U.S. District Court Upholds OSHA Subpoena in Grain Enguflment Case

July 2011
By: Nancy E. Joerg, Esq.

This OSHA case arises from a particularly tragic and heart-wrenching fact pattern. On July 28, 2010, two teenagers died in a grain bin tragedy. The United States Department of Labor Occupational Safety & Health Administration (OSHA) investigated the deaths which occurred as a result of grain engulfment at the company's grain elevator in Mt. Carroll, Illinois. The two teenagers "drowned" in a sea of grain in the grain bin. OSHA eventually hit the company with numerous violations and fines (which the company is fighting).

OSHA SUBPOENA: As part of the hard fought legal battle between OSHA and the grain bin company, OSHA issued a subpoena demanding inspection reports and documents prepared by the grain bin company's workers' compensation carrier. The workers' compensation carrier argued in court that it should not have to provide OSHA with the safety inspection records. The carrier lost this legal struggle in May of 2011.

WORKERS' COMPENSATION INSURANCE COMPANY ARGUED UNSUCCESSFULLY AGAINST THE SUBPOENA: The workers' compensation insurance company argued unsuccessfully that the subpoena from OSHA would actually discourage businesses from permitting workers' compensation insurance carriers to conduct safety inspections. The insurance carrier told the court that if the inspection reports can be used against a business during later litigation or OSHA enforcement proceedings, such safety inspections would be curtailed. However, on May 2, 2011, the court did not agree with the insurance carrier and therefore ordered that the safety inspection records be given to OSHA. ( Hilda L. Solis v. Grinnell Mutual Reinsurance Co.)

COURT'S DECISION: Judge Philip G. Reinhard of the U.S. District Court of Northern Illinois ruled on May 2, 2011 that OSHA has jurisdiction to investigate the workplace fatalities; and further, has the authority to require the production of relevant evidence and the ability to issue a subpoena to obtain that evidence. The requested documents, which included copies of site safety inspections, applications for insurance coverage for the site, and correspondence between the workers' compensation insurer and the grain bin company concerning the site, were found by Judge Reinhard to "reasonably relate to the investigation of the incident and the question of OSHA jurisdiction."

GRAIN BIN SAFETY: Grain bin safety has become an important focus for OSHA. OSHA's Region V, which includes Illinois, Ohio and Wisconsin, initiated a Grain Safety Local Emphasis Program in August 2010, and has since conducted 61 inspections and cited grain operators/facilities for 163 violations. The 163 violations cover hazards associated with grain engulfment, machine guarding, electricity, falls, employee training, combustible dust and lockout/tagout of energy sources on potentially dangerous equipment. Grain bins are extremely hazardous work environments and OSHA is trying to decrease danger where possible in these bins.

OSHA has great legal powers to investigate workplace safety matters. Courts generally support OSHA's mission. Companies should expect that all safety inspection records are likely to be obtained by OSHA when it investigates.

Questions about OSHA or any related matters? Please contact WS Shareholder and Senior Attorney Nancy E. Joerg at 630-377-1554 or najoerg@wesselssherman.com.

Employer Alert: Keep Track of 30 Working Days for Illinois Unemployment Insurances Purposes

March 2010
By: Nancy E. Joerg, Esq.

Many clients ask me: "How many days does an employee need to work for me before my company becomes the chargeable employer for Illinois Unemployment Insurance purposes?"

There is a simple unemployment insurance rule that Illinois employers should be aware of: A company will usually not be "charged" for an ex-employee's unemployment insurance benefits if that ex-employee did not work for the company for at least 30 working days.

This is an extremely simple rule that employers should keep in mind because, if used properly, it is a wonderful way for a company to help keep its unemployment insurance rate down.

Below are some examples to provide guidance on how the Illinois Department of Employment Security (IDES) calculates the 30 working days: 

1. The individual works a shift which begins at 10:00 p.m. on Monday and ends at 7:00 a.m. on Tuesday. While this individual performs services for this employer on two calendar days, for the purpose of determining whether the 30 day requirement has been met, the individual's shift counts as only one day of service (Monday).
2. The individual begins his shift at Noon but becomes ill fifteen minutes later. Since the individual performed services for the employer for fifteen minutes, one day is counted toward meeting the 30-day requirement.
3. The individual is scheduled to work on a certain day but fails to report for work because he is ill. Even if the employer provides paid sick leave to the individual for that day, it will not be counted toward the 30-day requirement.
4.  Upon the permanent layoff of an individual, the employer pays that individual for any unused, accrued vacation time that the individual is due and grants him severance pay in the amount of one day's pay for each year of continuous service. These payments are not included for the purpose of determining whether this employer has met the 30-day requirement.
5. The individual works a four-day work week. That is, instead of working eight hours per day, five days per week, he works ten hours per day, four days per week. Even if the individual's ten-hour shift extends over two calendar days, each shift still counts as only one day, and this individual will have worked only four days in a normal work week.

Overtime work (or working additional shifts) is not included in determining whether the 30-day requirement has been met unless there is at least 6 hours between the beginning of the overtime work (or the additional shift) and the end of the prior shift and the overtime work (or additional shift) does not occur on a day which will otherwise be included in meeting the 30-day requirement. Examples:

1. The individual's normal shift ends at 3:00 a.m., and he is asked to work the next shift which begins at 4:00 a.m. Even if he works both shifts, since there is not at least 6 hours between the shifts, only one day will be counted toward meeting the 30-day requirement.
2. The individual's shift ends at 3:00 a.m. on Saturday, and he is asked to return to work for an additional overtime shift from 9:00 a.m. until 2:00 p.m. He must then return to work at 7:00 p.m. to work his regular shift. This overtime work does not count as an additional day toward meeting the 30-day requirement because his regular shift begins that same day and would already be included in meeting the 30-day requirement.
3. The individual's normal shift begins at 3:00 p.m. and ends at 11:00 p.m. However, he is required to work four hours of overtime every day so that he does not complete his shift until 3:00 a.m. This shift still counts as only one day toward the 30-day requirement.

 NOTE: An employer may also become the chargeable employer after less than 30 days if it was the single employer that paid wages to the individual permitting the individual to requalify for benefits after a previous disqualification under Section 601 (voluntary leaving), 602 (misconduct), or 603 (refusal of work). To requalify, the individual must earn an amount equal to or in excess of his current Weekly Benefit Amount in each of four calendar weeks.

Questions? Please contact WS Shareholder and Senior Attorney Nancy Joerg at (630) 377-1554, or najoerg@wesselssherman.com.

Ten Tips for Employers Who Face Going to an Illinois Department of Human Rights Fact Finding Conference

October 2011
By: Nancy E. Joerg, Esq. 

As companies who have been the recipient of an Illinois Department of Human Rights (IDHR) Charge of Discrimination will know, part of the process is for the company to attend an IDHR Fact Finding Conference, usually held at the Thompson Center in Chicago on the 10 ^th Floor where the IDHR offices are located.

Even in the flimsiest of cases, companies are asked to attend the Fact Finding Conference as it is a standard part of the process, with very rare exceptions. When a company receives a Charge of Discrimination from the IDHR, the company is first required by law to send in a Verified Response within 60 days of receipt of the Charge. The Verified Response is a brief document where the company basically "admits" or "denies" each allegation.

Next, the company must send in a Letter of Position and answer a lengthy Questionnaire.
Finally, the Fact Finding Conference is scheduled by the IDHR Investigator and the company must attend in person. Many clients ask me what they can expect at a Fact Finding Conference, and so my hope is that these 10 key tips will help many companies facing an IDHR Fact Finding Conference :

• Always attend as required. Do not be late. Allow for heavy traffic in Chicago. If the company does not attend the Fact Finding Conference, the IDHR Investigator may default the company.
• Prepare for the Fact Finding Conference by reviewing the facts, details and arguments you have given the IDHR so that you will faithful to the facts and not vary them. Companies and their witnesses should have a prep session prior to the Fact Finding Conference-to read over all the documentation submitted to the Investigator. Companies who vary their facts (or seem unsure of them) appear to be less reliable. Be consistent.
• Suggest to the IDHR Investigator that certain key witnesses would be helpful at the Fact Finding Conference. Only bring witnesses who are eyewitnesses to the facts (or have firsthand knowledge of the facts) you wish to emphasize at the Fact Finding Conference.
• Have your attorney (who is assisting you with the IDHR Charge) attend the Fact Finding Conference with you. The attorney does not participate but will be able to listen to all statements made during the Fact Finding Conference (from both the company and the Charging Party) and this witness information will be extremely valuable. Think of it as a form of "discovery."
• Be aware that there is a strict security system at the Thompson Center. You should arrive at least one-half hour before the start of the Fact Finding Conference so you have time to comfortably go through security and get up to the 10 ^th Floor by the scheduled time.
• If you feel you are open to settlement of the Charge, have the company representative who has authority to authorize settlement attend the Fact Finding Conference. If that individual cannot attend the Fact Finding Conference, have him/her available by phone.
• Take notes at the Fact Finding Conference of all statements made. That way, as the case continues beyond the Fact Finding Conference, you will recall key facts and issues raised at the Fact Finding Conference. There are no court reporters or tape recordings of the Fact Finding Conference so there will be no transcript available of what occurs during the Fact Finding Conference. This is why it is important to take notes.
• You can have your own notes and submissions in front of you during the Fact Finding Conference, so it is an excellent idea to bring your Verified Response, a copy of the Charge, your Letter of Position, and your Responses to the Questionnaire, and any other documents you may need to be accurate and fully responsive during the Fact Finding Conference.
• The IDHR Investigator will not make a decision at the end of the Fact Finding Conference. You will leave the Fact Finding Conference not knowing what the decision on the case will be.
• The Investigator often asks for additional information to be sent as a result of what the Investigator heard during the Fact Finding Conference. Be fully responsive because you want to get all of the facts in front of the Investigator.

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

Seventh Circuit Backs Walmart Firing of Anti-Gay Religious Employee

October 2011
By: Nancy E. Joerg, Esq.

On March 31, 2011, the Seventh Circuit Court of Appeals [in an unpublished Opinion (No. 10-2242)] ruled in favor of defendant Walmart and found no evidence of religious discrimination.

By way of background, in September 2005, Tanisha Matthews (an overnight stocker at Walmart for nine years) became involved in a heated discussion about God and homosexuality with a lesbian co-worker, named Amy, during a break. When Walmart officials later investigated the incident, they learned that Ms. Matthews screamed at Amy that God does not accept gays, that gays should not "be on earth," and that they will "go to hell" because they are not "right in the head."

After the three-month investigation of the incident by Walmart, Walmart fired Ms. Matthews for violating Walmart's Discrimination and Harassment Prevention policy. This policy clearly prohibits Walmart employees from harassment based on an individual's status, including sexual orientation.

Upon being fired, Tanisha Matthews sued Walmart under the civil rights laws, arguing that Walmart fired her for stating her sincere religious belief that gays will go to hell, which she maintained is central to her Apostolic-Christian faith. The trial court granted summary judgment to Walmart, finding no evidence for the religious discrimination claim.

Next, Tanisha Matthews brought her religious discrimination case to the Seventh Circuit Court of Appeals. However, Ms. Matthews did no better on appeal.

The Seventh Circuit Court of Appeals affirmed the trial court's decision, noting the following:
"Walmart fired [Matthews] because she violated the company policy when she harassed a coworker, not because of her beliefs, and employers need not relieve workers from complying with neutral workplace rules as a religious accommodation if it would create an undue hardship. In this case, such an accommodation could place Walmart on the 'razor's edge' of liability by exposing it to claims of permitting workplace harassment."

Clearly, Tanisha Matthews believed that she had a religious duty to scream anti-gay epithets at her Walmart coworkers. Tanisha Matthews believed and unsuccessfully argued that Walmart must permit her to admonish gays at work to accommodate her religion.

The bottom line in this case is that the Seventh Circuit decided that Ms. Matthews' right to exercise her religious freedom at work did not permit her to harass gay people. Walmart fired Ms. Matthews "because she violated company policy when she harassed a co-worker, not because of her beliefs," the Seventh Circuit ruled. Even though Ms. Matthews' anti-gay harassment was religious-inspired, Walmart did not violate Ms. Matthews' civil rights when it fired her.

This case stands for the common sense principle that the Civil Rights Act does not protect religious-based bigotry in the workplace. Walmart fired Tanisha Matthews because she violated company policy when she harassed a co-worker, not because of her religious beliefs.

Anti-gay remarks by employees professing religious beliefs are not part of religious accommodation in the workplace.

Congress adopted Title VII of the Civil Rights Act in 1964. Title VII makes it unlawful for an employer to discriminate against an applicant/employee with respect to hiring, firing, promotion, or any other terms or conditions of employment based on that employee's race, color, religion, sex or national origin.

In addition to this prohibition against religious discrimination, employers are affirmatively required by state and federal law to reasonably accommodate employees' religious observances and practices unless such accommodation causes undue hardship to the employer. Courts have ruled that a proposed accommodation of a religious belief is an undue hardship if it imposes more than a de minimis cost on the employer. The EEOC has stated that an employer can show undue hardship if accommodating an employee's religious practices requires more than ordinary administrative costs, diminishes efficiency in other jobs, infringes on other employees' job rights or benefits, impairs workplace safety, causes coworkers to carry the accommodated employee's share of potentially hazardous or burdensome work, or if the proposed accommodation conflicts with another law or regulation.

In this case brought by Tanisha Matthews, Walmart's anti-harassment policies trumped her religious speech. This Seventh Circuit decision is a message to all employees that if their employer wishes to bar anti-gay sentiments expressed in the workplace; the employer can establish policies and fire violators-even if the anti-gay rhetoric is based on sincerely held religious beliefs.

An interesting side note: Tanisha Matthews also relied on a decision by the Illinois Department of Employment Security, finding that the misconduct that led to her termination was not severe enough to bar her from receiving unemployment benefits. However, the Seventh Circuit found that the unemployment insurance decision was irrelevant because it was based on a different definition of misconduct used only for employment-benefits decisions.

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

Yes, the Illinois Employee Classification Act Complaints are Starting to Roll in!

By Nancy E. Joerg, Esq.


Clients are asking me if we have started receiving complaints from the Illinois Department of Labor relating to the harsh new Illinois law, the Employee Classification Act. Yes, we are starting to see these complaints coming in from the Illinois Department of Labor.

Under this new law, a company such as a construction company, a trucking company which hauls gravel or road building materials, a landscape company, and a wide variety of other construction related companies, can be challenged by the Illinois Department of Labor (IDOL) and "interested parties" on how the company classifies workers as either employees or independent contractors.
If the construction related trucking company who uses independent contractors is found in violation of the Illinois Employee Classification Act, the trucking company could be hit with substantial financial penalties, possible shut down of its business or job sites, and, most worrying to many, misdemeanor or felony criminal charges.

Below is the kind of wording we are seeing in these initial complaints:

Re: IDOL File No. 2008-###/Request for Records

Please be advised that the Illinois Department of Labor (IDOL) has received a complaint, alleging that you have violated Illinois' Employee Classification Act, 820 ILCS 185, by misclassifying one or more individuals performing construction services on your behalf in connection with re-roofing a house at 123 ABC Street, St. Charles, IL.

In connection with its investigation of this complaint, and pursuant to its authority under Section 25 of the Act, IDOL hereby requests that within fifteen (15) days you make available or provide copies to IDOL of all records in your power, possession or control relating to your business relationship with the individual(s) performing services, including but not limited to:

• Their names, addresses, phone numbers and Social Security numbers;
• Any/all written agreements or contracts you have with them;
• Any/all records of days/hours worked;
• Any/all payroll or payment records; and
• Any federal and state documents related to the individuals performing services.

Failure to comply with this request for records may result in the issuance of a subpoena to compel production of the requested information. Furthermore, failure to comply with a valid IDOL order may result in the imposition of civil and/or criminal penalties, as prescribed in the Act.

Also note that if there is any additional information you wish IDOL to consider in its investigation of this matter, please submit information in writing to IDOL within 15 days of this letter.

We urge all trucking companies who use independent contractors to seek legal counsel regarding their usage of independent contractors—not just with regard to the Illinois Employee Classification Act, but also in terms of the IRS, the Illinois Department of Employment Security (IDES), workers' compensation, etc. Don't wait until you are hit with a complaint or an audit. Get legal advice early on in the game.

This is the period in Illinois history when it is particularly important for construction and construction-related companies to really sit down, take the time, and lower liability in every way possible. Your independent contractor agreement must be carefully drafted to be consistent with the Illinois Employee Classification Act and any other independent contractor laws from other Agencies. It is a time to carefully assess independent contractor relationships, contracts, and practices.


CONSULTATION: If you have any questions about the Illinois Employee Classification Act and want to evaluate your company's liability (and discuss ways to protect your company in its use of independent contractors), contact Senior Attorney and Shareholder Nancy Joerg at 630-377-1554 or najoerg@wesselssherman.com.

Which Illinois Unemployment Insurance Contribution Rate Do I Use, The Employee Leasing Company's or the Client Company's?

June 2011
By: Nancy E. Joerg, Esq. & Chad A. Staul, Esq.

While it is true that an Illinois Employee Leasing Company (also known as a "PEO") allows employers to bundle and better manage payroll, workers' compensation, human resource compliance and employee benefits, those looking to also use a PEO to get a better unemployment insurance contribution rate (contribution rate) should be aware that this is far from a guarantee.

Some employers are under the misconception that if they lease employees from a PEO (thereby becoming a "client company"), they can automatically use the PEO's more favorable contribution rate. While this may be true in some instances, it is not always the case.

The Illinois Department of Employment Security (IDES) follows very stringent statutory requirements that must be met in order to determine if a PEO's client company can use the better contribution rate. See 820 ILCS 405/206.1. The following illustrates these requirements by breaking them down into three straightforward steps:

STEP 1: In order to use the PEO's contribution rate, the leasing contract with the client company must provide:

• That the PEO pays the individual directly from its own accounts;
• That the PEO, either exclusively or with the client company, retains the right to direct and control the individual in the performance of the services; and
• That the PEO, either exclusively or with the client company, retains the right to hire and terminate the individual.

STEP 2: If the leasing contract meets the Step 1 requirements, then the PEO must file an IDES Report containing:

• The name of the client company;
• A general description of the client company's business and locations;
• The client company's unemployment insurance account number (if any);
• The effective date of the employee leasing company's contract with the client company; and
• The report must be accompanied by either a power of attorney to represent the client company or a certification by an officer or employee of the employee leasing company that the information in the report is true and correct to the best of his or her knowledge. See 56 Ill. Adm. Code 2732.306.

STEP 3: After checking the leasing contract for compliance with Step 1 and filing the report required by Step 2, each of the PEO's client companies must pass muster under a specific mathematical formula provided by 820 ILCS 405/206.1(C).

In its simplest terms, the issue comes down to who the IDES recognizes as the employer of a leased employee for purposes of unemployment insurance. If the PEO and the client company meet all of the statutory requirements outlined in Steps 1-3 above, then the IDES will likely recognize the PEO as the employer; allowing the PEO to report wages on behalf of the client company under the PEO's contribution rate. However, a client company that does not meet the statutory requirements is not relieved from reporting wages for the leased employees and must continue to do so under its existing rate.

For example, let's say a PEO leases employees to three different client companies, A, B and C. Further, let's assume that the PEO leasing contract meets Step 1 above and that the PEO has sent the IDES the required report for all three client companies required by Step 2 above. Upon review, the IDES determines that only client companies A and B meet the statutory mathematical requirements in Step 3. In practical application, the PEO will be allowed to do all the wage reporting for client companies A and B under its single contribution rate, but client company C will have to continue reporting separately under its different less favorable rate. Note that this has no impact on any other aspect of the employee leasing contract between the PEO and client company C.

Because of the complexities and detailed involvement the IDES has placed on whose contribution rate controls in an employee leasing situation, employers that use or are thinking about using a leasing company need someone who can wade through the minutiae and give them a straight answer. The consequence for improper wage reporting based on confusion or missteps in the above process may lead to the IDES imposing interest and penalties on both the client company and the PEO.

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

What is "Construction" Under the Illinois Employee Classification Act?

By Nancy E. Joerg, Esq.

The Employee Classification Act (formerly House Bill 1795) is a frightening and radical Illinois law which went into effect January 1, 2008. It applies to construction and construction-related companies (including trucking companies) who use independent contractors in construction and construction related jobs. It is very punitive towards companies who are found to have misclassified its independent contractors!!

Many nervous clients understandably ask, "Exactly what is construction and am I considered a construction or construction-related company?" As used in this far-reaching Act, "construction" means:

1. any constructing;
2. any altering;
3. any reconstructing;
4. any repairing;
5. any rehabilitating;
6. any refinishing;
7. any refurbishing;
8. any remodeling;
9. any remediating;
10. any renovating;
11. any custom fabricating;
12. any maintenance;
13. any landscaping;
14. any improving;
15. any wrecking;
16. any painting;
17. any decorating,
18. any demolishing;
19. adding to or subtracting from any building, structure, highway, roadway, street, bridge, alley, sewer, ditch, sewage disposal plant, water works, parking facility, railroad, excavation or other structure, project, development, real property or improvement or to do any part thereof; and
20. construction shall also include moving construction-related materials on the job site to or from the job site.

 Note that certain trucking companies are classified as "construction" under this harsh law because of the final sentence: "Construction shall also include moving construction-related materials on the job site to or from the job site."

If you have any questions about the Illinois Employee Classification Act, contact Senior Attorney and Shareholder Nancy Joerg at 630-377-1554 or najoerg@wesselssherman.com.

What are the "Penalties" Under the Illinois Employee Classification Act?

By Nancy E. Joerg, Esq.

The Illinois Employee Classification Act (formerly House Bill 1795) is very punitive towards companies who are found to have misclassified their independent contractors!! It applies to construction and construction-related companies (including trucking companies) who use independent contractors in construction and construction related jobs. The law (heavily supported by unions) became effective January 1, 2008. It will usher in a blood bath for a large part of the Illinois business sector.

As used in this Act "penalties" encompass the following:

1. FIRST ILLINOIS DEPARTMENT OF LABOR (IDOL) AUDIT: An employer or entity that violates any of the provisions of this Act or any rule adopted under this Act shall be subject to a civil penalty not to exceed $1,500 for each violation found in the first audit by the IDOL.
2. ADDITIONAL IDOL AUDITS: Following a first audit, an employer or entity shall be subject to a civil penalty not to exceed $2,500 for each repeat violation found by the IDOL within a 5 year period.
3. VIOLATION FOR EACH PERSON FOR EACH DAY: For purposes of this Section, each violation of this Act for each person and for each day the violation continues shall constitute a separate and distinct violation.
4. AMOUNT OF PENALTY: In determining the amount of a penalty, the IDOL Director shall consider the appropriateness of the penalty to the employer or entity charged, upon the determination of the gravity of the violations. The amount of the penalty, when finally determined, may be recovered in a civil action filed in any circuit court by the IDOL Director, or a person aggrieved by a violation of this Act or any rule adopted under this Act.
5. BOUNTY HUNTER GETS 10%: In any civil action brought by an "interested party" (can be anyone!), the circuit court shall award the interested party 10% of the amount recovered. In such case, the remaining amount recovered shall be submitted to the IDOL Director. Any uncollected amount shall be subject to the provisions of the Illinois State Collection Act of 1986.
6. DEBARMENT FROM STATE CONTRACTS: For any second or subsequent violation determined by the IDOL which is within 5 years of an earlier violation, the IDOL shall add the employer or entity's name to a list to be posted on the IDOL's official website. Upon such notice, the Department shall notify the violating employer or entity. No state contract shall be awarded to an employer or entity appearing on the list until 4 years have elapsed from the date of the last violation.
7. WILLFUL VIOLATIONS: [DOUBLE VIOLATIONS]

• Whoever willfully violates any of the provisions of this Act or any rule adopted under this Act or whoever obstructs the IDOL Director, or his or her representatives, or any other person authorized to inspect places of employment under this Act shall be liable for penalties up to double the statutory amount. 
• PUNITIVE DAMAGES: Whoever willfully violates any of the provisions of this Act or any rule adopted under this Act shall be liable to the employee for punitive damages in an amount equal to the penalties assessed in subsection (a) of this Section.
• The penalty shall be imposed in cases in which an employer or entity's conduct is proven by a preponderance of the evidence to be willful. The penalty may be recovered in a civil action brought by the IDOL Director in any circuit court. In any such action, the IDOL Director shall be represented by the Attorney General. Any uncollected amount shall be subject to the provisions of the Illinois State Collection Act of 1986. 
• MISDEMEANOR/FELONY: An entity or employer that willfully violates any provision of this Act or any rule adopted under this Act commits a Class C misdemeanor. An entity or employer that commits a second or subsequent violation within a 5 year period commits a Class 4 felony.

If you have any questions about the Illinois Employee Classification Act, contact Senior Attorney and Shareholder Nancy Joerg at 630-377-1554 or najoerg@wesselssherman.com.

Warning to Illinois Companies About Employee Classification Act: New Danger!

August 2009
By: Nancy E. Joerg, Esq.


All Illinois companies who are in construction-related industries should be fully aware of the strict legal requirements of the Illinois Employee Classification Act, a brutal law (pushed through by several Unions) which went into effect on January 1, 2008. This terribly punishing law applies to a wide range of Illinois construction-related businesses (some trucking companies, building trades, landscaping, decorating, flooring, etc.).

The law requires covered companies to post special notices in English, Spanish, and Polish and keep specific records. The main thrust of the law is to hammer (severely!) those construction-related companies who "misclassify" independent contractors. Our law firm is currently representing clients who have been hit with assessments from the Illinois Department of Labor (IDOL), some in excess of $200,000.00!!! We are, of course, assisting our clients in fighting back.

Any Illinois businesses who are construction-related should seek immediate legal counsel. Even a small amount of legal assistance can be tremendously helpful should these businesses ever be targeted by the IDOL under this horrible (and powerful!!) new law.

A new danger under this law: Very recently, we have found that the IDOL may try to "fool" companies by sending them a Notice which asks for broad information and records pertaining to a substantial period of time, rather than one particular construction-related project. This approach by the IDOL is not proper, and it is excessively burdensome on the company. Do not answer these IDOL Notices under the Illinois Employee Classification Act without experienced legal counsel. You may expose yourself to over-broad liability. Remember, these IDOL assessments under this new law can be huge.

We recommend that all Illinois construction-related companies who use "1099 independent contractors", "subcontractors", "outside vendors", "casual labor", or any kind of "non-employees" seek preventative legal help at once. The IDOL (at the urging of some Unions) are using this new law to cripple, and in some cases almost destroy, Illinois construction-related companies who use independent contractors of all types.

Don't wait for the ax to fall. Learn everything you can about this law and protect yourselves and your business. There are many (relatively simple) ways to do this. Call Attorney Nancy E. Joerg to learn more about this extremely serious problem and how to coexist with it.

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

Trucking Companies Should Exercise Caution When Setting Up Owner-Operator Escrow Programs

August 2010
By: Nancy E. Joerg, Esq.

It is common practice for a trucking company to have an escrow program under which the company withholds a certain amount from a paycheck so that an escrow fund is established for the individual independent contractor/owner-operator. The typical amount of such an escrow fund might be $2,000.
The reason behind the escrow program is that in the event the independent contractor/owner-operator causes damage, and the trucking company has to pay for those damages, then funds are available for reimbursement.

Although establishing and maintaining the escrow fund is a very popular idea among trucking companies that work with independent contractor/owner-operators, this area is fraught with legal peril.

The federal written lease requirements are found in Title 49 of the Code of Federal Regulations (CFR), Part 376.12. Carriers who use independent contractor/ owner-operators should be sure to familiarize themselves with the federal written lease requirements.

One of the most litigated areas of these requirements relates to escrow funds. The federal requirements describe how a trucking company should set up and maintain its escrow funds, which is purely voluntary on the part of the carrier. However, there are many ways for a trucking company to violate, even accidentally, the strict requirements relating to escrow.

The federal written lease requirements tell carriers, in no uncertain terms, what must be clearly stated in the lease agreement - including all items which can be deducted from escrow by the carrier. The sudden appearance of "miscellaneous" or "unspecified" escrow deductions may lead to a bitter end of the independent contractor relationship - if not legal action against the carrier.

If an escrow fund is established, the lease agreement must cover the following issues (among others): 

1. The lease must specify the amount of the fund to be established with the owner-operator's money and for what specific items and repairs it is to be used.
2. Carriers must give a clear description of each escrow transaction monthly or by clearly indicating on individual settlement sheets the amount and description of any deduction or addition to the escrow fund.
3. The owner-operator may demand an accounting of escrow transactions at any time during the lease.
4. The carrier must pay interest on all escrow funds in an amount at least equal to the yield on a 91-day, 13-week U. S. Treasury bill (see note below*).
5. After termination of the lease, the carrier has 45 days (and no more) to return all escrow funds. There are no exceptions to this rule.

* Interest Rate: On the issue of the interest rate and the interest that must be reported and paid to the independent contractor/owner-operator, the written lease requirements state:

That while the escrow fund is under the control of the carrier, the carrier shall pay interest on the escrow fund on at least a quarterly basis. For purposes of calculating the balance of the escrow fund on which interest must be paid, the carrier may deduct a sum equal to the average advance made to the individual lessor during the period of time for which interest is paid. The interest rate shall be established on the date the interest period begins and shall be at least equal to the average yield or equivalent coupon issue yield on 91-day, 13-week Treasury bills as established in the weekly auction by the Department of the Treasury.

Questions about escrow or any other provision in Independent Contractor Agreements for owner-operators? Call Attorney Nancy E. Joerg of Wessels Sherman's St. Charles, Illinois, office: 630-377-1554 or email her at najoerg@wesselssherman.com.

The Proper Use of Independent Contractors

April 2009
By Nancy E. Joerg, Esq.

Look before you leap! In this poor economy, there are a lot of reductions in force. Companies may find they need people with certain skills, but they are understandably afraid of expanding their workforce with regular employees. A smart solution is to supplement the workforce with independent contractors, but companies are reluctant to use independent contractors because they feel it may be high-risk.

Now that President Obama is in office, we can expect to see some additional legal enforcement action regarding the use of independent contractors. The Independent Contractor Proper Classification Act was proposed in 2007 but not yet passed. It was supported by Obama in 2007 when he was a Senator. During his presidential campaign, Obama said he favored this legislation which indirectly limits and discourages the use of independent contractors. The Bill has not been resubmitted to Congress for consideration in 2009, although it may very well be introduced later in the year.

The good news is that you can dramatically limit your risk in using independent contractors if you have documentation to prove the workers are really independent contractors in the event of a legal challenge.

The underlying truth of independent contractor status is that all independent contractors must be, by definition, self-employed. The world of independent contractor status is "black-and-white." If an individual is self-employed, he/she is an independent contractor. If an individual is not self-employed, then that individual is an employee of someone else. This simple principle helps clients to understand the (sometimes intimidating) world of independent contractor status.

What are some indications that an individual is self-employed? Self-employment is often shown by the individual having a business name, business reputation, advertising, his/her own place of business, his/her own client base, paying his/her own expenses, filing taxes under his/her own business name, etc.

Below are ideas on how to have a generally strong independent contractor:

1. INCORPORATION: If the independent contractor is incorporated, this is a terrific fact for independent contractor status. If you are fortunate enough to have an incorporated independent contractor, then, of course, you should be issuing all checks to the corporate name. Try to only use independent contractors who are incorporated in good standing. Incorporation will not make your company bulletproof, but it is certainly a very strong fact for independent contractor status.
Check the Secretary of State's website on a yearly basis to verify that each corporation is in "good standing." In Illinois, for example, the website is www.cyberdriveillinois.com. In Minnesota, the website is www.sos.state.mn.us. Print out the proof of good standing and put it in the independent contractor's file.

2. BUSINESS NAME: If the independent contractor is not incorporated, and not willing to become incorporated, then you want to make sure that the independent contractor has a business name as a sole proprietor - and uses that business name as well. You should be making out checks to their business name and having them endorse those checks with their business name.

3. BUSINESS CARDS: The independent contractor should have a business card in his/her own business name showing that they are independent and holding themselves out to the public. The independent contractor should, of course, pay for the business cards.

4. INVOICES: The independent contractor should invoice you project by project on an invoice form that the independent contractor designed, obtained, and paid for themselves with the independent contractor's business name at the top of their invoice. Auditors are very impressed when independent contractors invoice companies (this is something that employees never do - so invoices are a nice way to highlight that this is not an employment relationship and not intended to be an employment relationship).

5. ADVERTISEMENTS: Have the independent contractor place an ad in a newspaper under the independent contractor's business name, advertising the services that he/she does. Don't place the ad for the independent contractor; the independent contractor should place his/her own ad. Be sure that you get a copy of the ad and put it into a file for the independent contractor. The ad can be in a small-town newspaper; it doesn't need to be an expensive ad. (When you clip out the ad, also clip out the date and name of the publication.)

6. BUSINESS EXPENSES: The independent contractor should ideally pay for every aspect of his/her business overhead. You should not be paying for any of the independent contractor's transportation costs, equipment, pagers, beepers, telephone bills, business cards, letterhead, etc.

7. INDEPENDENT CONTRACTOR FILES: Set up independent contractor files for each and every independent contractor. In those files, have such things as business cards, ads, invoices, etc. You must have well-documented independent contractor files which will help to show an auditor that the independent contractors are set up as independent businesses, separate and apart from your company. These files should prove that the independent contractors have their own business reputation, and, if you would close your doors tomorrow, the independent contractors could continue to function as self-employed entities.

8. WELL-DRAFTED INDEPENDENT CONTRACTOR AGREE­MENT: The independent contractor agreement should be tailored and unique to the specific relationship it depicts. Be sure that the independent contractor signs the independent contractor agreement with his/her business name and business title (such as Owner or President).

9. USE INDEPENDENT CONTRACTOR TERMINOLOGY: If you have anyone who works directly with the independent contractors, don't call that individual a "Manager" or a "Director" as those are words of supervision which indicate control and direction. You should instead use a word like "Coordinator." Check your website, applications, and all printed material to make sure you are not inadvertently referring to your independent contractors as employees in any way!
As companies increase their use of independent contractors, they need to have well thought out procedures in place to limit their liability in the use of independent contractors. Companies have tight controls in place that regulate the hiring of employees. However, companies often have no corresponding tight controls for contracting with independent contractors. This can lead to disaster when the auditor comes knocking on the door.

CONTACT NANCY JOERG FOR A SELF AUDIT OF YOUR INDEPENDENT CONTRACTOR RELATIONSHIPS: I have been working with many companies to write and evaluate their independent contractor agreements, independent contractor files, websites, manuals, etc. Consultation on the proper legal use of independent contractors is essential. A yearly review of all independent contractor documents and operations is a prudent practice.

For example, certain industries have exemptions and if the company does follow the law with regard to the exemption, the worker will be reclassified to employee status (when the worker could have been an independent contractor if the requirements of the exemption had been followed). Certain categories of independent contractors require, by law, certain information in the independent contractor agreement (direct sellers, truck drivers, etc.) in order to comply with the exemption.
Companies using misclassified workers may be hit with hefty tax assessments, penalties and fines. Therefore, companies must become very knowledgeable about the proper use of independent contractors.

Companies often mistakenly think that if the worker signs an independent contractor agreement then the worker is an independent contractor. This is entirely false. The worker must satisfy the legal criteria for independent contractor status. If the legal criteria is not met, then a government agency (the IRS, state department of unemployment insurance, etc.), or even the worker, may seek to impose legal liability on the company (despite the written agreement stating that the worker is an independent contractor).

Another issue to consider in an evaluation of independent contractor status is IRS Safe Haven protection. Congress passed Section 530 of the Internal Revenue Act of 1978 in order to give relief to those businesses that, in good faith, used independent contractors (because of a reasonable basis). This law is liberally construed in favor of the taxpayer, so it pays to be both aggressive and creative under this law.

It has been my experience over the years that when a company has even a small amount of experienced consultation on the independent contractor issue, they are able to dramatically reduce their liability in their use of independent contractors. There are many "practical steps" that a company can take to lower its risk in using independent contractors.

If readers would like assistance with evaluating and strengthening a potential independent contractor relationship, please contact Senior Attorney and Shareholder Nancy E. Joerg at 630-377-1554 or via email at najoerg@wesselssherman.com.

The Illinois Independent Contractor Law: The Illinois Employee Classification Act-Frequently Asked Questions and Answers

By: Nancy E. Joerg, Esq.


The Illinois Employee Classification Act is causing a lot of buzz and angst among companies. As "ignorance of the law" is not a defense, Illinois companies are scurrying to learn all they can about this "independent contractor" law and how to take defensive measures against it.

Under this harsh law which became effective January 1, 2008, a company such as a construction company, a trucking company which hauls gravel or road building materials, a landscape company, and a wide variety of other construction related companies, can be challenged by the Illinois Department of Labor (IDOL) and "interested parties" on how the company classifies workers as independent contractors. The Illinois Employee Classification Act brings with it very harsh civil and even criminal penalties.

As a result of the extreme anxiety among Illinois construction and construction-related companies who use independent contractors, the phone has been literally "ringing off the hook" with questions from companies who want to better understand the Illinois Employee Classification Act and lower their liability in any way possible.

Therefore, this article is going to focus on frequently asked questions and answers so that readers can better grasp some of the basics concerning this new law:

Question 1. I hear there are recordkeeping provisions under this law. How long do I have to keep records on my independent contractors? (We are a quarry and use independent contractor truck drivers.)

Answer: Under this law, companies must keep records on their independent contractors for a full three (3) years..

Question 2. I just hire my independent contractors by the job. How can I keep records on days and hours that they work as required by the new law?

Answer: Do the best you can. Obviously, if you can develop a system under which you can record days and hours of work, you should do so.

Question 3. We are a flooring company but we do not have any employee installers. We only use independent contractor installers. Do we have liability under this new law?

Answer: Yes, you certainly do. Just because you may have a good argument that you and your independent contractors are in a different course of business, the independent contractor tests under this law are far more involved than that single issue.

Question 4. Which Agency is enforcing this law?

Answer: The Illinois Department of Labor, the same state agency that investigates Illinois companies for questions of overtime, minimum wage, etc. By the way, the same investigators who go out and investigate prevailing wage complaints will be investigating complaints under this law as well.

Question 5. What group sponsored this law?

Answer: The labor unions including the AFL-CIO, Governor Blagojevich, and other sympathetic pro-union political figures strongly supported this law.

Question 6. What is the whole point of this law?

Answer: This law is to punish Illinois construction or construction-related companies who use independent contractors but have actually misclassified them in some way and the independent contractors should really be classified as employees. The point is to discourage or frighten companies from using independent contractors, or at the very least from classifying them improperly.

Question 7. Is it true that if an independent contractor is incorporated, then the company using the incorporated independent contractor will have no potential liability under this law?

Answer: Although it is true that this law has a provision which says that bona fide corporations are not included under this law, there still remains a great deal of anxiety about who and what will exactly be acceptable as a bona fide corporation.

TIP: Check on an annual basis that all the corporations you are relying upon are indeed in good standing. Be certain that you do this each and every year. It is very easy to look up an Illinois corporation and see whether it is in good standing. Just go to the Secretary of State's website at www.cyberdriveillinois.com.

Question 8. Are there any exemptions under this law for certain kinds of independent contractors?

Answer: "No," there are no actual exemptions under this law except for bona fide corporations.
Companies should be sure to have their independent contractor agreements carefully reviewed. They should review their websites with an eye to this new law. Any promotional materials regarding their independent contractors and any independent contractor relationships should be carefully evaluated as well.

Also, be aware that the Illinois Employee Classification Act requires you to post the IDOL's Notice about the Illinois Employee Classification Act (in English, Spanish, and Polish) in your workplace and at every worksite. Where it is not practicable to post a notice on the job site, you must give a copy of the Notice to each independent contractor.

TIP: Give each of your independent contractors a copy of the Notice for them to keep, and have them sign and date another copy for you to keep in each independent contractor's file to prove that the independent contractor received the Notice. Do this on a yearly basis.
 

If you have any questions about the Illinois Employee Classification Act or any independent contractor concerns, contact Senior Attorney and Shareholder Nancy Joerg at 630-377-1554 or najoerg@wesselssherman.com.

Strict Posting and Record Keeping Requirements Under the Illinois Employee Classification Act

March 2008
By Nancy E. Joerg, Esq.

In January 2008, the Illinois Department of Labor published its "Proposed Rules" for the Illinois Employee Classification Act. Under this law, a company such as a construction company, a trucking company which hauls gravel or road building materials, a landscape company, and a wide variety of other construction related companies, can be challenged by the Illinois Department of Labor (IDOL) and "interested parties" on how the company classifies workers as either employees or independent contractors.There was a "public comment" period which gave "the public" a chance to be heard on how it feels regarding the Proposed Rules for the Illinois Employee Classification Act. The public comment period expired on February 25, 2008.

This article will discuss two key issues: 1) record keeping requirements, and 2) the posting requirements.

RECORD KEEPING REQUIREMENTS:
 
There are strict record keeping requirements in the Proposed Rules to the Illinois Employee Classification Act. You must keep the documents specified in the Rules, on each construction-related independent contractor, for a period of FIVE years.

For example, if your were audited by the Illinois Department of Labor in 2015, the IDOL would require you to have records [as described below] on each construction-related independent contractor that you used for the past five years.

1. Records that must be maintained for each construction-related independent contractor include, but are not limited to:
2. their names, addresses, phone numbers, Social Security numbers, Individual Tax Identification Numbers and Federal Employer Identification Numbers;
3. the type of work performed and the total number of days and hours worked;
4. the method, frequency and basis on which wages were paid or payments were made;
5. all invoices, billing statements or other payment records, including the dates of payments, and any miscellaneous income paid or deductions made;
6. copies of all contracts, agreements, applications and policy or employment manuals; AND any federal and State tax documents or other information the Illinois Department of Labor deems relevant or necessary.

Beware: If you violate the record keeping requirements, you violate the Illinois Employee Classification Act! 
 
POSTING REQUIREMENTS:
 
The Illinois Employee Classification Act requires you to post the IDOL's Notice about the Illinois Employee Classification Act (in English, Spanish, and Polish) in your workplace and at every worksite. Where it is not practicable to post a notice on the job site, you must give a copy of the Notice to each construction-related independent contractor.

TIP: Give each of your independent contractors who are construction-related a copy of the Notice for them to keep, and have them sign and date another copy for you to keep in each independent contractor's file to prove that the independent contractor received the Notice. Do this on a yearly basis.

Beware: If you violate the posting requirements, you violate the Illinois Employee Classification Act! 
 
When a construction related company who uses independent contractors is found in violation of the Employee Classification Act, the company could be hit with substantial financial penalties, possible shut down of its business or job sites, and, most worrying to many, misdemeanor or felony criminal charges.

Questions? Contact

Should Your Company Take Advantage of the IRS Voluntary Worker Classification Settlement Program? Look Before You Leap!

October 2011

By: Nancy E. Joerg, Esq. 

On September 21, 2011, the Internal Revenue Service (IRS) kicked off its brand new Voluntary Worker Classification Settlement Program (VCSP). Under this revolutionary program, eligible employers can obtain substantial relief from federal payroll taxes they may have owed for the past if they voluntarily reclassify their workers who currently receive 1099s.

The IRS states that this new program will allow employers "the opportunity to get into compliance" by making a minimal payment covering past payroll tax obligations, rather than waiting for a possible future IRS audit.

ELIGIBILITY REQUIREMENTS:

 

To be eligible for the VCSP, an applicant company must:

• Consistently have treated the workers (i.e., independent contractors) in the past as nonemployees
• Have filed all required Forms 1099 for the workers (i.e., independent contractors) for the previous three years
• Not currently be under audit by the IRS
• Not currently be under audit by the Department of Labor or a state agency concerning the classification of these workers (i.e., independent contractors)

Also, a taxpayer company who was previously audited by the IRS (or the Department of Labor) concerning the classification of the workers will only be eligible for the VCSP if the taxpayer has complied with the results of that audit.

WHAT THE TAXPAYER COMPANY RECEIVES: A taxpayer company who participates in the VCSP will agree to prospectively treat the class of workers as employees for future tax periods. In exchange, the taxpayer company will pay 10% of the employment tax liability that may have been due on compensation paid to the misclassified independent contractors for the most recent year and will not be liable for any interest or penalties on the liability (and will not be subject to an employment tax audit with respect to the worker classification of the workers for prior years). 

CATEGORIES OF WORKERS: Some companies use many different categories of independent contractors. For example, a construction company may have categories of independent contractors including: drywallers, carpenters, painters, cement workers, door and window installers, etc. Companies may wonder whether they can enter into the VCSP for just one category of worker-the door and window installers, for example. The answer is yes. As a matter of fact, a company must agree when they enter into the Closing Agreement with the IRS under the VCSP that they will make all independent contractors in a certain category employees, such as all door and window installers, but the company does not have to agree to reclassify all different categories of independent contractors to employees under the VCSP. 

POTENTIAL PITFALLS: If a taxpayer company voluntarily reclassifies its independent contractors as employees, the company will likely be required to undergo costly changes such as adding workers compensation coverage, withholding income tax payments and taking Medicare and Social Security deductions from wages. Also, the company must agree to extend the statute of limitations period on assessment of employment taxes by the IRS for three years - for the first, second, and third calendar years beginning after the date on which the taxpayer company has agreed under the VCSP Closing Agreement to begin treating the workers as employees. 

Other unresolved issues may be liability concerning past overtime and other wage and hour violations, past employee benefits, etc. A lot to consider!

One big problem that I see is that once a company reclassifies its independent contractors to employee status, the possibility of using a Section 530/Safe Haven/Safe Harbor defense in the future will be lost forever as to that category of independent contractor. The VCSP would essentially require employers to forgo protections offered under Section 530. Employers with strong positions under Section 530 should be aware of what they are giving up!

You may wonder why a company would need to use a Section 530 defense in the future if they are no longer using independent contractors. The simple answer is that the company may decide in the future that it wants to go back to an independent contractor model after having tried the employee model for several years. If the company decides to go back to an independent contractor model, the company would no longer have the opportunity to use a Section 530 defense (because now they do not have consistent use of independent contractors which is a strict requirement of the Section 530/Safe Haven/Safe Harbor defense).

FORM 8952 - APPLICATION FOR VOLUNTARY CLASSIFICATION SETTLEMENT PROGRAM: There is an application online for acceptance into this VCSP program and interested companies might do well to review the two page application. It is interesting to read and see what a company must agree to and what information a company must give under penalty of perjury. 

Of course, just filling out an application to be accepted into the VCSP does not guarantee that a taxpayer company will be found eligible to enter the VCSP. One of the unanswered questions is - If a company is found to be ineligible for VCSP, could the information they have placed on the application be used by the IRS for audit leads? We know, for example, that when companies send in the IRS Form SS-8 to the IRS for an opinion on whether the worker is an independent contractor or an employee, the IRS occasionally uses the submitted IRS Form SS-8 form as a lead for an IRS audit of that company. Dirty pool?

The bottom line is that any company considering applying for the VCSP should think it over very carefully with an attorney who is exceptionally well versed in the independent contractor issue. This is not a step to be taken in a light hearted fashion. Currently the VCSP has no deadline or expiration date.

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