These Newsletters are not intended as legal advice since each situation depends specifically on the facts presented. Persons reading these Newsletters should seek competent legal advice with regard to the subjects contained herein before making any employment or other decisions.
Inside This Issue
1. New Illinois Laws Effective January 1, 2017
2. Seventh Circuit Court of Appeals Rules That The Obligation
To Make Contributions Can Survive A De-Certification of a Union
3. NLRB Signals Further Union Favor
4. First District Illinois Appellate Court Upholds Pay-If-Paid Clause
5. New Employee Privacy Laws
New Illinois Laws Effective January 1, 2017
- Senate Bill 3163: Bans any company from asking a worker paid less than $13.50 an hour to sign a non-compete agreement.
- House Bill 6162: Requires employers to give their workers greater flexibility in using their sick time. A company providing sick leave to employees must allow the eligible employees to use up to one-half of their allotted time to attend to medical needs of family members. HB 6162 was further amended by SB 2799 adding stepchildren and domestic partner to list of persons, illnesses which are eligible for leave. It also excludes collective bargaining agreements which may provide differently.
- House Bill 1260: Amends Personal Information Protection Act. Classified online logins, biometric data and health information as protected information. Informs groups how to notify the public of a data breach.
- House Bill 436: Amends the Victims’ Economic Security & Safety Act by mandating that employers provide unpaid work weeks of leave to any employee who is a victim of domestic or sexual violence or has a family member who is such a victim. An employee working for an employer who employs 1-14 persons can be entitled to a total of 4 work weeks leave during any 12-month period. For employers who employ at least 50 employees, such employees are entitled to 12 work weeks leave during a 12-month period. The Bill does not create a right for additional leave that exceeds the unpaid leave allowed under or is in addition to unpaid leave time under the FMLA.
- Senate Bill 2804: Amends the Illinois Wage Assignment Act which allows employees to revoke a wage assignment at any time by submitting a written notice to the creditor.
Seventh Circuit Court of Appeals Rules That The Obligation
To Make Contributions Can Survive A De-Certification of a Union
This case is very fact intensive. The employer, Cleveland Quarry, had a union agreement with the Operating Engineers Local 150, but in 2013 the employees voted in an election supervised by the NLRB to de-certify Local 150 as their collective bargaining representative. Local 150 was de-certified and the employer stopped contributing to the Funds created under the collective bargaining agreement. The Funds brought suit for payment of contributions from the date of the de-certification to the expiration of the collective bargaining agreement. The Union agreement said in part “The employer’s responsibility to make contributions to the welfare plan shall terminate upon the expiration of this agreement.”
Three district courts and the 7th Circuit Court of Appeals ruled in favor of the Plaintiff Funds, because the collective bargaining agreement made the employer’s obligation to contribute to the Funds survive the de-certification of the Union. While the Union could not enforce the collective bargaining agreement, the Funds as third party beneficiaries could collect since the Funds were also entitled to enforce the agreement. The court further noted that there is nothing in ERISA that makes the obligation to contribute depend on the existence of a valid collective bargaining agreement.
Management negotiating teams should be prepared to respond to union proposals that “The employer’s responsibility to make contributions to the welfare plan shall terminate upon the expiration of this agreement.”
NLRB Signals Further Union Favor
On January 30, 2015, the United Government Security Officers of America, Local 365 filed a petition to represent the special police officers employed by Longwood Security Services Inc. An election was conducted pursuant to a stipulated agreement which stated “each party may station an equal number of authorized, non-supervisory employee observers at the polling places to assist in the election.” Most stipulated election agreements contain such language.
However, on the day of the election, the employee designated to be the observer for the Union was not able to attend. A union official asked the Board agent conducting the election if he could substitute in as the observer. The Board agent refused based on the union officials non-employee status. The election resulted in 30-26 vote against the Union.
The NLRB’s case handling manual directs that “a union official should not serve as an observer unless he/she is also an employee of the employer.”
By split decision, the Board recently set aside the election and directed a second election. The majority found that the agent did not follow proper procedure when he learned that the Union intended to use a potentially objectionable observer; the agent should have 1) advised the parties that the election might be set aside if it is later determined that the union official was unreasonable under the circumstances; and 2) allowed the election to proceed with the chosen observers. The Board found that the numerical imbalance in the number of observers was a material breach of the stipulated agreement.
The Dissent would have found that by preventing a high ranking Union official from serving as an observer, the Board agent furthered the important goal of protecting employees’ freedom of choice, while avoiding more substantive problems.
By overlooking its own case handling manual and the “non-employee” language stated in the stipulated election agreement, the NLRB appears to be favoring unions.
First District Illinois Appellate Court Upholds Pay-If-Paid Clause
Since 1985, the enforceability of pay-if-paid clauses have been upheld under A.A. Conte v. Campbell-Lowrie-Lautermilch Corp., the seminal Illinois case on the issue, which held that payment to a subcontractor may be conditioned on the receipt of payment by the general contractor (“GC”), where the agreement provides that the GC’s payment is an “unambiguous condition precedent” to the subcontractor’s payment. Condition precedents are generally disfavored in contract law, as is forfeiture of compensation. This interpretative principle, as well as public policy concerns, has left many waiting for the courts to find such clauses unenforceable.
Pay-if-paid clauses transfer the risk of upstream insolvency to subs down the chain, effectively passing liability of an owner’s non-payment back to each contractor in the amount of their own work, i.e., subcontractors ultimately get stuck with most of the losses. Otherwise, the GC is forced to act as bank and essentially extend credit to the owner; if the GC is not paid by the owner, whether due to a dispute over the work, owner bankruptcy, or any other reason, the GC is still liable for payment to their subcontractors.
In the first published Illinois decision on the topic since 1985, Beal Bank Nevada v. Northside Center THC, LLC, the First District Appellate Court recently held that pay-if-paid clauses remain enforceable in contract if the payment condition is an unambiguous condition precedent to payment. The decision emphasizes not only that unambiguous language is a strict requirement of a pay-if-paid clause, but also the importance of clear language.
Absent plain language in the subcontract, the clause will likely be deemed a pay-when-paid clause, which merely governs the timing of payments rather than the ever more important obligation to pay. Thus, under circumstances such as owner insolvency, whether the GC is liable for payment to the subcontractor depends greatly on whether the pay-if-paid clause is clearly drafted.
A pay-when-paid clause governs the timing of a contractor’s payment obligation. A typical clause might say: “contractor shall pay subcontractor within seven days of contractor’s receipt of payment from the owner.” They do not excuse a contractor’s ultimate liability if it does not receive payment by the owner.
In contrast, a pay-if-paid clause provides that a subcontractor will be paid only if the contractor is paid and thus ensures that each contracting party bears the risk of loss only for its own work. A typical clause of this type might say: “Contractors’ receipt of payment from the owner is a condition precedent to contractor’s obligation to make payment to the subcontractor; the subcontractor expressly assumes the risk of the owner’s nonpayment and the subcontract price includes the risk.”
GCs and subcontractors alike are encouraged to seek legal assistance when reviewing any contracts that may pose a concern, particularly where an owner has failed to make payment.
New Employee Privacy Laws
According to the newly amended Right to Privacy in the Workplace Act, effective Jan. 1, 2017, Illinois employers may be subject to fines and found guilty of a petty offense for asking, requiring or coercing employees to invite employers to join online groups of which the employee belongs.
In 2013, the Act was amended to prevent employers from requesting employees’ and applicants’ social media passwords on networking sites. Last summer, Governor Rauner approved the House Bill which extends protection beyond passwords, to usernames and personal online accounts, and further adds retaliation provisions.
The 2016 updates, effective January 1, 2017, prohibit employers from the following:
Illinois employers would be prudent to review and update their social media policies in accordance with the newly effective law, particularly those policies regarding employee use of personal accounts while on the job, inadvertent disclosures of personal information, and reporting requirements under the Act.
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