Blog

Posts in the ‘Business & Commercial Law’ category

Are your trade secrets protected by the UTSA?

Posted on September 8th, 2011 by David L. Antognoli

The competitive value of Coca Cola’s secret formula and the lengths Coke takes to protect it are legendary. Coke has a formidable arsenal of legal remedies available if an employee or competitor steals the formula. These legal remedies are not unique to Coke and do not turn on the extraordinary value of its trade secrets. Virtually any business can enjoy comparable legal protection by adopting relatively simple procedures for handling confidential information. The “secret” lies in the Uniform Trade Secrets Act (the “UTSA”).

Illinois and Missouri are among 45 states which have adopted the UTSA. Although certain provisions of the UTSA vary from state to state, all versions share three common elements: (1) the definition of a “trade secret”; (2) the type of the conduct that violates the Act; and (3) the general legal remedies available to a business which suffers harm as a result of the violation.

The UTSA defines “trade secret” broadly. Information need not approach the value of Coke’s secret formula to merit protection. Instead, the UTSA protects all information that satisfies two general criteria. First, the information must have competitive value because it is not generally known or readily ascertainable by third parties. Second, the owner of the information must use reasonable measures to keep it confidential.

The type of information the UTSA protects ranges from the mundane too the arcane. Examples include marketing plans (Bruswick Corp. v. Jones, 784 F.2d 271 (7th Cir. 1986)); customer lists (Stampede Tool Warehouse, Inc. v. May, 272 Ill. App. 3d 580 (3d Dist. 1995)); and profit data for construction projects (Brestron v. Warmann, 190 Ill. App. 3d 87 (3d Dist. 1989)). On the other hand, a customer list that can be compiled easily from public sources is not a trade secret. (Carbonic Fire Extinguishers, Inc.; 190 Ill. App. 3d 948 (1st Dist. 1989).

As these examples illustrate, virtually every business compiles and uses valuable information that may qualify for protection under the UTSA. But competitive value alone will not suffice; a business must also take reasonable measures to protect its confidential information. The necessary steps run the gamut from a locked file cabinet to sophisticated computer password protection. The greater the efforts to maintain confidentiality, the more likely the information will be regarded as a trade secret.

What procedures should your business employ? The answer depends on the nature of the business and the type of information. For instance, a verbal warning to newly-hired employees and a closed file drawer may be enough to protect the customer list of a “mom and pop” business. Elmer Miller, Inc. v. Landis, 253 Ill. App. 3d 129 (4th Dist. 1993). On the other hand, a larger, more sophisticated business must exercise greater precaution than a generic confidentiality statement in an employee manual. Gillis Associated Industries, Inc. v. Cari-All, Inc., 206 Ill. App. 3d 184 (1st Dist. 1990). And even the use of signed confidentiality agreements will not suffice where an employer routinely distributes confidential information to trainees before they sign the agreements. George May International, Inc. v. International Profit Association, 256 Ill. App. 3d 779 (1st Dist. 193).

The most prudent course of action is to require employees to sign confidentiality agreements, adopt common-sense policies for storage and retrieval of confidential information and, most important, follow those policies. A business which follows these guidelines will likely qualify for protection under the UTSA. And the UTSA offers significant protections: if a court finds that a trade secret has been misappropriated, it can prohibit disclosure, award damages—including punitive damages—and reimburse a successful litigant for legal costs, including attorney fees.

Misappropriation means any unauthorized use or disclosure. For instance, an employee who discloses confidential information in violation of a confidentiality agreement is guilty of misappropriation and will be subject to liability under the UTSA. Misappropriation may also occur even if there is no confidentiality agreement. Every employee owes his employer a general fiduciary duty of loyalty. An employee violates this duty—and is guilty of misappropriation under the UTSA—if removes or reveals confidential information without his employer’s authorization. RKI v. Grimes, R.K.I., Inc. v. Grimes, 177 F. Supp. 2d 876 (N.D. Ill. 2001).

Every business—large or small—should take advantage of the benefits and protections offered by the UTSA. The first step is to identify the information that gives you a competitive edge. The next step is to implement reasonable, common sense procedures to keep this information confidential. These simple steps will give a small business the level of legal protection for confidential information that the Coca Cola’s of the world enjoy.

If you have a question about trade secrets or any Business and Commercial Law topic, contact David Antognoli.

8 tips for undergrads planning on law school

Posted on August 3rd, 2011 by Kevin Green

Want to listen to a podcast of this blog? Click the link at the bottom of the post.

1. Plan your studies.
Many students go to college unsure of what career they want, however, there are multiple studies that lend themselves well to a future in law school. Advertising and/or marketing courses can lead to an interest in the business side of law; philosophy courses can develop analytical thinking; and political science classes can provide great insight into current events. Law requires an analytical side, a writing side and a persuasive side – all skills that can be developed in college.

2. Join your Mock Trial team.
Your school’s mock trial team is a great place to get a feel for law, hone your skills and decide if being a lawyer is the right future for you.

3. Understand the difference between “TV law” and reality.
Hooked on Law and Order? There’s much more “behind-the-scenes” work that a lawyer does – and every case doesn’t fit nicely into 60 minutes. The process is more intensive, and takes much, much longer in real life.

4. Know yourself and what you want.
Once you decide you want to be a lawyer, focus on what you want to do – how you want to practice law as a whole and which practice area you want to get into. Use your undergrad time to try new things out – study abroad, take new classes, or get work experience. Working for a law firm during college is a great way to really learn what lawyers do. As a file clerk, you’ll run papers between the firm and the courthouse – it may not be intensive work, but you’ll be around lawyers all day. You’ll also get introduced to the court system itself, and experience its administrative side.

5. Use social media to advance your law career.
But use it wisely. Potential employers as well as potential law schools can use it to research you, too. On the plus side, it can be a tool to help you reach out to people involved in law: an admissions person, a current student, an HR contact, etc.

6. Know what to do after undergrad graduation.
There’s a lot of paperwork and a lot of research to prepare for when applying to law schools. Look at the programs the law schools’ offer, the reputation of the school, and the individual programs.

7. Prepare, practice & perform the LSATs.
They’re basically the entrance exam for law school. In terms of preparing, the questions that the LSAT asks aren’t specifically about being an attorney. The LSAT is a test about whether or not you can take the LSAT. You must learn what the LSAT is asking you to do, practice and then perform.

So what is the LSAT asking you to do?
There are three sections: logical reasoning, analytical reasoning and reading comprehension. It’s a test in learning something you’re completely unfamiliar with and being able to perform. Which is what it’s like to practice law. When a person comes to the firm with a problem, a lawyer has to learn as much about that specific problem, prepare a case and then perform. Are you willing to take the time, learn and prepare?

8. In doubt? Reach out.
If you’re an undergrad who wants more information about law school, the best resource is a lawyer. Most lawyers like to help out people who want to do what they are doing. Just remember that you’re reaching out to a professional. It should be a professional email or professional phone call. Everyone has to eat, so maybe try to schedule a morning coffee or a quick lunch.

Kevin Green is an associate in the Business and Commercial Law department. Contact him with questions.

Listen to a podcast of this interview with Kevin Green here:

Audio clip: Adobe Flash Player (version 9 or above) is required to play this audio clip. Download the latest version here. You also need to have JavaScript enabled in your browser.

The Enforceable Illinois Junk Fax Statue

Posted on August 1st, 2011 by Holly A. Reese

Do you have a fax machine? Then chances are, you’re familiar with junk faxes – advertising discount travel, auto deals or IT services. The Telephone Consumer Protection Act of 1991 (TCPA) makes it unlawful to send unsolicited advertisements to a telephone facsimile machine.

A recent Illinois Supreme Court decision (Italia Foods, Inc. v Sun Tours, Inc.) makes the Federal junk fax statute enforceable by private lawsuit in Illinois state courts.

TCPA provides a private right of action for enforcement purposes, and allows for the following:
A) An action based on a violation of that subsection of the TCPA or the regulations prescribed under that subsection to enjoin such violation,

(B) An action to recover actual monetary loss from such a violation, or to receive $500 in damages for each such violation, whichever is greater, or

(C) Both such actions.

If it is determined that the violation was willful or knowing, treble damages may be awarded.

Italia alleged that during a two year period, the defendants violated TCPA by faxing it 28 unsolicited advertisements for discount travel, and faxed similar advertisements to more than 39 other recipients without prior permission.

The IL Supreme Court determined that no enabling legislation was necessary from the General Assembly, but did not decide if the Illinois two year statute of limitations should apply, or the four year federal statute of limitations. That determination will be made by the appellate court as the case moves forward.

If you have a question about this subject or any Business and Commercial Law topic, contact Holly A. Reese.

“Bad Faith” claims: A weapon against unreasonable insurance companies

Posted on June 13th, 2011 by The Firm

It is bad enough that you have suffered a loss or damage to your property, but what do you do when your insurance company goes from a neighbor to adversary? This is precisely what happens when your insurance company denies or delays payment for an otherwise valid claim.

For example, if a business loses a property in a fire and its insurance company denies its claim for no valid reason under the Policy, the business may sue the insurance company to recover the amount of its claim. Where the insurance company has unreasonably delayed or denied the claim, the facts may warrant relief under Section 155 of the Illinois Insurance Code: 215 ILCS 5/155 (2011). It’s a significant weapon against insurance companies trying to get out of paying valid insurance claims.

Section 155 allows for recovery of attorney fees and a monetary penalty when an insurance company’s actions in denying a claim or delay in settling a claim are “vexatious and unreasonable.” It is sometimes termed as an insurance company engaging in “bad faith”. In those situations, the Court may tax the insurance company reasonable attorney fees plus an amount not to exceed any one of the following amounts:

(1) 60% of the court or jury’s award against the insurance company; or

(2) $60,000; or

(3) an amount which equals the difference between what the insurance company offered to pay in settlement of the claim prior to the action and the court or jury’s award, i.e. ABC Insurance Company offers $20,000 to settle before trial, jury returns a verdict of $60,000, Court could award $40,000 on top of the jury’s verdict pursuant to Section 155.

In deciding whether an insurer is liable under Section 155, a trial court will consider the totality of the circumstances, including the insurer’s attitude. Buais v. Safeway Ins. Co., 275 Ill.App.3d 587, 591, 656 N.E.2d 61, 64 (1st Dist. 1995); see also Norman v. Am. Nat’l Fire Ins. Co., 198 Ill.App.3d 269, 304-05, 555 N.E.2d 1087 (5th Dist. 1990). When the attitude of an insurance company toward its insured is “not only vexatious, but irritating, exasperating, and provoking,” a request for relief under Section 155 is proper. Buais, 275 Ill.App.3d at 592-93 citing to Deverman v. Country Mut. Ins. Co., 56 Ill.App.3d 122, 124, 371 N.E.2d 1147 (4th Dist. 1978). However, attorney fees and penalties will not be awarded simply because the insurer refuses to settle or was unsuccessful in litigation. Keller v. State Farm Ins., 180 Ill.App.3d 539, 555, 536 N.E.2d 194, 204 (5th Dist. 1989). If there is a bond fide dispute as to coverage, an insurer’s delay in settling a claim may not violate Section 155. Id.

But where there has been an unreasonable denial of an otherwise valid insurance claim, Section 155 allows insureds to recover their attorney fees with a successful suit against the insurer. Section 155 is a mechanism designed to protect insured’s from their insurance company taking advantage of their unawareness of their rights and limited means to pursue recovery. After all, to an insurance company, an insured is just a policy number.

If you have a question or would like to discuss your business or commercial law issue, please contact us today.

Requiem for the Legitimate Business Interest Test?

Posted on March 21st, 2011 by David L. Antognoli

To paraphrase Mark Twain, news of the demise of the legitimate-business-interest test (the “LBI Test”) may be greatly exaggerated by the Appellate Court in its notable decision in Sunbelt Rentals, Inc. v. Ehlers, 394 Ill. App. 3d 421, 915 N.E.2d 862 (4th Dist. 2009). The LBI Test has been the cornerstone for judicial analysis of restrictive covenants in employment contracts for over 30 years. Note, Enforcing Restrictive Covenants in Illinois: Is the Legitimate Business Interest Test Necessary? 35 S. Ill. U.L.J. 137, 153 (2010). Nonetheless, the Appellate Court for the Fourth District abandoned the LBI Test last year in Sunbelt. The Second District, however, disagrees. Thus, the status of the LBI Test in the rest of the state (including the Fifth District) remains in doubt.

Until Sunbelt, the LBI Test served as the threshold test for enforcement of post-employment restrictions on an employee. If an employer failed the LBI Test, a former employee could ignore a post-employment “non-compete” contract. And passing the test is no mean task. The employer has to establish that restrictions on an employee’s post-employment activities further one of two, recognized business interests: (1) “near-permanent” customer or client relationships; and (2) protection of trade secrets or other confidential information. Steam Sales Corp. v. Summers, 405 Ill. App. 3d 42, 937 N.E.2d 715, 728-29 (2nd Dist. 2010). If the employer passes the LBI Test, the court will enforce a post-employment restraint that is reasonable in scope and duration. Id. Conversely, if the employer fails the LBI Test, the restriction likewise fails. Id.

Sunbelt surveys the LBI Test’s three decade long reign in the Illinois courts and concludes that it was all a big mistake. Id. at 915 N.E.2d 870. According to the Fourth District, “(1) the Supreme Court of Illinois has never embraced the ‘legitimate-business-interest’ test and (2) its application is inconsistent with the Supreme Court’s long history of analysis in restrictive covenant cases….” Id.

Putting aside its contribution to legal scholarship, Sunbelt has a significant practical benefit: it simplifies analysis by focusing solely on the scope and duration of the non-compete clause. “Where restrictive covenants are ancillary to valid contracts supported by adequate consideration and are reasonable in their terms as to time and territory, such covenants will be enforced by the courts and relief by injunction is customary and proper.” Id. at 870 (citation and internal quotes omitted). The LBI Test, which is multi-factored, complex and often difficult to apply, is irrelevant under Sunbelt.

The Appellate Court for the Second District rejects Sunbelt’s analysis. Reliable Fire Equipment Co. v. Arredondo, 940 N.E.2d 153, 164 (2d Dist. 2010). Arredondo questions both the judicial scholarship and the public policy implications of abandoning the LBI Test. Arredondo, like Sunbelt, undertakes reviews of the history and development of the LBI Test, but reads Supreme Court precedent differently than the Fourth District. Arredondo also questions the policy implications of Sunbelt. Citing the well-established judicial aversion to restraints of trade, Arredondo concludes that abrogating the LBI Test would stifle competition and unfairly limit employee mobility. The point is well-taken. Employees with jobs that have never been regarded as compatible with non-competition clauses — truck drivers or sales clerks, for instance — would be subject to boilerplate non-compete clauses were it not for the LBI Test.

Few lawyers in private practice have the time or inclination to evaluate the judicial scholarship of the conflicting Arredondo and Sunbelt decisions. Counsel representing employers, of course, will hail the Sunbelt case as a landmark decision. And, if nothing else, Sunbelt would simplify non-compete cases by eliminating the often complicated LBI Test. On the other hand, counsel representing employees will praise Arredondo for preserving job mobility and fostering competition. In the meantime, uncertainty will reign in this already complex practice area until the Supreme Court weighs in and resolves the conflict.

Have a question regarding your business or commercial law issues? Please contact us.

The Missouri Supreme Court Adopts the Public-Policy Exception to the At-Will Employment Doctrine in Wrongful Discharge Claims

Posted on December 13th, 2010

Missouri is an at-will employment state, meaning an employer can discharge an employee for any reason or no reason at all and the discharged employee has no cause of action against the employer for wrongful termination.  Previously, the Missouri appellate courts have recognized a “narrow” public-policy exception to this doctrine; however, the Supreme Court has never explicitly adopted the exception until now. 

On February 9, 2010, the Missouri Supreme Court issued a trilogy of opinions involving the public-policy exception to the at-will employment doctrine.

In Fleshner v. Pepose Vision Institute, 304 S.W.3d 81 (2010), the Court held an at-will employee can sue her employer on a wrongful termination claim alleging the employer fired her because of either her refusal to violate the law or her whistle-blowing.  Fleshner, an at-will employee of PVI, received a call at home from a Department of Labor investigator who was inquiring into the hours worked by PVI employees.  She reported the conversation to her supervisor and was subsequently terminated.  Fleshner filed an action asserting wrongful termination in violation of public policy.  A jury awarded her $30,000 in actual damages and $95,000 in punitive damages.

Recognizing a cause of action for wrongful termination under the public-policy exception, the Court defined the exception as follows: An at-will employee may not be terminated: (1) for refusing to violate the law or any well-established and clear mandate of public policy as expressed in the constitution, statutes, regulations promulgated pursuant to statute, or rules created by a governmental body, or (2) for reporting wrong doing or violations of law to superiors or public authorities.  If an employer terminates an employee for either reason, the employee has a cause of action in tort for wrongful discharge based on the public-policy exception. 

The Court also addressed which standard of causation was appropriate; the “exclusive cause” standard, the “because of” standard, or the “contributing factor” standard.  PVI argued that the trial court erred in instructing the jury that it had to find that PVI terminated Fleshner “because she communicated with the United States Department of Labor.”   PVI argued the appropriate causal standard was the more strict “exclusive cause” standard.  The Court concluded, however, that the exclusive causation standard is inconsistent with the proximate cause standard typically employed in tort cases.

While prior cases indicated that “exclusive causation” is the appropriate standard for cases asserting retaliation in the workers’ compensation statutory context, the Court determined that “exclusive causation” is not the proper standard for wrongful discharge based on the public-policy exception.  Under this standard, an employer could assert that while the employee’s reporting or refusal played a part in the decision to terminate, the employee was fired for another reason.  Furthermore, the Court found that such a standard would result in an exception that fails to accomplish its task of protecting employees who refuse to violate the law or public policy.    

Ultimately, the Missouri Supreme Court adopted the “contributing factor” standard noting that recent employment discharge cases articulate this causation standard – whether an illegitimate purpose was a “contributing factor” in the employment decision – which was adopted in 2005 through MAI 31.24.  Thus, under this standard, an employee need only show that a “whistle-blowing” activity played a role in the employer’s termination decision.

The Court also held that Fleshner’s claim was not preempted by the Fair Labor Standards Act (FLSA) because the remedies under the FLSA do not comprehend and envelop common law wrongful discharge remedies, thereby allowing for punitive damages claims. 

Finally, the Court noted that Missouri public policy is not determined by personal opinions but must be found in a constitutional provision, a statute, or regulation promulgated pursuant to a statute created by a governmental body.  The employee does not need to rely on a “direct” violation; instead, the public policy must be “reflected by” one of the above. Additionally, the reported violation does not need to affect the employee personally nor does the law need to prohibit or penalize retaliation against those reporting it.  Here, public policy was reflected by the minimum wage law that employees should be encouraged to communicate with labor investigators about their employers’ overtime compensation without fear of retaliation. 

 

In Keveney v. Missouri Military Academy, 304 S.W.3d 98 (2010), the Court held that a wrongful discharge in violation of public policy claim applies equally to at-will employees and contract employees.  Previously, the Missouri Court of Appeals had refused to extend such a claim to employees who have the benefit of a written employment contract. 

In this case, Keveney worked at MMA as a teacher pursuant to a written employment contract providing that the academy could terminate Keveney for cause.  Keveney, terminated in October of 2003, filed an action alleging wrongful discharge and breach of contract seeking punitive damages and damages for emotional distress.  Specifically, he alleged his termination resulted from his insistence that his superiors report to DFS evidence that a student was being abused.  He alleged his superiors refused to report the student’s bruises and was told his job would be jeopardized if he reported to DFS.  Keveney was discharged the same day he reported the suspected abuse to his superiors.  The circuit court dismissed the wrongful discharge claim but the jury awarded Keveney $13,300 in damages for breach of contract. 

To date, Missouri courts have declined to extend the wrongful discharge cause of action to contract employees; however, there are at least three reasons for allowing contract employees to pursue an action under this exception.  First, limiting this cause of action to at-will employees implicitly rests on the incorrect assumption that the constitutional, statutory, or regulatory interests at issue can be limited through private contracts.  Second, when an employer’s actions violate not only the employment contract but also clear and substantial public policy, the employer is liable for two breaches, one in contract and one in tort; the employer must bear the consequences of its actions.  Third, allowing contract employees to pursue a claim for wrongful discharge places them on the “same footing as at-will employees while also encouraging employers to refrain from coercing employees into a dilemma of choosing between their livelihoods and reporting serious misconduct in the workplace”.  Thus, contract employees can now pursue a claim for wrongful discharge. 

In Margiotta v. Christian Hospital Northeast Northwest, 2010 Mo. Lexis 12 (2010), the Court held that employee’s acts did not constitute reporting violations of law or public policy to his superiors, commonly referred to as “whistle-blowing,” in that the reported acts did not entail “serious misconduct that constitutes a violation of the law and of well established and clearly mandated public policy.”

Margiotta, an at-will medical image technician, claimed he was fired for continuously reporting safety violations to administrators.  He based his claim upon a federal regulation which established, in general, that hospital patients have a right to receive medical care in a safe setting.   Reviewing the regulation, the Court found that it operates solely for the protection of the patient and does not grant protection to, or authorize any affirmative conduct by, an employee.  Moreover, the federal regulation does not prohibit the acts which Margiotta reported.  The Court found the vague regulation relied upon was insufficient to support a claim for wrongful discharge in violation of public policy, because such a claim must be based upon a constitution, statute, regulation or rule that specifically proscribes the conduct alleged by the employee to have been violated.  The Court will not force a legal duty on parties who have agreed to an at-will relationship or a contractual employment relationship absent a “sufficiently definite” constitutional provision, statute, regulation based on statute or rule promulgated by a governmental body that clearly gives notice to the parties of its requirements.  Thus, the hospital was entitled to summary judgment as a matter of law.   

What do these cases mean?

Through these cases, the Missouri Supreme Court has strengthened its protections for employees who expose wrongdoing by their employers or refuse to violate the law.  There is no doubt that Missouri common law recognizes public policy wrongful discharge claims for all employees, both at-will and contractual.  Consequently, a contract employee may now battle on two fronts – breach of contract and common law wrongful discharge, with the latter now allowing claims for punitive damages.  The Court has also lessened the burden of proof by adopting the “contributing factor” standard.  Clearly, the lower standard favors terminated employees, who must now merely establish that their reporting of a violation of law or refusal to violate the law or public policy was but one reason or “contributing factor” for their discharge, rather than the “exclusive cause”. 

On the other hand, the Missouri Supreme Court has adopted a narrow definition of what constitutes a violation of public policy.  An employee claiming wrongful discharge must now plead and prove (1) that he reported to his superiors or public authority serious misconduct by the employer that (2) constituted a violation of the law and of well established and clearly mandated public policy. 

If you would like further information or would like to discuss another Business or Commercial legal issue, please contact us.

Employers Beware: You Can be Held Liable for Injuries Caused by Employees Conducting Business from Cell Phones While Driving

Posted on December 13th, 2010

The use of cell phones while driving is quickly becoming as, if not more, dangerous than driving while under the influence. Cell phone technology creates the ability to conduct business anywhere, anytime—employees can send and receive calls, texts, emails, documents and research as if they are sitting in their office.

Before the emergence of this multitasking ability, the doctrine of respondeat superior shielded employers from being vicariously liable for torts committed by employees not acting in the course and scope of employment. Thus, an employer could not be held liable for accidents caused by employees while driving to and from work because they were not engaged in business-related activities. However, there is now an emerging trend across the country that changes this point of view. An employer can now be held liable, under respondeat superior for injuries caused by employees who use their cell phones to conduct business while driving even outside of regular business hours.

Additionally, a direct negligence claim can be asserted against employers since they have a duty to exercise reasonable care whenever their employees are acting within the course and scope of employment. This claim would especially be appropriate where employers encouraged the use of cell phones for work-related purposes or the employer knew or should have known employees were working while driving and failed to stop the conduct.

A claim will succeed under these theories if the injured party can prove the driver was on the cell phone when the accident occurred, the driver was using it for work-related purposes, and the use of the phone caused or contributed to the accident.

Many people do not appreciate the danger cell phone distractions cause. Recent cases have shown that employers choosing productivity over safety leads to deadly results. Courts are responding by awarding large amounts in damages against employers. This should encourage employers to implement and enforce cell phone use policies.

For more information on Business & Commercial Law, please contact us.

Contractors Beware (of where your workforce resides): The New Employment of Illinois Workers on Public Works Act

Posted on July 26th, 2010 by Kevin Green

On June 16, Governor Pat Quinn signed House Bill 6349 (Public Act 96-929, found at 30 ILCS 570) which is aimed at enhancing the Employment of Illinois Workers on Public Works Act, commonly referred to as the Illinois Preference Act, by establishing monetary penalties for violations of the Act, clarifying the law’s coverage, and adding a private right of action to allow individuals to seek remedies regarding violations of the law. These changes are effective immediately.

Under the revised law, contractors on State public works projects are required to employ a workforce that is comprised of at least 90% Illinois laborers during periods of excessive unemployment. If you are a contractor or subcontractor, a few questions may immediately come to mind. What is a public works project? What is a period of excessive unemployment? How is an Illinois laborer defined? Does this apply to me? What happens if I do not comply? Here is a brief analysis of the new law that should help you understand how this new law affects your business.

What is a public works project?

The law defines a public works project as “any fixed work construction or improvement for the State of Illinois or any political subdivision of the State if that fixed work construction or improvement is funded or financed in whole or in part with State funds or funds administered by the State of Illinois.” Thus, a public works project includes any project funded or financed in whole or in part with State funds or funds administered by the State of Illinois. This includes federally funded projects when the federal funds are administered by the State of Illinois. The law places the focus of defining a public works project on how the project is financed, not the recipient of the project. Consequently, an entity building a new road for Illinois without any public funds would not be subject to the 90% requirement.

What is a period of excessive unemployment?

For the law to be applicable, there must be a period of excessive unemployment. Such a period occurs when the level of unemployment in Illinois has exceeded 5% for at least 2 consecutive months. In Illinois, the unemployment rate for the past year has been hovering between 10 and 12% according to the U.S. Bureau of Labor Statistics, meaning we are currently in a period of excessive unemployment.

What is an Illinois laborer?

An Illinois laborer “refers to any person who has resided in Illinois for at least 30 days and intends to become or remain an Illinois resident.” The revised law still allows every contractor on a public works project or improvement to place no more than 3 of his regularly employed non-resident executive and technical experts, even though they do not qualify as Illinois laborers

Does this law apply to me?

The revisions to this law mean that those under contract to construct or build a public work today must know the residence of their employees and ensure that 90% of them reside in Illinois or have resided in Illinois for at least 30 days with the intent to become or remain Illinois residents. More importantly, the revised law appears to apply to both contractors and subcontractors. The new law applies if any “person or entity is charged with the contractual duty of constructing or building any public works.” Moreover, an entity “means any sole proprietor, partnership, firm, corporation, limited liability company, association, or other business enterprise,” but does not include the State or the Federal Government. Additionally, “every public works contract let by any such person shall contain a provision requiring that such labor be used.”

Because the law was just passed, there is no case law analyzing its scope; however, the language of the statute suggests it has a broad sweep, applying to both contractors and subcontractors. Additionally, the complaint form found at the Department of Labor’s website contains check boxes for both contractors and subcontractors, suggesting both are subject to the law. The language of the statute could even be read to suggest that a contractor is on the hook for a subcontractor’s violation of the law, even if the subcontractor is the party that did not employ the proper workforce.

What happens if I do not comply?

The new law makes major changes to the enforcement and penalty provisions. Under the old version, the Attorney General, on behalf of the Department of Labor, could sue for injunctive relief against the awarding of any contract or the continuation of any work under any contract for public works or improvements for violations of the Act.

Now, the law explains that the Department of Labor has the power to conduct investigations, and any investigator with the Department is authorized to visit and inspect, at all reasonable times, any places covered by the Act. Additionally, the inspector can inspect documents related to the determination of whether a violation of the Act exists. Furthermore, the Department may compel, by subpoena, the attendance and testimony of witnesses and the production of books, payrolls, records, papers, and other evidence in any investigation and may administer oaths to witnesses.

The revised law also enhances the Attorney General’s enforcement mechanisms. In addition to injunctive relief, the Attorney General can issue and cause to be served a cease and desist order and “take affirmative or other action as deemed reasonable to eliminate the effect of the violation,” and collect any civil penalties assessed by the Department.

These civil penalties are a new addition. Under the old version, a violation of the Act resulted in a Class C misdemeanor. Each separate failure to use Illinois laborers constituted a separate offense. Now, any person or entity that violates the provisions of the Act is subject to a civil penalty. The Act sets maximum fines for first, second, and third offenses.

1st offense – $1000 max for each violation
2nd offense – $5,000 max for each violation
3rd offense – $15,000 max for each violation

Each violation of the Act for each worker and for each day the violation continues constitutes a separate and distinct violation.

Finally, the revised law adds a private right of action, meaning that in addition to an action brought by the Attorney General, any interested party or person aggrieved by a violation of the Act or any rule adopted under the Act may file suit in Circuit Court, in the county where the offense occurred or where any party to the action resides. These private actions can only be brought:

(1) 30 days or more after a complaint has been filed with the Department of Labor or
(2) any time after the filing of a complaint if the Department of Labor gives notice that it will not proceed with the complaint.

Actions can be brought by one or more person or entity for and on behalf of themselves and other persons or entities similarly situated. A person is entitled to collect attorneys fees and costs and compensatory damages not to exceed $500 for each violation.

Let’s make this a bit more concrete with an example. A general contractor enters a contract to build a new gym at a public high school. The project is partially funded by federal funds administered by the State of Illinois. The unemployment rate at the time is 10.8%. These facts establish that the law is applicable. The contractor must be sure to comply with the law or face civil penalties. If the contractor has a workforce of 1,000, it may hire no more than 100 non-Illinois residents. If the contractor hired 105 non-Illinois residents (5 more non-Illinois residents than the law allowed), it would have 5 separate violations. If it kept these 5 employees working for 5 days, it would have 5 separate violations for each worker, leading to 25 violations (5 workers x 5 days). If this was the first offense for the contractor and the maximum penalty was applied in a case brought by the Attorney General, the contractor would owe $25,000 ($1,000 x 25 violations). Moreover, an Illinois resident that was not hired might bring a private civil action against the contractor seeking compensatory damages at $500 per violation ($12,500) and attorney fees and costs.

It is easy to see how a contractor not knowing the residence of its workforce could quickly become expensive. Because it does not appear that the unemployment rate for the State of Illinois will dip below 5% any time soon, contractors should be aware of the Employment of Illinois Workers on Public Works Act and continue (or start) accounting for the residence of their workforce.

To discuss this or another Business or Commercial legal issue, please contact the author, Kevin Green.

The Future of Creditors and Charging Orders

Posted on June 12th, 2010 by David L. Antognoli

It didn’t take long to surmise that the distinguished panel of Appellate Court justices had no previous exposure to a charging order, an important weapon in a creditor’s collection arsenal. Indeed, at the outset of the oral argument, one judge asked counsel directly and candidly, “What is a charging order anyway?” The question – posed by a seasoned jurist with a long background in commercial law—highlights the arcane nature of charging orders. But charging orders are not likely to remain obscure; the growth of the limited liability company (“LLC”) as a business entity of choice, coupled with current distressed economic conditions, will force creditors to resort to the remedy of a charging order with increasing frequency.

A charging order is a collection remedy with two unique features: (1) it applies only to a limited category of assets (i.e., LLC and partnership interests); and (2) it is the exclusive means to enforce a judgment against a debtor’s interest in an LLC or partnership. The remedy is designed to minimize disruption of an LLC’s business operations when a creditor of an individual member seeks to enforce a judgment against his LLC interest. A charging order gives the creditor the right to receive any distribution from the LLC that the debtor-member would otherwise be entitled to receive. However, the credit does not obtain the debtor-member’s voting rights or any other right to participate in management of the company.

A variety of practical issues detract from the efficacy of a charging order. Unless the LLC authorizes a distribution, the creditor receives nothing. And the creditor has no voice in the LLC’s decision whether to authorize a distribution. Although the court may order a foreclosure sale of interest subject to the charging order, bidders will be few and far between. Even after the creditor acquires the interest at foreclosure, he remains unable to participate in the LLC’s management and, therefore, may be at the mercy of management. Nonetheless, the charging order is the only method available to collect a judgment from a debtor-member’s LLC interest.

The LLC is rapidly becoming the business entity of choice among real estate developers and investors. Illinois first recognized this form of business entity in the mid-1980s. It gradually increased in popularity during the 1990s. Now our real estate clients now overwhelmingly favor the LLC over any other form of business entity. LLCs not only offer asset protection but also tremendous flexibility and avoid “double” income taxation associated with conventional business corporations.

A number of high-flying investors and developers who rode the real estate boom have crashed. Their creditors are struggling to find assets to satisfy tremendous liabilities. Since many of these debtors own membership interests in LLCs, their creditors must resort to the charging order remedy. As the demand for this remedy increases, it will emerge from obscurity. As resort to the charging order expands, a variety of unanswered legal issues will also emerge.

Some of these unanswered issues surfaced in the case described above, which involved multiple creditors competing for the same LLC interests. Creditor A used conventional collection methods and obtained a citation lien against the debtor’s LLC interest but never obtained a charging order. Creditor B obtained a charging order, but only after Creditor C had obtained a pre-judgment attachment. When Creditor C reduced its claim to judgment, it obtained a charging order, but its charging order came later than Creditor B’s. The trial court struggled with the tangled issue of priority for months, doubtless as a result of the striking lack of precedent in Illinois case law. Ultimately, the trial court ruled in favor of Creditor B. The Appellate Court has the case under advisement.

To discuss this or any legal issue related to Commercial Law or Real Estate Law, please contact the author, David Antognoli.

The Pitfalls of Technology and Communication

Posted on May 26th, 2010 by Mark C. Goldenberg

This is going to be risky. Anytime a baby boomer speaks out regarding technology, they are painted as an old curmudgeon who is afraid of progress. That couldn’t be further from the truth. As the Managing Partner of our Firm, I have made every effort to maintain pace with technology both personally and as a Firm in order to help our clients and grow our business. Our Firm is probably one of the few in the area that allows our employees access to their Facebook accounts during business hours. As people adopt new ways of communicating with each other, it’s important to make sure you keep pace and encourage your employees to do so as well.

However, I fear we have lost the ability to differentiate when various forms of communication are better utilized than others. While I think voicemail, email, texting and tweeting are wonderful, sometimes you just can’t replace leaving a personal message, speaking on the phone or having a face-to-face conversation.

As an attorney, most of my time is billed hourly. It’s of the utmost importance that I am flexible in my modes of communication both to satisfy my clients’ preferences and to ensure I am efficient with my time. After all, my time is your money. And that is a relationship I take very seriously. That’s why we’ve made the effort at GHAR to ensure that when you call, a live person who sits in our offices answers the phone. When dialing me directly, my assistant Melissa is happy to patch you through, take a message or send you into voicemail. So if I’m unavailable and you need to explain the nature of your situation to a person rather than just leaving a voicemail, you have that choice.

The reason I’m writing this is because I saw an email communication go horribly wrong, with dire consequences on each side, and it never would have happened if either party had just picked up the phone. As a commercial attorney, I understand more than anyone the benefits of rapid, documented communications. And for that, email has no equal. But let us not forget that sometimes casual, undocumented communication is what is called for and I for one hope that we aren’t forgetting how to do that.

In the future I’ll follow this up with a post detailing how to use email in a way that protects your legal interests.

Please feel free to contact the author, Mark Goldenberg, to discuss this topic or for a free consultation.