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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.

Bertuzzi’s Gruesome Violence on NHL Ice – Against the Law?

Posted on April 30th, 2010 by Ryan J. Mahoney

As a commercial litigator, much of my day is spent in a courtroom addressing complex business issues and disputes.  I love it.  A big reason I enjoy what I do is it allows me to remain in a competitive environment. Much of my competitive edge comes from playing sports, especially hockey.  Growing up in Fargo, North Dakota, hockey is not optional.  It’s a way of life.  But since becoming a lawyer, I see the application of the law in everything in life, even hockey.  It’s forced me to change the way I play and watch the sport.

The best example of the law crossing over into hockey is when Todd Bertuzzi punched Steve Moore from behind in March 2004, and in the process, may have changed the legal landscape of professional hockey forever.  Some of you may recall this incident.  On March 8, 2004, the Colorado Avalanche were set to face the Vancouver Canucks.  There was some bad blood between the teams and it was rumored before the game that the Canucks were looking for revenge.

Bertuzzi, a noted tough guy, attempted to entice Moore into an a fight.  When Moore ignored Bertuzzi’s attempts, Bertuzzi came up from behind Moore and sucker punched him in the side of the face and threw his  head into the ice with the weight of his body behind him.  Moore was unconscious from the blow and suffered a broken neck with fractures in the C3 and C4 vertebrae and a T1 avulsion fracture.  Moore’s professional hockey career was over.

A civil lawsuit followed and is currently pending before the Ontario Superior Court.  When incidents like this occur, lawyers immediately think of the doctrine of assumption of risk.  Basically, this means that a person who voluntarily assumes a risk of harm arising from the negligent or reckless conduct of others cannot recover for injuries resulting from that harm.  This doctrine is always present in contact sports, and for this reason, most injuries in sports are not compensable.

In Illinois, for instance, the Supreme Court expounded on the “contact sports exception” to ordinary negligence.  Karas v. Strevell, 227 Ill.2d 440, 884 N.E.2d 122 (2008).  The Illinois Supreme Court concluded that, “in a full contact sport such as ice hockey or tackle football, a participant breaches a duty of care to a coparticipant only if the participant intentionally injures the coparticipant or engages in conduct ‘totally outside the range of the ordinary activity involved in the sport.’”  Id. at 459.  This is a significant ruling when considering the Court’s rationale.  The Illinois Supreme Court is saying that in situations other than injuries that were intentionally caused, even if the players’ actions are with complete disregard for the safety of the injured player, the conduct must still be totally outside the range of activities for the sport.

The best way to explain this is by applying it to the facts of that particular case.  In Karas, the Court analyzed a situation where a player was checked from behind into the boards when he was skating for the puck.  The Court reasoned conduct such as body checking is within the range of normal activity of a hockey game, even if checking from behind is against the rules.  However, the Court inferred that if the plaintiff had been struck from behind away from the play and action of the game, that may well be a breach of the standard adopted by Illinois.

When applying the above reasoning to the facts in Karas, the Illinois Supreme Court ruled the plaintiff had no case.  Would this same standard make Bertuzzi liable for his actions in Illinois?  I guess the answer is:  It depends.

Fighting is an inherent part of professional hockey.  For hockey, more so than other sports, it is hard to draw the line on conduct outside the range of ordinary activity.  Sure Bertuzzi’s actions were intentional, but even he admits he had no intention of injuring Moore.  In hockey, you check or hit opposing players to gain a strategic advantage on the puck.  You are not meaning to hurt players, but rather you want to take them out of the play.

But when you watch Bertuzzi’s actions you will see Moore had no interest in fighting Bertuzzi and Bertuzzi’s actions had no connection to the play.  Surely, a professional hockey player does not expect another player to sucker punch him from behind and drive his head into the ice.  This was an intentional act that ended someone’s career.  The law should not protect such actions among sports’ participants.

In Illinois, the Courts may likely say that getting punched in the face is part of the sport.  However, the fact that Moore was skating away from Bertuzzi and Bertuzzi’s actions were completely unrelated to the play of the game, may make him liable in Illinois. Surely, this is outside the range of ordinary activity in a hockey game.  Bertuzzi gained no advantage on the play by knocking Moore out. I hope the Illinois courts would agree.

Of course, fighting is only allowed in professional hockey, but rulings such as Karas should be concerning for hockey parents, particularly when considering younger players.

The author, Ryan Mahoney, is available to be contacted to discuss this or other Business or Commercial legal issues.