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Inside This Issue
1. Restrictive Covenants Limited
2. Corporate Directors Can Be Held Personally Liable
3. Severance Pay In Turn For Release of Waivable Title VII Claims
4. Same-Sex Marriages Affect Benefits And Obligations
5. Equal Pay Act Expands In 2016
Restrictive Covenants Limited
A financial planner resigned from one company and began working in the same position at another firm. His previous employer filed suit against him and his current employer alleging breach of restrictive covenant. Restrictive covenants attempt to keep former employees from competing against their former employer in their new employment. The former employer asked a DuPage County judge to enter a temporary restraining order (which in essence enforces the restrictive covenant), which was denied. The trial judge said he did not believe the former employer could succeed on the merits absent factual assertions that the financial planner used confidential information, engaged in former client solicitation or rendered financial advice to his former employer’s customers. The trial judge’s opinion was affirmed by the Second Illinois Appellate District.
Note that this case arose under an employment relationship. If the restrictive covenant was part of a sale of a business, the result may be different.
Corporate Directors Can Be Held Personally Liable
A 25 year director and General Counsel of an international products manufacturer for hospitals was found to be individually liable. In this case the Company was subject to the Foreign Capital Practices Act (“FCPA”) which outlaws bribery and demands certain record keeping. The Company previously entered a consent decree admitting they bribed officials in Vietnam, Thailand and Russia and paid $55 million in fines.
Approximately three years after paying the fines the General Counsel noted there was no documentation for Chinese sales so he hired an outside law firm to investigate. The law firm found no evidence of bribery. However the General Counsel was concerned that the lack of record keeping alone violated the FCPA. The General Counsel tried to obtain records from the CEO and CFO without success. The General Counsel suspected that the CEO and CFO were complicit in some bribery and he took the matter to the Company’s Board of Directors audit committee. The audit committee recommended again engaging the outside law firm to investigate. The General Counsel objected to hiring the outside law firm because another finding of improper conduct would demonstrate the Company’s failure to uncover FCPA violations for three years.
Thereafter, the CEO, with the approval of the full Board, fired the General Counsel and he promptly filed a complaint under Sarbanes-Oxley Act which protects whistleblowers. The federal district court noted that there is no case in which the question of whether individual directors can be sued under the whistleblower provisions. The General Counsel was found to be personally liable because he blew the whistle only internally and not to the SEC.
The district court case is now on appeal.
Severance Pay In Turn For Release of Waivable Title VII Claims
The EEOC sued CVS Pharmacy alleging that CVS’ practice of offering terminated employees severance pay in return for release of waivable Title VII claims complied with CVS’ requirement that employees agree not to file EEOC charges in the release and severance agreement was unlawful. According to the EEOC, CVS’ actions served to deter other employees from filing EEOC charges or participating in EEOC proceedings.
The district court dismissed the case because the EEOC failed to make any effort to conciliate the claim prior to bringing the lawsuit. More importantly, the trial court said the EEOC complaint should be dismissed because there is no allegation that CVS engaged in any discriminatory or retaliatory conduct. The Appellate Court agreed and affirmed the trial judge.
Both the EEOC and the NLRB have taken the position that waiving the right to file a charge at either agency is unenforceable. Other litigation is likely.
Same-Sex Marriages Affect Benefits And Obligations
Last June, the U.S. Supreme Court ruled that the fundamental right to marry is guaranteed to same-sex couples by both the Due Process Clause and the Equal Protection Clause of the U. S. Constitution’s 14th Amendment.
Since same-sex marriage is now legal under federal law, many employers are eliminating domestic partner benefits. As a result, same-sex couples must become formally married to obtain the same coverage for a partner. Same-sex spouses will be afforded the federal benefits of COBRA continuation and, in Illinois, the benefits provided under the Illinois Spousal Health Insurance Act.
Same-sex spouses are now also afforded all the social security benefits granted to heterosexual spouses. During a divorce, same-sex spouses may be entitled to these benefits. Likewise, same-sex spouses paying alimony or child support may deduct those amounts on their federal income tax returns.
Additionally, retirement plans now must recognize same-sex spouses for spousal benefits -- as they are generally governed by federal law. Pursuant to IRS and Labor Department guidance, employer sponsored 401(k) and pension plans must include same sex marriages and shall apply benefits retroactively. Same-sex couples should confirm with their spouse that they are the beneficiary of their retirement plans.
Equal Pay Act Expands In 2016
The Illinois Equal Pay Act of 2003 generally prohibits employers from discriminating between employees on the basis of sex. The Act specifically prohibits paying wages at a rate not less than the rate at which employees of the opposite sex are paid for the “same or substantially similar” work on jobs that require equal skill, effort and responsibility under similar conditions.
Effective January 1, 2016, the Act applies to all employers, whereas it previously only applied to employers with four or more employees. The definition of “Employer” is expansive under the Act, and includes “an individual, partnership, corporation, association, business, trust, person, or entity for whom employees are gainfully employed in Illinois.”
Certain exceptions to the equal pay requirement include seniority systems, merit systems, systems that measure earnings by quantity or quality of production, or differential based on any quality other than sex or a factor that would constitute unlawful discrimination under the Illinois Human Rights Act, i.e., race, color, religion, national origin, ancestry, age, order of protection status, marital status, citizenship status, physical or mental disability, military status, sexual orientation, pregnancy, or unfavorable discharge from military service.
The amended Act provides a tiered layer of penalties ranging from $0 to $5000 per violation based on number of employees and previous violations. Further, employees may recover in a civil action the entire amount of the underpayment with interest, costs and reasonable attorney fees.
The Act further provides that it is unlawful for an employer to interfere with, restrain, deny or attempt to deny the exercise of any right, as well as to discharge or discriminate against an individual for inquiring about, disclosing, comparing or otherwise discussing the employee’s wages or the wages of any other employee or aiding or encouraging any person to exercise his or her rights under the Act. In short, employees are free to discuss the issue of wages – their wages and the wages of other employees.
All employers would be prudent to draft job descriptions for employee positions to ensure employers are paying employees wages according to job responsibilities, seniority and applicable exceptions under the Act regardless of sex and the other factors prohibited under the Illinois Human Rights Act.
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