New Approach to IDES Audits!!!

The Illinois Department of Employment Security (IDES) is now doing many more "follow-up audits"!!!  This means that your clients who have been audited before by the IDES have a much higher likelihood of being audited again in the near future. Also keep in mind that the IDES is using 60% fraud penalties for Illinois companies who have failed to restructure their operations after being audited by the IDES.

  

In view of this changed situation, contact your clients who use independent contractors and make sure they understand this frightening new climate!! 

 

If any of your clients want to meet with me (by phone or in person) to review their independent contractor relationships, consider ways to lower liability in using independent contractors, go over websites which comment on their independent contractors, restructure or redraft independent contractor agreements, I would be glad to work with both you and them. These are new times. Government is growing ever more hostile and aggressive about independent contractor relationships.

 

 

 

Nancy Joerg offers cost-effective consultations with accountants and their clients on any legal issue or concern involving independent contractor status (or other employment law issues such as hiring, firing, terminations of employees, employee handbooks, unemployment insurance IDES claims and hearings, sex harassment, overtime issues, Department of Labor wage and hour overtime audits, etc.).

Nancy drafts and revises independent contractor agreements and also assist accountants and their clients in evaluating the liability of a certain company in its use of independent contractors. She also assists them in IRS defense, IRS Form SS-8 situations, etc.

Contact Attorney Nancy E. Joerg, Managing Shareholder of the St. Charles Illinois office of Wessels Sherman, who enjoys a nationwide reputation in working with companies who use Independent Contractors of all types.  Nancy Joerg can be reached at 630-377-1554 or email her at najoerg@wesselssherman.com

Nancy Joerg has been selected for the second year in a row to the 2016 Illinois Super Lawyers list. She has the highest rating - 10.0 SUPERB - from Avvo.  She has been honored by her peers as a "Leading Lawyer." Nancy was named as one of the Top Ten Women Attorneys in Kane, Kendall & DeKalb counties. In February 2016, she was honored by Chicago Magazine as a "Top Attorney in Illinois."

Special Group Release Agreements May Be Needed For Employees 40 Years Of Age Or Older!

February, 2016
By Nancy E. Joerg, Esq.

Many of our clients decide to fire one or some of their employees from time to time and then offer severance (usually money) to the departing employees in exchange for the employees signing a release agreement. Such release agreements (commonly used across the United States) can give anxious employers a measure of comfort and certainty while at the same time voluntarily offering severance to fired employees (to tide them over during what can sometimes be a difficult transitional period to other employment). 

PURPOSE OF A RELEASE AGREEMENT: When an employer offers an employee a severance and release agreement, the employer usually wants to “be done” with the employee in terms of any problems. The employer is therefore paying severance in exchange for finality. The employer wants protection from being sued by the disgruntled employee.

“OLDER EMPLOYEES” (40 YEARS OF AGE AND OLDER): When a departing employee is 40 years of age or older and the employer wants the employee to give up potential claims under the Age Discrimination in Employment Act of 1967 (ADEA), the release agreement (to be legally enforceable) must meet all of the legal requirements of the federal law, the Older Workers Benefit Protection Act (OWBPA) of 1990 (and any state laws which apply as well).

The OWBPA was enacted by Congress to make sure that “older employees” (40 and over) across the United States are not coerced by employers into giving up their rights to sue employers under the Age Discrimination in Employment Act (ADEA) of 1967. By incorporating the OWBPA legal requirements into a release agreement, the employer avoids having an unenforceable agreement.

GROUP TERMINATION: When release agreements are offered to two or more departing employees (for example, as part of a reduction in force), this fact pattern creates a group termination situation under which there are further legal curve balls for the employer. The employer will need to use a very special kind of "group release."

Many employers incorrectly believe that the usual release agreement they may have used frequently for situations where they have terminated one employee who is 40 years of age or older will also be sufficient for the group release situation - it isn't.

Let us compare the strict legal requirements of the two kinds of releases:

LEGAL REQUIREMENTS WHEN ONLY ONE OLDER EMPLOYEE IS BEING TERMINATED: Below are the OWBPA requirements for the single older employee being terminated (i.e., not part of a group):

1. the release agreement between the older employee and the employer is written in a manner calculated to be clearly understood by the older employee;

2. the release agreement specifically refers to rights or claims arising under the ADEA;

3. the older employee is not asked to waive rights or claims that may arise after the date the release agreement is executed;

4. the older employee waives rights or claims only in exchange for "consideration" in addition to anything of value to which the older employee already is entitled;

5. the older employee is advised in writing to consult with an attorney prior to executing the release agreement;
   

6. the older employee is given a period of at least 21 days within which to consider the release agreement; and
   

7. the release agreement provides that for a period of at least 7 days following the execution of such release agreement, the older employee may revoke the release agreement, and the release agreement shall not become effective or enforceable until the 7-day revocation period has expired.

LEGAL REQUIREMENTS WHEN A GROUP (I.E., TWO OR MORE EMPLOYEES) IS BEING TERMINATED: For a group release (when 2 or more employees are being terminated), the seven requirements listed above apply. However, the 21-day period to consider the release agreement is extended to a 45-day period. The employer must also attach to the group release agreement a SPECIAL DISCLOSURE FORM presenting in writing the following five elements:

1. the class, unit or group of employees covered by the termination program
2. the factors affecting eligibility for the termination program
3. any time limits that apply to the termination program
4. the job titles and ages of all employees eligible for the termination program
5. ages and titles of employees in the same class, unit, or group who are not eligible or selected for the termination program.

Of course, like with any contract, there must be legal consideration to seal the release agreement. Consideration is something of value (usually money) passing between the employer and the departing employee such as severance. It must be severance that the employee is not already entitled to (by virtue of the employee handbook or an employment agreement). Consideration must be “above and beyond” what the employer was already required to give the departing employee.

If the release agreement is not in full compliance with the OWBPA group release requirements, a court may permit the employees under this group termination program to pursue their ADEA claims against the employer (even though the employees signed the waiver and release agreements and accepted a severance package).

The terminations do not need to be on the same day to qualify as multiple terminations or group terminations under the OWBPA. Staggered terminations that are part of the same decision-making process will count as multiple terminations.

Group terminations for older workers (those 40 years of age and older) are unusually technical. The legal requirements are very strict. Failure by an employer to meet all the legal requirements means that the employer may be giving the older workers severance for signing the group release, but, if the group release is not legally enforceable, those older workers can still bring lawsuits against the employer for age discrimination and the employer is unlikely to recoup any portion of the severance paid. 

Courts have found ADEA waivers invalid for failing to meet just one of the many statutory requirements, especially when groups of employees are involved. Examples of problems include failing to provide information concerning group members, eligibility factors, applicable program time limits, and failing to list accurately job classifications and ages of employees selected for termination.

Caution: Different states may have different laws about releases. Therefore, state laws should be carefully researched before drafting a release agreement.

Questions about terminations or releases? Call Attorney Nancy E. Joerg of Wessels Sherman's St. Charles, Illinois office: (630) 377-1554 or email her at najoerg@wesselssherman.com.

Top Five Questions Illinois Accountants Have Regarding IDES Audits

February 2016
By Nancy E. Joerg, Esq.

Because of shifting audit policies by the Illinois Department of Employment Security (IDES), I am receiving an increasing number of concerned phone calls from clients and their accountants. They ask me for clarification about the best way to handle IDES audits.

These are the top five questions and my answers regarding IDES audits of Illinois companies who use independent contractors:

QUESTION #1: How much can the IDES hit our company with if we get a fraud penalty?

ANSWER TO #1: IDES fraud penalties are a whopping 60% of the “contributions owed” as a result of the IDES audit. So, if a company has an assessment of $100,000 excluding interest, the fraud penalty would be $60,000 on top of the $100,000 owed (excluding interest) as a result of the IDES auditor deciding that the independent contractors for the years being audited are misclassified.

QUESTION #2: How much is the IDES interest rate and can that be negotiated down?

ANSWER TO #2: The IDES interest rate is a terrifying 24% per year (or 2% per month). Naturally, if an IDES auditor is auditing a year that is three years back, there is going to be more interest owed on any assessment that issues from that audit (as compared to an audit of just last year for example). Interest attached to IDES audits builds up at an alarming rate.

Unfortunately, IDES auditors do not have the authority to negotiate the interest rate.

QUESTION #3: What are these follow up audits that I keep hearing about?

ANSWER TO #3: The IDES recently started auditing companies that were previously audited by the IDES in recent years. These are called follow up audits. This is a radical departure for the IDES. Until recently, the IDES only audited companies who came up in a random selection or companies that had an independent contractor apply for unemployment insurance benefits (thereby creating what the IDES calls a “controversy”).

More and more follow up audits are being done by the IDES. This is very discouraging to companies who have just weathered an IDES audit and now find out they have go through another IDES audit.

The danger of follow up audits is that 60% fraud penalties become a real issue if the IDES auditor decides the company intentionally continued to classify workers as independent contractors when it was clear from the prior audit that the workers should be classified as employees.

QUESTION #4: Is it worth protesting an IDES audit?

ANSWER TO #4: In my opinion, it is always worthwhile to protest. By timely protesting the Determination & Assessment (tax bill), the company has the opportunity for a Hearing before an Administrative Law Judge. The Administrative Law Judge is an employee of the IDES, but the Administrative Law Judge is charged with the legal responsibility of fairly evaluating the issues involved in the audit and making an independent decision. It is not unusual for the Administrative Law Judge to exercise this independence and make a decision contrary to the decision of the IDES auditor and in favor of the company.

QUESTION #5: What are Objections?

ANSWER TO #5: If the company disagrees with the Decision of the Administrative Law Judge, a letter (called Objections) can be written by the company to object to the Decision. Objections do not have to be long and complex; they are not legal briefs. Objections are simply the written reasons why the company feels the Administrative Law Judge is in error in his/her Decision. The Objections process does not require a new hearing. It is simply a letter in protest of the Administrative Law Judge’s Decision.

 Questions? Consultations on Independent Contractor Status? Call Attorney Nancy E. Joerg of Wessels Sherman’s St. Charles, Illinois office: (630) 377-1554 or email her at najoerg@wesselssherman.com.

U.S. DOL Urges State Departments of Unemployment Insurance to Clamp Down on Worker Misclassification

Over $39 million in federal grants was awarded by the U.S. Department of Labor to 45 states and territories to help reduce the misclassification of employees as independent contractors and enhance unemployment insurance programs. With emotion and fanfare, U.S. Secretary of Labor Thomas Perez on September 22, 2015 explained:

"For more than 80 years, the unemployment insurance system has been a crucial lifeline for millions of working people who lost their job through no fault of their own. These (federal) grants will help states use every tool at their disposal to ensure payments are available to those who are eligible, and take important steps to reduce and recover improper payments.”

A concrete example of an important step is an increase in unemployment insurance audits with resulting assessments for independent contractor misclassification!

This is the second year that the U.S. DOL awarded federal grants to financially support the ability of state unemployment insurance tax programs to identify instances where employers allegedly misclassify employees as independent contractors or fail to report the wages paid to employee workers.

The U.S. Department of Labor’s website proudly announces:

“The Wage and Hour Division is working with the IRS and many states to combat employee misclassification and to ensure that workers get the wages, benefits, and protections to which they are entitled. We have entered into partnerships with 27 states to work together on this issue in a variety of ways – through, for example, information sharing and coordinated enforcement – to ensure that we are all using our resources most strategically, effectively and efficiently to address this significant (misclassification) problem.”

The U.S. DOL has been front and center lately as a champion of employees’ rights and a mortal foe of worker misclassification. It is therefore an increasingly hostile climate for companies using independent contractors.

Questions? Consultations on Independent Contractor Status? Call Attorney Nancy E. Joerg of Wessels Sherman’s St. Charles, Illinois office: (630) 377-1554 or email her at najoerg@wesselssherman.com.