U.S. Senate passes HIRE Act

News reports say that House Speaker Nancy Pelosi expects the House will soon consider the Senate-passed $15 billion jobs bill (H.R. 2847), known as the Hiring Incentives to Restore Employment (HIRE) Act, that passed the Senate by a 70-28 vote on Feb. 24.  The bill passed by the Senate and presently before the House includes tax incentives for businesses to hire unemployed workers in 2010, an extension of federal aid for highway programs, an extension of a small business expensing tax break, and the establishment of a Build America Bonds program.

The tax incentives for hiring in the proposal presently before the House includes a new program that would exempt employers that hire unemployed workers from paying Social Security taxes on the new hires for the remainder of 2010. The proposal would also offer employers an additional $1,000 tax credit for any new hire who stays on the job for one year.

The HIRE Act significantly pared down the House’s original bill that it passed Dec. 16 by a narrow 217-212 vote.  The original House bill was a much larger $150 billion package that also included six-month extensions of the emergency unemployment insurance benefits program and the COBRA subsidies to help those who have lost their jobs to continue their health insurance.

Short extensions of unemployment benefits (until April 5) and COBRA subsidies (for those involuntarily terminated between March 1 and March 31) were signed into law on March 2.

Even if the HIRE Act is enacted in its present form (and odds are that it will not be since 3 caucuses within the Democrats in the House are already on record that they have problems with the bill), it is expected to create a quarter of a million new jobs.  That is not much when compared with the 8 million jobs lost in the US since 2007, but proponents are calling the HIRE Act a “good first step.”

On December 19, 2009, President Obama signed into law the Fiscal Year 2010 Department of Defense Appropriations Act. In this $63 billion spending measure is a provision, known as the “Franken Amendment” because it was originally introduced by Senator Al Franken of Minnesota, that prohibits federal defense contractors and subcontractors with contracts in excess of $1 million from enforcing existing employment arbitration agreements or entering into new ones with their employees or independent contractors.

Under Section 8816 of the Act, in order to receive funds appropriated under the Defense Appropriations Act on contracts in excess of $1,000,000, a defense contractor or sub-contractor must agree not to enter into or take any action to enforce any agreement that requires, as a “condition of employment,” that an employee or independent contractor agree to resolve through arbitration any claim under Title VII of the Civil Rights Act of 1964 (e.g., claims of race, sex, national origin and religious discrimination, harassment and retaliation), or any tort claim related to or arising out of sexual assault or harassment, including assault and battery, intentional infliction of emotional distress, false imprisonment, or negligent hiring, supervision, or retention.

This anti-arbitration provision currently applies only to large defense contractors and sub-contractors and it only precludes arbitration of employment claims, but not others.  It is unclear if the Act also precludes the arbitration of common law claims unrelated to sexual harassment or sexual assault, state law employment claims, or claims under other federal employment statutes besides Title VII, such as the Americans with Disabilities Act, the Age Discrimination in Employment Act, the Fair Labor Standards Act, or the Family Medical Leave Act.

It is unclear whether failing to comply with the Act will merely invalidate the arbitration agreement, jeopardize the defense contract, or both.  The Franken Amendment is the first time Congress has ever precluded any employers from using mandatory pre-dispute arbitration agreements.

A More Comprehensive Anti-Arbitration Bill Is Pending In Congress.

Although the anti-arbitration provision of the Defense Appropriations Act affects only large defense contractors and sub-contractors, there is a bill pending in Congress that could prohibit virtually all U.S. companies from entering into or enforcing pre-dispute agreements to arbitrate employment, civil rights and consumer disputes. Reintroduced in early 2009, the Arbitration Fairness Act of 2009 would bar all pre-dispute arbitration clauses in employment contracts (except collective bargaining agreements), consumer transactions, franchise agreements, and agreements to arbitrate disputes arising under any civil rights statute.  If passed, the Arbitration Fairness Act would force most employment and consumer disputes currently resolved by private arbitration into the courts.  The Arbitration Fairness Act remains in committee for now, but it is expected that Congress will consider the bill later this year once health care reform legislation is resolved.

Where Is Employment Arbitration Headed?

These congressional initiatives against employment arbitration come at a time of turmoil in this area of the law.  Concerns about the unfairness of some companies’ arbitration procedures have caused private arbitration organizations (such as the National Arbitration Forum, JAMS and the American Arbitration Association) to change their rules or stop conducting certain kinds of arbitrations.  State courts and legislatures are often hostile to arbitration, but the U.S. Supreme Court and most federal courts have endorsed arbitration as a quicker, cheaper, and less formal alternative to litigation.  However, this Congress has shown little hesitancy in legislatively overruling other Supreme Court precedent.  Only one thing is clear:  the future of employment arbitration is up for grabs.

Please tell us what you think:  Is this the beginning of the end of employment arbitration?

Employment Arbitration: Law and Practice

For more comprehensive information and guidance on employment arbitration, see Employment Arbitration: Law and Practice by Arnstein & Lehr partner and Employment Law Practice Group chair Paul Starkman , Gail Golman Holtzman, Donald J. Spero.

Obama signs legislation

The FMLA has been amended.  President Obama signed the National Defense Authorization Act of 2010 at 2:30 p.m. EST October 28.  The full text of Senate bill  signed by the President can be found here. Section 565 of the Act amends the FMLA by greatly expanding the availability and use of military family leave:

• Eligible employees will be able to take military caregiver leave to care for veterans who served in the regular Armed Forces, the Reserves within 5 years of the date the veterans undergoes medical treatment, recuperation, or therapy.  Currently, military caregiver leave is only available to care for current members of the Armed Forces, Guard, or Reserves.
• Military caregiver leave will be expanded to cover the aggravation of existing or preexisting injuries incurred in the line of duty while on active duty.  Currently, FMLA regulations issued by the Department of Labor exclude the aggravation of existing injuries incurred in the line of duty while on active duty as a basis for taking military caregiver leave.  An employee be entitled to take military caregiver leave more than once for the same covered servicemember only where the serious injury or illness rises to the level of a subsequent injury or illness.
• Qualifying exigency leave is expanded to cover members of the regular Armed Forces who are deployed to a foreign country.  Currently, qualifying exigency leave is only available for covered military members in the Reserves or Guard.
• The FMLA amendments will extend qualifying exigency leave to federal employees covered by Title II of the FMLA.  Currently, federal employees covered by Title II do not have the right to take qualifying exigency leave.

The new law requires the U.S. Department of Labor and Office of Personnel Management to work with the Department of Defense and the Veterans Administration in formulating regulations to carry out the amendments.  It is unclear whether the new FMLA amendments will go into effect immediately or whether they will not become effective until implementing regulations are issued.

The amendments greatly expand the availability and use of military family leave.  Employers will need to review and revise their FMLA leave policies to reflect the new military family leave amendments.  There may be additional expansions of the FMLA in short order as President Obama made campaign promises to extend FMLA coverage to more employers, and to cover more family members and for more activities (e.g., school functions).

Federal Minimum Wage Increase

The U.S. Department of Labor’s Wage and Hour Division reminds employers and employees that the federal minimum wage increases to $7.25 on Friday, July 24, 2009.  With this change, employees who are covered by the federal Fair Labor Standards Act will be entitled to be paid no less than $7.25 per hour.  This increase is the last of three provided by the enactment of the Fair Minimum Wage Act of 2007.  A revised Federal minimum wage poster is now available for viewing, downloading, and posting.  Every employer of employees subject to the Fair Labor Standard Act’s minimum wage provisions must post, and keep posted, a notice explaining the Act in a conspicuous place in all of their establishments so as to permit employees to readily read it.

As of July 1, 2009 the State of Illinois minimum wage was raised to $8.00 per hour.

In this holding, the Supreme Court not only rejected the views of every federal appellate court, but it also established that age discrimination cases under the ADEA must be decided under standards that are different from those used in other discrimination cases brought under Title VII (which prohibits discrimination based on race, gender, religion and other prohibited factors).

The Court in Gross distinguished the ADEA from Title VII because, even though both statutes prohibit discrimination “because of” a protected factor, unlike the ADEA, Congress amended Title VII in 1991 to provide that “an unlawful employment practice is established when the complaining party demonstrates that race, color, religion, sex, or national origin was a motivating factor for any employment practice, even though other factors also motivated the practice” (43 U.S.C. § 2000e-2(m) ).  Based on this amendment, the Supreme Court held that now age discrimination cases will have to be handled differently from discrimination cases brought under Title VII, the Americans with Disabilities Act (ADA), the Pregnancy Discrimination Act (PDA) and other federal discrimination laws.

It will be interesting to see if Congress will legislatively overrule the Supreme Court’s decision in Gross to conform the ADEA with Title VII.  This year, Congress amended the ADA to overturn several Supreme Court decisions that had limited its scope  and enacted the Ledbetter Act to supersede a Supreme Court holding that had limited the time-frame for filing pay discrimination claims.

Until Congress acts, in Title VII cases, where the plaintiff presents evidence that race or some other prohibited characteristic was a “motivating factor” in an employment decision (for example, by showing that a decision-maker made racially derogatory comments), then the burden shifts to the employer to show that the same decision would have been made even without the discriminatory motive.  However, now in age discrimination cases under the ADEA, plaintiffs will have to meet the higher burden of showing that “but for” the plaintiff’s age, the challenged employment decision would have been different.  Age discrimination plaintiffs will not be able to use the burden-shifting framework used in Title VII cases.

Age discrimination claims remain a significant concern for employers.  In 2008, age discrimination charges filed with the Equal Employment Opportunity Commission almost exceeded the number of race discrimination charges.  Even though the Gross decision is a “win” for employers, they will need to exercise the same caution and make sure they have sufficient supporting documentation when making employment decisions affecting older workers as they do with women and minorities.

Paul E. Starkman is the Chair of Arnstein & Lehr’s Labor & Employment Law Practice Group.

Sexual Harassment in Illinois

by Paul E. Starkman
Chair of Arnstein & Lehr’s Labor & Employment Law Practice Group

The problems for Illinois employers when supervisors harass subordinates just got more complicated.  On April 16, 2009, in Sangamon County Sheriff’s Department v. Illinois Human Rights Commission, ___ Ill. 2d ___ (Ill. April 16, 2009) (link: www.state.il.us/court/opinions/supremecourt/2009/april/105517.pdf), the Illinois Supreme Court adopted a new standard that imposed strict liability on employers in cases under the Illinois Human Rights Act involving sexual harassment by supervisors.  As discussed below, the Illinois Supreme Court’s new standard is different from the one used in federal harassment cases.  Now, according to the Illinois Supreme Court, an employer with one or more employees in Illinois can be strictly liable whenever any supervisory employee sexually harasses any employee, even if the supervisor was not in the victims chain of command supervisor of the plaintiff, even if the supervisor had no authority over the victim and even if the employer does not have any knowledge of the offending conduct.

The Impact of the Illinois Supreme Court’s Ruling.

The case before the Illinois Supreme Court involved sexual harassment.  The court held that the plain language of the Illinois Human Rights Act states that an employer is liable for the sexual harassment unless the harasser is either a “nonemployee” or “nonmanagerial” or “nonsupervisory employee” (in which case the employer will be responsible only if it was aware of the conduct and filed to reasonable corrective measures).  Given the Illinois Supreme Court’s reliance on the Human rights Act’s sexual harassment provisions, it is unclear whether this ruling will be applied to supervisory harassment on the basis of race, age, religion, disability, sexual orientation, marital status, the other characteristics that are protected by other sections of the Illinois Human Rights Act.  The significance of the Illinois Supreme Court’s new strict liability standard is magnified by recent amendments to the Illinois Human Rights Act that allow jury trials of harassment claims in state court without the caps on compensatory/punitive damages awards that exist under federal law.

Federal Law Is Different.

In contrast to this newly established rule of Illinois law, under federal law, an employer will not be strictly liable for a supervisor’s harassment unless the supervisor had the authority to hire, fire, demote, promote, transfer or discipline the plaintiff.  Under federal law, an employer will not be liable for the harassment of a supervisor who was not in the chain of command above the plaintiff unless the employer knew or should have known of the harassment but failed to take reasonable measures to prevent or rectify the harassment.  Even if a harasser was a direct supervisor of the victim, if the harassment did not involve an adverse employment decision, federal law provides an affirmative defense for an employer to avoid liability if the employer had an effective anti-harassment policy and the plaintiff failed to use it.

The Facts of the Case

In Sangamon County Sheriff’s Department v. The Illinois Human Rights Commission, __ Ill.2d __ (Ill. 4/16/09), the plaintiff was a records clerk with the Sangamon County sheriff’s department.  She complained about sexual harassment by a sergeant who was a supervisor in the sheriff’s department, but was not her supervisors. After a hearing, the Illinois Human Rights Commission found that, as a matter of law, the sheriff’s department was strictly liable for harassment by the sergeant, even though he did not supervise of the victim and even though the department did not know about the offending conduct. The plaintiff was awarded $10,000 in damages and $13,400 in fees and costs.  In a 4-2 decision, Illinois Supreme Court confirmed the result reached by the Illinois Human Rights Commission.  The Illinois Supreme Court refused to follow harassment cases decided under federal law, even though Illinois courts in the past had frequently relied upon federal cases when interpreting the Illinois Human Rights Act.

The Illinois Supreme Court noted that its new strict liability standard did not obviate the necessity for a plaintiff to establish a prima facie case of sexual harassment, but the court ruled that this had done here.  However, as the dissent pointed out, the court’s decision not only went beyond federal law, it imposed a standard of liability which appear to be without precedent in any jurisdiction in the United States

What Must Illinois Employers Do Now?

• Small and large employers in Illinois must deal with this new form of strict liability. The sexual harassment provisions of the Illinois Human Rights Act cover employers with one or more employees (though it protects only Illinois residents). The federal anti-harassment law, Title VII, covers employers with 15 or more employees.
• Employers operating in multiple states must make sure that their operations in Illinois conform to these new rules.
• Employers in Illinois should take care not to label as supervisors those employees who have glorified job titles, but no real authority such as team leaders, lead employees and the like.
• Employers must re-examine their anti-harassment policies (or establish a policy if they have not already done so) and make sure it clearly prohibits harassment by any supervisor.
• Harassment reporting procedures must be reviewed to make sure they are effective and up-to-date. Are the persons who are supposed to receive harassment complaints clearly identified? Do all employees have access to a means to report harassment, such as a hotline or an executive who is frequently on site? Is the harassment policy translated for workers who do not speak English?
• Supervisors, managers and executives must regularly be trained that the harassment of any employee is prohibited. They must be trained about the consequences of violating this company policy. Supervisors must also be trained on how to recognize harassment when they encounter it and what to do when a complaint of harassment is made.

An Illinois employer’s failure to take these steps will now result in strict liability whenever any supervisor harasses any Illinois employee.  The only questions will be: Did the supervisor’s conduct rise to the level of actionable harassment and how much damages should be awarded to the employee.

There have been recent reports of some large companies trying to lock their in-house attorneys into non-competition, non-solicitation and other restrictive covenants.  Other companies thinking about jumping onto this bandwagon may find that they cannot treat their in-house counsel like other employees when it comes to post-employment restrictions.

As a general rule, in most states, an employment agreement with a general counsel or in-house lawyer (or any attorney for that matter) which attempts to prohibit the lawyer from joining a competitor as a lawyer is probably unenforceable.  However, the answer is less clear when it comes to a restrictive covenant that tries to prevent an attorney from working for a competitor in a non-lawyer capacity.  Lawyer agreements that prevent the disclosure of confidential information or the solicitation of customers have been upheld in some instances.  Even attorney agreements that try to deter post-employment competition through the use financial disincentives, such as the threat of losing retirement benefits, may also pass muster.  The bottom line is that companies trying to prevent the loss of legal talent to competitors may have to tread carefully, but they are not without options.

The Rule Against Lawyer Non-Competes.

In Illinois, it is clear that Rule 5.6 of the Illinois Rules of Professional Conduct effectively prohibits restrictions on the rights of a lawyer to practice after termination of an employment or partnership relationship. 134 Ill.2d R. 5.6(a)(providing: “A lawyer shall not participate in offering or making: (a) a partnership or employment agreement that restricts the rights of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement . . .”);  Dowd & Dowd, Ltd. v. Gleason, 181 Ill.2d 460, 481, 693 N.E.2d 358 (1998)(holding that non-compete agreements are unenforceable as to attorneys based on Rule 5.6 of the Rules of Professional Conduct because it prohibits attorneys from entering into non-compete agreements based on the “public policy” that clients should have the freedom to choose their attorneys).

The American Bar Association and bar associations in other states, such as New Jersey, have also rejected the use of agreements that try to restrict who a corporate counsel may represent after leaving the company. ABA, Comm. Prof. Ethics, Informal Op. No. 1301 (Mar. 25, 1975); N.J. Advisory Comm. on Prof’l Ethics, Op. 708 (reported in N.J.L.J. July 3, 2006)(striking down a non-compete for an in-house attorney and stating that Illinois and other states have done the same). In ABA Formal Opinion 94-381 (1994), the ABA Committee on Ethics and Professional Responsibility interpreted Model Rule 5.6 declared that a provision in an employment agreement between a corporation and its in-house counsel, which restricted the attorney from representing any party against the corporation in the future, was an impermissible restraint on the attorney’s right to engage in the legal profession, even though the attorney may not have been involved in the specific matter during his or her employment with the corporation.

In-House Counsel Non-Disclosure/Non-Solicitation Agreements.

The law is not so clear when it comes to other types of restrictive covenants.  The Illinois State Bar Association (ISBA), has indicated that attorney non-disclosure/non-solicitation agreements may be enforceable.  In ISBA Advisory Opinion on Professional Conduct No.  92-14, 1993 WL 836947 (ISBA January 22, 1993) which involved an attorney who was the co-owner and general counsel of a retail collection agency, when he decided to sell his share in the business, he was asked to enter into a  2-year agreement which would have: (a) restricted his use of the information acquired while an officer of the company; and (b) prohibited him from contacting the company’s customers.  The ISBA found no professional impropriety in the attorney entering into the agreement because “any supposed encroachment on the attorney’s practice is at best indirect….”  Id. at *1.  However, an earlier opinion, Illinois Ethics Opinion 91-12 (1991) rejected a restrictive covenant that prevented lawyers from contacting or representing a firm’s clients for three years after departure.

Financial Disincentives to Deter Attorney Departures.

Can companies use the threat of losing financial benefits to deter in-house counsel from jumping ship?  Some Illinois courts say they can. In Hoff v. Mayer, Brown & Platt, 331 Ill.App.3d 732, 772 N.E.2d 263 (1st Dist. 2002), an attorney who had been with Mayer, Brown & Platt (“MBP”) for 36 years resigned and became a founding partner of a new firm. MBP refused to pay his retirement income in excess of $93,000 per year, plus additional cost-of-living adjustments, pursuant to MBP’s Restated Partnership Agreement, Retirement, Disability & Death Benefit Program (“Plan”), claiming that his resignation was not a “retirement” as defined by the Plan, because he continued to practice law after he left and therefore he forfeited his retirement income. The former partner sued alleging that the denial of his retirement income  was in violation of Illinois Rule of Professional Conduct 5.6, as the Plan was basically a restrictive covenant.  However, the First District affirmed the dismissal of his claim because: (1) that the Plan was a bona fide retirement plan that could deny benefits to a retiring member who continued to practice law, and (2) Rule 5.6 contained an exception that provides: “A lawyer shall not participate in offering or making: (a) a partnership or employment agreement that restricts the rights of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement . . .” (emphasis added). The First District determined that the exception applied and the provision in MBP’s retirement plan causing the forfeiture of more than $93,000 in retirement benefits per year should the departing attorney practice law anywhere following his resignation was not an onerous condition that unduly restricted his ability to practice law.

More recently, in Hoffman v. Levstik, 369 Ill.App.3d 144, 860 N.E.2d 551, 307 Ill.Dec. 897 (1st Dist. 2006), the Illinois Appellate Court for the First District refused to invalidate a law firm’s partnership agreement as against public policy, even though it also contained financial disincentives for leaving.