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Chicago Partner Paul Starkman is quoted in the May 17 online issue of Business Insurance on the expected rise in discrimination claims based on alleged violations of the Genetic Information Nondiscrimination Act or GINA. The article is entitled Discrimination claims rising in the wake of genetic bias law. Paul also provided his thoughts on GINA claims in an article that appeared in the November 23 issue of the publication.
Chicago Partner E. Jason Tremblay recently obtained the dismissal of a series of federal civil rights and public accommodation claims filed against a national seminar group. The plaintiff was an individual who attended a seminar being presented by the seminar group at a local Chicago hotel. After the plaintiff became disruptive, she was removed from the seminar and, within days, filed a federal complaint demanding millions in damages. She alleged that she was discriminated against and denied the full enjoyment of a place of public accommodation based on her race, religion and disability. Highlighting the deficiencies in her complaint, as well as the complete lack of any facts to illustrate that her removal from the seminar had anything to do with her race, religion or disability, Mr. Tremblay moved to dismiss the plaintiff’s complaint. In dismissing plaintiff’s complaint with prejudice and denying her leave to file an amended complaint, the federal district court stated that her allegations were so deficient that any amendment would be futile. Considering that plaintiffs are generally granted numerous times to replead their complaint, this was a significant and cost-effective victory for the client.
Chicago Partner Paul Starkman, published an article in Chief Executive Magazine. The article appeared on the May 3 Online Exclusives edition. The article, “What You Need to Know about Monitoring Employees’ Off-Duty Social Networking Activity” examines the effect of social networking on employers, and the risks involved.
Paul Starkman, chair of Arnstein & Lehr’s Labor & Employment Law Practice Group, authored this article for the May 3 issue of Chief Executive. The article discusses monitoring employees’ off-duty social networking activity.
Although federal law does not directly prohibit discrimination based upon sexual orientation, a recent decision from the Southern District Court of Florida illustrates how an employee may be able to state a claim under Title VII for discrimination based upon sexual orientation if the alleged discriminatory conduct was based upon the employee’s failure to conform to gender stereotypes.
In Anderson v. Napolitano, Case No. 09-60744 (S.D.Fla. Feb. 8, 2010), the Plaintiff, a former Federal Air Marshal, filed suit against the Secretary of the Department of Homeland Security alleging, among other things, sex discrimination on the basis of gender stereotyping in violation of Title VII of the Civil Rights Act of 1964. The Plaintiff claimed that shortly after his transfer to the newly established Miami Field Office in late 2001, he began to suffer discrimination and harassment due to his sexual orientation. In support, Plaintiff provided several examples of alleged harassment, including:
(1) that the acting-Special Agent in Charge publicly referred to him as a “fag” and encouraged coworkers not to associate with him;
(2) that “someone in the Miami Field Office had written the word `Fag’ on a grease board next to Anderson’s office”; and
(3) that on one occasion, the Special Agent in Charge denounced the Plaintiff for bringing to his attention a subordinate employees’ complaints of racial discrimination and then told the Plaintiff “It’s my perception, and I could be wrong — that because you’re gay you’re super sensitive to issues of discrimination.” When the Plaintiff denied this characterization, he was told “You’re too gay. You’re too flamboyant. You’re too `in your face’ around other [Federal Air Marshals].”
The employer moved for summary judgment, claiming that the Plaintiff failed to state a claim under Title VII because these allegations related to harassment based upon sexual orientation, not harassment based upon sexual stereotyping. The Court agreed, and granted summary judgment to the employer. In doing so, the Court distinguished the facts of this case from another case recently decided where a plaintiff was able to successfully state a claim for gender discrimination, because the alleged discrimination was based upon the plaintiff’s “effeminate” mannerisms (including his high voice, he walked in an feminine manner, “did not curse and was very well-groomed,” and crossed his legs like a woman). In contrast, the discrimination alleged by Plaintiff in this action did not relate to the Plaintiff’s failure to conform to gender stereotypes, but rather, his sexual orientation. For example, the allegation that the Plaintiff’s supervisor referred to him as a “fag” and told him he was “too flamboyant” was clearly directed to the Plaintiff’s behavior as a gay man, not behavior associated with a woman.
Notwithstanding the Court’s decision, employers must recognize (1) that certain forms of discrimination based upon sexual orientation may also constitute discrimination based upon gender stereotyping. In this case, slightly different facts or testimony could have resulted in a different result and the employer facing an expensive trial; and (2) although discrimination based upon sexual orientation is not currently prohibited by federal law (although Employment Non-Discrimination Act (“ENDA”) legislation which would prohibit such discrimination has continually been proposed in the U.S. Congress since 1994), state and/or local laws may prohibit such discrimination. For example, although not prohibited by Florida law, discrimination based upon sexual orientation is prohibited by Illinois law.
The current economic situation in this country has led to an increase in the use of unpaid internships by companies, especially unpaid internships for young people who have been hit particularly hard by unemployment. However, employers need to be extra careful in this regard since the U.S. Department of Labor (“DOL”) recently announced that it is cracking down on what it claims is the excessive and improper use of unpaid interns by companies for free labor. Specifically, the DOL recently proclaimed that “[i]f you’re a for-profit employer or you want to pursue an internship with a for-profit employer, there aren’t going to be many circumstances where you can have an internship and not be paid and still be in compliance with the law.”
For an unpaid internship to be lawful under the Fair Labor Standards Act (“FLSA”), the intern must be classified as a “trainee” rather than an employee. The DOL has developed the below six factors to evaluate whether a worker is a trainee or an employee for purposes of the FLSA:
The training, even though it includes actual operation of the facilities of the employer, is similar to what would be given in a vocational school or academic educational instruction;
The training is for the benefit of the trainees;
The trainees do not displace regular employees, but work under their close observation;
The employer that provides the training derives no immediate advantage from the activities of the trainees, and on occasion the employer’s operations may actually be impeded;
The trainees are not necessarily entitled to a job at the conclusion of the training period; and
The employer and the trainees understand that the trainees are not entitled to wages for the time spent in training.
If all the above factors are satisfied, the worker will be deemed a “trainee,” not an employee, and the worker can lawfully be unpaid under the FLSA. Put another way, unless all the above factors are met, the worker will be classified as an employee entitled to, among other things, minimum wage and overtime. A misclassification of a worker as a “trainee” could also obligate the company to pay workers’ compensation and unemployment insurance benefits, as well as subject the company to federal and state discrimination laws, tax liability, fines and significant legal bills.
In light of the foregoing, employers must carefully tailor any existing or future unpaid internship programs to make sure that they comply with the above factors in order to avoid liability. Should you have any questions about this issue, please contact E. Jason Tremblay at Arnstein & Lehr LLP.
In conjunction with the recently-passed Hiring Incentives to Restore Employment (“HIRE”) Act, the Internal Revenue Service (“IRS”) just issued a form Employee Affidavit that employers can use to claim a payroll tax exemption. You can view and print out the form affidavit at: http://www.irs.gov/pub/irs-pdf/fw11.pdf
As we detailed in our earlier posting on the HIRE Act, the new law contains two significant tax breaks that are available to most private employers. First, it exempts an employer from its obligation to match the Social Security portion of FICA tax in 2010 for any unrelated employee, hired after February 3, 2010 and before January 1, 2011, who (1) swears under oath that he or she has not been employed for more than 40 hours during the 60-day period ending on the date the employee begins his or her employment with the employer, and (2) was not hired to replace another employee, except an employee who voluntarily resigned or was terminated for cause. In order to establish that an employee’s hiring meets the first of those two elements, employers can have the qualified employee sign the form affidavit, which is also known as a Form W-11. Second, the HIRE Act also offers a tax credit to companies that keep a newly-hired qualified employee for at least 52 consecutive weeks, so long as the employee’s wages during the last 26 weeks of that period are at least 80 percent of his or her wages during the first 26 weeks of the period. The tax credit is equal to the lesser of $1,000 or 6.2 percent of the employee’s wages during the 52-week period.
Should you have any questions about the HIRE Act or ascertaining its applicability to newly-hired employees, please contact your Arnstein & Lehr LLP attorney.
Below is an overview of the key tax changes affecting business in the recently enacted Hiring Incentives to Restore Employment (HIRE) Act. The act was signed into law by the president on March 18, 2010.
Extension of enhanced small business expensing (Section 179). The new law gives a one-year lease on life to enhanced expensing rules, which allow qualifying businesses the option to currently deduct the cost of business machinery and equipment, instead of recovering it via depreciation over a number of years. For tax years beginning in 2010, the maximum amount that a business may expense is $250,000, and the expensing election begins to phase out when a business buys more than $800,000 of expensing-eligible assets. These dollar limits are the same as those that were in effect for 2008 and 2009.
Payroll tax holiday and up-to-$1,000 credit for employers who hire unemployed workers. To help stimulate the hiring of workers by the private sector, the new law exempts any private-sector employer that hires a worker who had been unemployed for at least 60 days from having to pay the employer’s 6.2% share of the Social Security payroll tax on that employee for the remainder of 2010. A company could save a maximum of $6,621 if it hired an unemployed worker and paid that worker at least $106,800—the maximum amount of wages subject to Social Security taxes—by the end of the year. As an additional incentive, for any qualifying worker hired under this initiative that the employer keeps on payroll for a continuous 52 weeks, the employer is eligible for an additional non-refundable tax credit of up to $1,000 after the 52-week threshold is reached, to be taken on their 2011 tax return. In order to be eligible, the employee’s pay in the second 26-week period must be at least 80% of the pay in the first 26-week period.
Workers hired after the date of introduction of the legislation (Feb. 3, 2010) are eligible for the payroll tax forgiveness and the retention bonus, but only wages paid after the date of the new law’s enactment receive the exemption for payroll taxes.
Here are some additional features of the new hiring incentive:
The tax benefit of the new incentive is immediate. It puts money into a business’ cash flow immediately, since the tax is simply not collected in the first place.
The tax benefit generally applies only to private-sector employment, including nonprofit organizations—public sector jobs are generally not eligible for either benefit. However, employment by a public higher education institution would qualify.
There is no minimum weekly number of hours that the new employee must work for the employer to be eligible, and there is no maximum on the dollar amount of payroll taxes per employer that may be forgiven.
For workers that would otherwise be eligible for the “Work Opportunity Tax Credit,” the employer must select one benefit or the other for 2010—no double dipping.
An employer can’t claim the new tax breaks for hiring family members.
A worker who replaces another employee who performed the same job for the employer is not eligible for the benefit, unless the prior employee left the job voluntarily or for cause.
For the hiring to qualify, the new hire must sign an affidavit, under penalties of perjury, stating that he or she has not been employed for more than 40 hours during the 60-day period ending on the date the employment begins.
The incentive is not biased towards either low-wage or high-wage workers. Under the measure, a business saves 6.2% on both a $40,000 worker and a $90,000 worker.
The payroll tax holiday does not apply with respect to wages paid during the first calendar quarter of 2010, but the amount by which the Social Security payroll tax would have been reduced under the payroll tax holiday provision during the fist calendar quarter is applied against the tax imposed on the employer for the second calendar quarter of 2010.
The Act creates a similar new set of rules permitting a payroll tax holiday for railroad retirement tax purposes.
The credit for retaining qualifying new hires is the lesser of $1,000 or 6.2% of the wages paid by the taxpayer to the retained worker during the 52-consecutive-week period. Thus, the credit for a retained worker will be $1,000 if, disregarding rounding, the retained worker’s wages during the 52-consecutive-week period exceed $16,129.03. However, the credit is not available for pay not treated as wages under the Code (e.g., remuneration paid to domestic workers).
Direct payment option for certain tax credit bonds. State and local governments have the ability to issue special purpose tax credit bonds for school construction, energy conservation and renewable energy. The federal government subsidizes these tax credit bonds by providing investors in these bonds with a federal tax credit in place of interest that would otherwise be payable on the bond. In lieu of providing investors with federal tax credits, the new law allows issuers of qualified school construction bonds, qualified zone academy bonds, clean renewable energy bonds, and qualified energy conservation bonds to elect to receive a direct payment from the federal government equal to the amount of the federal tax credit that would otherwise be provided for these bonds.
Revenue offsets. To pay for the tax incentives, the Act includes revenue offsets consisting of: (1) a comprehensive set of measures to reduce offshore noncompliance by giving IRS new administrative tools to detect, deter and discourage offshore tax abuses; and (2) a three-year delay (through 2020) of implementation of worldwide allocation of interest—a liberalized rule for allocating interest expense between U.S. sources and foreign sources for purposes of determining a taxpayer’s foreign tax credit limitation.
The Illinois Appellate Court for the First District ruling
In order to ensure that an employer gets the full benefit of the restrictive time period in its non-competition, non-disclosure or non-solicitation agreements, employers in Illinois should make sure that such agreements contain “extension clauses.” An extension clause states that the time period of the restrictive covenant will not start or will be extended for the period in which the ex-employee was breaching in the event that an employer does not discover the former employee’s breach until near the end of the restrictive time period.
The Illinois Appellate Court for the First District (which covers the Chicago metropolitan area) recently addressed the issue of extension clauses in Citadel Investment Group, LLC v. Teza Technologies LLC, et al. In that case, Citadel sought to enforce non-competition agreements that did not contain extension clauses against two former employees who had agreed to refrain from competing against Citadel for nine months following the end of their employment. Several months into the nine month non-competition period, Citadel discovered that its former employees were competing against it and filed an emergency motion for a preliminary injunction. The trial court enjoined the employees from engaging in any competitive activity as defined by the non-competition agreements, but only for the few months remaining on the nine month restrictive time period set forth in the non-competition agreements.
On appeal, Citadel argued that its former employees should have been enjoined for a full nine month period as contemplated under the agreement, despite the lack of an extension clause. However, the First District Appellate Court affirmed because the plain language of Citadel’s restrictive covenants ended the restrictions nine months after termination of employment. Because the agreements did not contain any provision for allowing for an extension of the restrictive period, the First District refused to read such a provision into the agreements.
This recent decision is in accord with decisions from the Second and Fourth Illinois Appellate Courts. Employers in Illinois should review their existing non-competition, non-disclosure or non-solicitation agreements to see if they contain an extension clause. If any of these agreements do not contain extension clauses, Illinois employers should consider revising these agreements to include extension clauses to ensure that in Illinois they get the full benefit of the restrictive time period in these agreements. (Remember: revising the non-competes of existing employees may require some additional consideration other than merely allowing them to keep their jobs). Otherwise, by the time that employers realize that ex-employees are breaching their non-competes and run into court, the restrictive periods may be expiring or have expired.
Finally, this decision is applicable only to agreements that are governed by Illinois law. Employers should be mindful to not use the “one agreement fits all approach” and automatically assume that extension clauses will get the same treatment under the laws of other states. The law of the particular state at issue should be looked at to see if the use of extension clauses will be beneficial to employers.
