its attention directly to the legislature: “We respectfully suggest that the legislature review these policy concerns and make clear its intent regarding the assessment of damages under the Act.” Dozens of amendments to BIPA were previously introduced in the Illinois legislature in recent years that would have limited damages, eliminated the statute’s private right of action, specified when and how often claims accrue, and tightened the statute of limitations. So far, those proposals made little traction in the legislature. This decision could be the wake-up call legislators need to address the devastating consequences that Cothron itself has actualized.  

The justices dissenting from the opinion explained that the majority opinion is incompatible with the statute’s purpose in protecting individuals from the loss of control over their data: “The majority tellingly never explains how there is any additional loss of control or privacy with subsequent scans that are used to compare the employee’s fingerprint with the fingerprint that White Castle already possesses.” The dissent also identified a major flaw in the majority’s reasoning because the Act’s worst offenders could receive a slap on the wrist while technical violations are punished severely. It could not have been the legislature’s intent, for example, that a bad actor who made a one-time sale of biometric information to a third party with no regard for what that party would do with it could be subject to at most $5,000 in liquidated damages. Meanwhile, a well-meaning employer who used an employee’s finger scan to access her computer each workday would be on the hook for thousands of dollars in damages as a result of the reoccurring violations.

Earlier this month, the court released another discouraging BIPA opinion in Tims v. Black Horse Carriers setting the statute of limitations for claims under the Act at five years. Coupled with Cothron, the two decisions greatly expand the potential for liability for BIPA defendants.

Impacts of the Ruling and Key Takeaways for Your Business

The magnitude of this ruling is not hard to envision. Simply multiply the number of an employee’s finger scans (since 2008 to present on each day she worked) by the liquidated damage amounts of $1,000 or $5,000 per violation. Even for only one employee — let alone thousands for most employers — you can see why this decision imposes scary ramifications on BIPA defendants. In the Cothron case, White Castle estimated the potential number to be $17 billion.

This is not the last we will hear of this issue—as defendants actually face these crippling damages, we can certainly expect more appeals. Consider a recent 2022 decision by the Ninth Circuit Court of Appeals involving statutory damages under the Telephone Consumer Protection Act (TCPA). In Wakefield v. ViSalus, Inc., a TCPA class action related to robocalls, a jury returned a verdict of more than $925 million in statutory damages (based on the TCPA’s $500 statutory damages). The defendant challenged the damages award under the Due Process Clause of the Fifth Amendment. It argued not that the $500 statutory penalty was unconstitutional, but that when aggregated to more than $925 million in the class action, it was so severe and oppressive that it violated the company’s due process rights.

The Ninth Circuit held that aggregated statutory damage awards are, in certain extreme circumstances, subject to constitutional due process limitations. The court discussed that due process concerns are heightened when statutory damages are awarded as strict liability without any quantification of actual damages — particularly where there are a large number of violations or aggregation in a class action.

Cothron will lead to similar results and raises these same constitutionality questions. Whether this will actually lead to bankrupting a defendant or not, the dissent and the Seventh Circuit both recognized that this conclusion will lead to “crippling financial loss” for companies.

Also, there’s a very real concern that class counsel will use this decision as leverage to extract significant settlement payments from BIPA defendants — settlements in which the class attorneys generally receive 30 percent to 40 percent of the total in fees and costs. Those will likely face little challenge or appeal, and so we may not see any remedy to this concern quickly.

You’ve likely already been cautioned about ensuring your company is compliant with BIPA and taking mitigating steps to protect your company. Any company that collects or uses biometric data such as finger, face, or retina scans should evaluate its processes and policies with respect to these technologies and consider any applicable laws implicated by their use. At a minimum, companies in Illinois that use biometric information must have a written policy in place, obtain consent before collection, maintain the data securely, refrain from disclosing the data except with the data subject’s consent, and refrain from profiting from the biometric data.  We strongly encourage you to immediately assess (or reassess) whether you collect or use any type of data that could arguably be subject to BIPA to ensure compliance and avoid the crippling remedies that may result from violation of the statute.

For information on Abby Risner’s and Lauren Daming’s BIPA practice, including their counseling of clients on BIPA compliance and defense of BIPA class actions, click here.

The Illinois legislature recently passed the Paid Leave for All Workers (PLFAW) Act, which will require most Illinois employers to provide their employees working in Illinois with up to 40 hours of paid leave they can take for any reason during a designated 12-month period. Once signed by Governor Pritzker, the PLFAW Act will become effective on January 1, 2024.

Below are questions and answers addressing important provisions under the PLFAW Act.

Q: Which Illinois “employers” will be covered under and subject to the PLFAW Act?

A: The PLFAW Act adopts an expansive definition of employer, which includes private sector employers regardless of size (e.g., one or more employees) and the state and units of local governments, or any state or local governmental agency. However, Illinois school districts organized under the Illinois School Code and Illinois park districts organized under the Illinois Park District Code are not included in the definition of “employer” under the PLFAW Act.

Importantly, the PLFAW Act does not apply to employers who currently are covered by a municipal or county ordinance that is in effect as of January 1, 2024, and which requires the employer to provide any form of paid leave to their employees, including paid sick leave or other paid leave. Thus, for example, employers located in Chicago who are subject to the Chicago Paid Sick Leave Ordinance will be exempt from complying with the PLFAW Act. Similarly, employers located in suburban Cook County municipalities that did not opt out of the Cook County Earned Sick Leave Ordinance and are providing paid sick leave in compliance with that ordinance will be exempt from complying with the PLFAW Act. Notably, however, it appears that those employers located in a suburban Cook County municipality that lawfully preempted the Cook County Earned Sick Leave Ordinance and did opt out likely will be subject to the PLFAW Act.

Q: Who is a covered employee under the PLFAW Act?

A: All employees (i.e., full time, part time, temporary, short term, exempt, non-exempt) working in Illinois, except:

• employees as defined in the federal Railroad Unemployment Insurance Act (45 U.S.C. 351 et seq.) or the Railway Labor Act;
• a student enrolled in and regularly attending classes in a college or university that is also the student’s employer, and who is employed on a temporary basis at less than full time at the college or university (this exclusion applies only to work performed for that college or university);
• a short-term employee who is employed by an institution of higher education for less than two consecutive calendar quarters during a calendar year and who does not have a reasonable expectation that they will be rehired by the same employer of the same service in a subsequent calendar year;
• employees working in the construction industry covered by a bona fide collective bargaining agreement; and
• employees covered by a bona fide collective bargaining agreement with an employer that provides national or international services of delivery, pickup, and transportation of parcels, documents, and freight.

Q: How much paid leave is covered employers required to provide covered employees under the PLFAW Act?

A: Employees are entitled to earn and use up to a minimum of 40 hours of paid leave, or a pro rata number of hours of paid leave, during a 12-month period the employer designates in writing (e.g., employee handbook).

Employers have the option to frontload by providing the entire 40 hours in a lump sum on the first day of employment or the first day of a designated 12-month period. Or, employers can have employees accrue paid leave at the rate of one hour of paid leave for every 40 hours worked, up to a minimum of 40 hours of paid leave, or such greater amount if the employer chooses to provide more than 40 hours of paid leave under the PLFAW Act.  Employees properly classified as exempt from the overtime requirements of the Fair Labor Standards Act are considered to work 40 hours in each workweek for purposes of paid leave accrual, unless their regular workweek is less than 40 hours. Paid leave begins to accrue on the employee’s first day of employment, or on January 1, 2024, whichever date is later. However, employers can require that employees wait the later of 90 days from their start date, or 90 days from January 1, 2024, to begin using earned paid leave provided under the PLFAW Act.

While employees can determine how much paid leave they need to use, employers may set a reasonable minimum increment for the use of paid leave not to exceed two hours per day.

But for employees subject to a collective bargaining agreement (see below), an employer cannot enter into an agreement with an employee to waive the employee’s rights under the PLFAW Act, and any such waiver is void.

Q: What rate of pay will the PLFAW require employers to use to calculate paid leave?

A: Employers will be required to pay employees their standard hourly rate of pay for paid leave provided under the PLFAW Act. Employees who are paid gratuities or commissions as part of their wages must be paid at least the applicable full minimum wage in the jurisdiction in which they are employed when paid leave is taken. That applicable full minimum wage will be treated as the employee’s regular rate of pay for purposes of the PLFAW Act.

Q: Are there specific reasons that employees will be able use paid leave under the PLFAW Act?

A: No, employees will be able use earned paid leave for any reason. Indeed, unlike the Chicago Paid Sick Leave Ordinance and the Cook County Earned Sick Leave Ordinance, which both delineate the specific reasons on which employees can take paid sick leave, the PLFAW Act has no such limitations. Employees will be able use paid leave provided under the PLFAW Act for “any reason of the employee’s choosing.” In fact, under the PLFAW Act, employees will not be required to provide their employers with any reason for the need to use paid leave, and employers cannot require that employees provide documentation or certification as proof or in support of the need for the paid leave.  

Q: Will employees be required to provide their employees with advanced notice of the need to use paid leave, and in what manner will they be required to request leave?        

A: If the need for leave is foreseeable, employers may require that employees provide up to seven calendar days’ notice before the date the leave is scheduled to begin. If the need for leave is not foreseeable, employees will be required to provide notice as soon as is practicable after the employee becomes aware of the necessity for the leave. The employers’ notice requirements, as well as whether the employer will permit employees to provide notice orally and/or in writing, must be memorialized in a written policy (e.g. stand-alone policy or in an employee handbook or policy manual. That policy must be provided to the employee on the employee’s first day of employment, or on January 1, 2024, whichever is later.

Importantly, as a condition of granting an employee’s request to use paid leave under the PLFAW Act, employers cannot require that the employee search for or find a replacement to cover the hours during which the employee will be using paid leave. Employers also will be prohibited from interfering with, denying or changing an employee’s work days or hours to avoid providing paid leave under the PLFAW Act.

Q: Under the PLFAW Act, at the end of designated 12-month period, will an employee be permitted to carry over any unused but accrued paid leave into the next 12-month period?

A: Those employers that choose to frontload and provide employees at least 40 hours of paid leave under the PLFAW Act on their first day of employment, or the first day of the designated 12-month period, will not be required to carry over an employee’s unused paid leave into the next 12-month period. Employers may require employees to use all paid leave prior to the end of the 12-month period or forfeit the unused paid leave (i.e. “use it or lose it”). Conversely, if an employer chooses to use the accrual method to comply with the PLFAW Act, then that employer will be permitted to carry over into the next 12-month period accrued but unused earned paid leave under the PLFAW Act. However, under the PLFAW Act, employers will not be required to provide an employee more than 40 hours of paid leave for use in the designated 12-month period.

Q: Under the PLFAW Act, upon separation of employment, will employers be required to pay employees for unused paid leave?

A: Employers are not required to pay employees accrued but unused paid leave provided under the PLFAW Act upon the employee’s termination, resignation, retirement, or other separation from employment (or at the end of the designated 12-month period), provided that the employer has not credited PLFAW Act leave to an employee’s paid time off bank or employee vacation account. If an employee is rehired within 12 months of the separation by the same employer, the employee’s earned paid leave under the PLFAW must be restored.

Q: When it goes into effect, will the PLFAW Act supersede collective bargaining agreements already in place that govern paid leave?

A: The PLFAW Act does not affect the validity or change the terms of any bona fide collective bargaining agreements (CBA) already in effect on January 1, 2024, addressing paid leave. For CBAs entered into after January 1, 2024, the parties may agree to waive the requirements under the PLFAW Act, but only if the waiver is set forth in clear and unambiguous terms.

Q: On or before January 1, 2024, will employers need to revise their existing paid leave policies if they already provide, at least, or more than, 40 hours of paid leave?

A: If an employer already has in place any type of paid leave policy that provides at least 40 hours of paid leave, the PLFAW Act states that an employer is not required to modify the policy, provided that the policy offers an employee the option, at the employee’s discretion, to take paid leave for any reason.

For example, if an employer offers paid leave only as part of its vacation policy and provides at least 40 hours of vacation time, but the policy only permits the employee to use the hours for vacation, on or before January 1, 2024, the policy will need to be revised to permit employees to use any or all of those 40 hours for “any reason of the employee’s choosing.”

Q: What, if any records, will the PLFAW Act require employers to maintain and for how long?

A: The PLFAW Act will require employers to create records documenting hours worked, paid leave accrued and taken, and remaining paid leave balances for each employee, maintain such records for at least three years, and allow the Illinois Department of Labor (IDOL) access to the records “at reasonable times during business hours to monitor compliance with the PLFAW Act.” Upon an employee’s request, employers that provide paid leave under the PLFAW Act on an accrual basis must provide notice of the amount of leave accrued or used. Failure to comply with the recordkeeping requirements will subject employers to a penalty of $2,500 per offense.

Q: What, if any, posting requirements will the PLFAW Act require of employers?

A: Employers will be required to post in a conspicuous place where other notices are customarily posted a notice that the IDOL will prepare, summarizing the requirements of the PLFAW Act, which also provides information on filing a charge. Separately, that information also must be provided to employees in a written document, written employee handbook or policy manual. This must occur on the employee’s start date, or 90 days after January 1, 2024, whichever is later. Employers that have workforces comprising a significant portion of workers who do not read or understand English will be required to request a notice in the appropriate language from the IDOL. Employers will be subject to a penalty of $500 for the first violation and $1,000 for each subsequent violation of this posting requirement.

Q: What, if any, remedies will be available to employees who believe their employer has violated their rights under the PLFAW Act?

A: The PLFAW Act will prohibit employers from taking adverse action against employees for (a): exercising or attempting to exercise their rights under the PLFAW Act; (b) opposing practices the employee believes to be in violation of the PLFAW Act; or (c) supporting others’ exercise of their rights under the PLFAW Act.

In addition, the PLFAW Act will prohibit employers from considering the use of paid leave under the PLFAW Act as a negative factor in any employment action that involves evaluating, promoting, disciplining or counting paid leave under a no-fault attendance policy.

 The IDOL is responsible for administering and enforcing the PLFAW Act. Employees may file complaints with the IDOL within three years of the alleged violation. Employers found to violate the PLFAW Act are liable to affected employees for actual damages (i.e. the amount of the underpayment), compensatory damages, attorneys’ fees/costs, expert witness fees and civil penalties of not less than $500 and not more than $1,000.

We will continue to monitor and report on developments with to the PLFAW Act and provide any updates as they become available. Employers with questions about how this affects them may contact a member of Greensfelder’s Employment & Labor practice group to discuss.