Category Archives: Employee Benefits

Gig Workers: An Evolving Trend or a Class Action Waiting to Happen?

Contributed by Rebecca Dobbs Bush, June 4, 2019

The workplace is changing: Millennials, Generation Z-ers, and Baby Boomers looking to supplement their retirement income. These individuals are more interested in autonomy and avoiding bad managers, office politics and lengthy, non-productive staff meetings. Plus, the tax-savvy individual knows the economic advantage of having access to traditional business deductions through a Schedule C, rather than being limited to the standard deduction or itemizing as a W-2 employee would be.

Business concept. Isolated on white

More and more businesses also seem to be interested in the advantages of a gig workforce, also called freelancers, subcontractors, contingent workforce, and more. After all, it allows a business to gain access to skills and talent without having to commit to hiring an individual as a full-time employee. According to Deloitte’s 2018 Global Human Capital Trends study, more than 40% of workers in the U.S. are employed in “alternative work arrangements.” These arrangements include contingent, part-time, or gig work.

So, is it a win-win for all involved? The problem is that current employment laws are simply not evolving at the pace required to keep up with this modern-day independent contractor. With this, a minefield is created for the unwary business. 

Under the Obama administration, the DOL had issued broad guidance suggesting that gig workers were likely to be considered “employees.” That guidance was rescinded with the change in administration. Then, on April 29, 2019, the DOL issued an atypical, 10-page opinion letter on the subject. The opinion letter lays out a detailed analysis of all the relevant factors for independent contractor status and then comes to the conclusion that the gig workers at issue are not employees.

For now, if your business is participating in the trend of the gig worker, you want to make sure the relevant factors are met. Those factors and the analysis change depending on which law the issue is being examined under. Some of the more common factors are: control, permanency of the relationship, integrality to business operations, ability to sustain a profit or loss, accountability for operating expenses, etc. In other words, is the individual truly operating as a stand-alone business? 

If you choose to engage gig workers, make sure to avoid these common mistakes:

  • Do not treat the individuals as employees. Do not even use the word “hire.” Instead, you are “engaging” their services, or “contracting” with them. And, commit to the arrangement in writing.
  • Do not be tempted to offer them benefits. Putting them in your health plan or letting them participate in a 401(k) will jeopardize any argument that they are not otherwise an employee. If it walks like a duck, quacks like a duck….
  • Do not make them sign a non-compete agreement. A critical factor in most cases is whether the individual is free to take on work from others or whether they are completely dependent on your business for work. If the individual is subject to a non-compete agreement and effectively being prevented from working for others, you will not win on this factor.

Because of the amount of exposure involved with a misclassification lawsuit, it is worthwhile to have competent employment counsel review your situation and any independent contractor agreement or contracts that you are using to help you make sure it’s being handled in the best possible manner to strengthen the individual’s status as an independent contractor.

Save the Date! SmithAmundsen Complimentary Webinar on August 3rd — Employee Compensation and Benefits: Common Mistakes and Missed Opportunities

Employee pay and benefits plans can be one of the most significant expenses for an employer. Avoiding costly compliance mistakes and leveraging plans to effectively reward key employees is critical in today’s environment. Join Kelly Haab-Tallitsch and William Scogland on Thursday, August 3 at 12:00 PM CT for the latest installment of our Labor & Employment Quarterly Series as they discuss common mistakes and missed opportunities in designing and administering compensation and benefit programs. Specific topics include:

  • Additional qualified plan opportunities for highly compensated employees
  • Using equity or phantom equity to retain key personnel
  • Common 401(k) mistakes
  • Traps to avoid in a merger or acquisition
  • And more!

Register for the webinar here!

Cash-in-Lieu of Benefits May be Subject to Overtime

Contributed by Kelly Haab-Tallitsch, August 25, 2016

Compensation to employees who opt out of health insurance or other benefits, known as a “cash-in-lieu” program, can be an attractive option for both employers looking to manage skyrocketing health care costs and employees looking for a little extra cash. But a recent ruling by the Ninth Circuit Court of Appeals highlights a significant risk to employers of such programs.

In Flores v. City of San Gabriel, 2016 WL 3090782 (June 2, 2016), the first case of its kind, the court held that under the Fair Labor Standards Act (FLSA) cash payments made to an employee in lieu of benefits must be included in the employee’s regular rate of pay for the purpose of calculating overtime.

Health Insurance and MoneyThe employer in Flores, the City of San Gabriel, sponsored a flexible benefit plan that provided employees with a certain monetary allowance to purchase health insurance and other benefits. Employees who opted out of some or all of the benefits received a cash payment for the amount of their remaining allowance. The employer did not include these cash-in-lieu of benefits payments in the employees’ regular rates of pay when it calculated overtime. A group of employees sued, alleging that the exclusion of the cash-in-lieu payments from overtime calculations was a violation of the Fair Labor Standards Act and they had been underpaid for the overtime hours they worked.

The court in Flores agreed, ruling that the employer’s cash-in-lieu-of benefits payments were “compensation for services” (similar to other types of bonuses) that must be included in the regular rate of pay for overtime purposes. The court also held that the employer’s actions were a willful violation because it did not do enough to determine if it was complying with the law. As a result the employer was liable for double the amount of unpaid overtime compensation for the three year period before the complaint was filed.

Cash-in-lieu of benefits programs were already dealt a blow in late 2015 when Treasury Department guidance indicated that most cash-in-lieu payments will be included in the determination of a health plan’s “affordability” for purposes of the Affordable Care Act’s (ACA) employer mandate.

What Does This Mean for Employers?

The City of San Gabriel has asked the Ninth Circuit to reconsider its decision, but until and unless the decision is actually overturned, employers operating in the Ninth Circuit should review their cash-in-lieu of benefit programs and payroll practices to ensure compliance with the FLSA.

The court’s ruling in Flores is a groundbreaking decision and it’s too early to tell whether courts outside of the Ninth Circuit will rule similarly. Employers outside of the Ninth Circuit who offer (or are considering) cash payments to employees who opt out of health benefits should consult with counsel to assess the impact of legal developments in this area.

Illinois Mandates Providing Leave to Grieving Parents

Contributed by Nick Kourvetaris, August 5, 2016

14465190 - business man leaving the seatOn Friday, July 29, 2016, Governor Rauner approved Public Act 99-0703, the Child Bereavement Leave Act (likely to be codified at 820 ILCS 154). Without a lot of fanfare or notice, this law became effective immediately upon signature. This law requires employers with 50 or more employees (those subject to the Family and Medical Leave Act) to provide two weeks (10 business days) of unpaid bereavement leave to employees so that they can:

(1) attend the funeral or alternative to a funeral of a child;

(2) make arrangements necessitated by the death of the child; or

(3) grieve the death of the child.

Under the Act, “child” includes a biological, adopted or foster child, a stepchild, a legal ward or a child of a person standing in loco parentis.

Of note, the law provides that:

  • Bereavement leave must be completed within 60 days after the date on which the employee receives notice of the death of the child.
  • An employee is required to provide the employer with at least 48 hours’ advance notice of the employee’s intention to take bereavement leave, unless providing such notice is not reasonable and practicable.
  • An employer has the right to request “reasonable” documentation to substantiate the request (e.g., a death certificate).
  • In the event of the death of more than one child in a 12-month period, an employee is entitled to a total of 6 weeks of bereavement leave during the 12- month period.

Fortunately, there is a short window for an employee to file a claim under this Act: 60 days to file a complaint with the Department of Labor or to file a civil action for any violation.  Similarly, an employee may also file a civil action against the employer to enforce the Act. Of course, public outcry to an employer failing to give leave to a grieving parent would likely far outweigh any fine issued by the Department of Labor: (I) up to $500 for a first offense; and (II) up to $1,000 for a second or subsequent offense.

The key takeaway here is that while there is no mandatory notice or posting requirement, employers must nevertheless be aware of this law’s existence should a request be made for such leave and also to prevent unnecessary lawsuits coupled with negative publicity of failing to abide by the law’s mandates. To this end, employers may want to consider drafting a short policy pertaining to this new mandated leave and incorporating it into their Employee Handbooks to alert employees and their supervisors of their responsibilities under company policy and the law.

Additional insights on this new law:

  1. Not only must the Employer be a covered “Employer” under the FMLA, but the Employee must be an “Eligible Employee” under the FMLA to take advantage of this new leave entitlement.
  2. Employee must provide 48 hours advance notice (unless not practicable/reasonable — and it will hardly ever be, realistically, practicable/reasonable).
  3. Employer may require documentation. We advise that the Employer first search online for information relating to the death. If the Employer cannot find anything, then documentation can be requested.
  4. Vacation or paid time off benefits during this unpaid leave of absence shall not be forced on the Employee —  rather, like IL’s VESSA law, electing to use PTO benefits is something the Employee ultimately must decide. NOTE: We usually explain in policies that such PTO will run concurrently with the leave unless the Employee contacts HR or some other contact internally to say otherwise.
  5. We believe the leave can and likely should run concurrently with the FMLA when possible — it’s just good practice. NOTE:  Like IL’s VESSA law, leave taken is NOT in addition to FMLA leave (so if someone uses 12 weeks of FMLA leave for the birth of a child and if the child dies, the Employee is no longer eligible to use the 2 weeks of leave under this new law. Of course, we know of no employer who would take adverse action against an employee who loses a child and needs time away for a week or two. We also know that an employee impacted here would likely have a solid case under the ADA (the emotional pain, anxiety and/or depression that follows in these cases is overwhelming). Also, if an employee uses 2 weeks of leave under this law and the employer did NOT administer FMLA leave concurrently for those 2 weeks, and that employee later adopts a child in the same 12 month time period, then the 12 weeks of leave under the FMLA would still be available.
  6. As with IL’s VESSA law, the employer should define the 12 month period.We advise this period to be defined similar to how the employer defines it under VESSA and the FMLA — a 12 month rolling look back period of time.
  7. There is no posting requirement (yet). We are sure we’ll see one shortly from the IL Department of Labor.
  8. Finally, the IL Department of Labor will be issuing guidance on this through regulations.

The Importance of Investigating Workplace Accidents

Contributed by Alexis Maimonis

The recent Appellate Court decision in Oliver v. Illinois Workers’ Compensation Commission, et al., 2015 IL App. (1st) 143836 WC, serves as a reminder of the dangers employers face when they do not properly investigate alleged work accidents.

Most of us in the comp world know that an injured worker has 45 days to provide an employer notice of a work accident. However, in the Oliver case, the employer asserted that the accident had to be reported the day it occurred. As a result, no investigation was performed and benefits were quickly denied.

work accidentNot surprisingly, the Appellate Court hit the employer with penalties for unreasonable and vexatious denial of benefits. In support of its decision, it scrutinized the testimony of the employer’s only witness at trial: the injured workers’ supervisor. The supervisor’s testimony included an acknowledgment that there was no factual or medical basis to deny the claim, and the only reason the claim was denied was because it was reported six days after it occurred. The supervisor further testified that he did not know an injured worker was allowed to fill out an accident report after the date the accident allegedly occurred.

The court held that the burden of proving a reasonable basis for denial of benefits falls solely on the employer. In this case, the Appellate court found it clear that the employer denied benefits without any investigation, and only because the injured worker did not report the accident on the day it occurred.

In the employer’s defense, there were facts in this case that could arguably support the position that the employer had a reasonable basis for denial of benefits:

  • The injured worker only worked for the employer for three days
  • The injured worker was laid off on the third day (July 19, 2011), which is the day he alleged the injury
  • The supervisor testified that he personally spoke with the injured worker on July 19, 2011, the date of the accident, and he never mentioned an injury
  • The supervisor testified that he did not observe the injured worker to be in any pain on July 19, 2011, the date of the accident

However, the Court found that this was not enough evidence for the employer to reasonably deny benefits.

Take away/considerations for employers everywhere:

1. If an employee is reporting an accident, fill out an accident report and document everything.

  • Where exactly was the injured employee working when the accident occurred?
  • Who was working with or around the injured employee?
  • What was the injured worker doing?
  • When and what time did the incident occur?

2. As an employer, once you have that information, investigate it.

  • Find out if the injured workers’ allegations are substantiated by the facts
  • Interview witnesses
  • Pull work logs if available
  • Determine whether there is surveillance footage

3. In this case, had there been testimony that the employer performed some type of investigation in conjunction with its denial, this case would have likely been decided differently.

4. Perform an investigation even if an accident is reported AFTER 45 days have passed. You, as the employer, may not believe notice was properly provided, but that does not mean the Commission will agree.

The notice requirement is very liberally interpreted and is not always a “get out of jail free card.”

5. Even if you are disputing that an accident occurred, consider obtaining an independent medical examination in an attempt to deny benefits.  As the Appellate court noted, there was no factual OR medical basis to deny benefits.

6. Employers should:

  • have accident investigation and reporting protocol well established within the company;
  • train supervisors regarding accident investigation and reporting protocols;
  • apply those  protocols consistently to all employees; and
  • thoroughly document the investigation.

What is the OWBPA Again and Why Should We Care? Here Is A Quick Refresher

Contributed by Suzanne Newcomb

The Older Workers Benefits Protection Act (OWBPA) amended the Age Discrimination in Employment Act (ADEA) back in 1990 to specifically permit bona fide seniority systems and voluntary early retirement incentive plans.  Along with these allowances, the OWBPA mandated strict requirements for ADEA waivers and disclosures for group termination.  The provisions are very technical and have tripped up many unsuspecting employers.

To be effective a waiver must be “knowing and voluntary.”  That sounds straightforward, but the statute specifically spells out what “knowing and voluntary” means in this context.  If the situation involves an isolated termination – a single employee terminated for cause or let go as a result of a restructuring that impacts his position alone – an ADEA waiver is not “knowing and voluntary unless at a minimum,” the waiver:

  • is in writing and written in a manner the individual can understand;
  • specifically refers to ADEA rights or claims;
  • does not waive rights or claims arising after the waiver is executed;
  • provides consideration over and above anything to which the individual is entitled already;
  • advises the individual in writing to consult with an attorney prior to executing the agreement (advising the individual has the right to consult with an attorney may not be sufficient);
  • allows the individual at least 21 days (45 in the case of group terminations addressed below) to consider the agreement before signing; and
  • allows the individual at least 7 days to revoke following execution of the agreement.

The statute tacks on additional requirements for waivers “requested in connection with an exit incentive or other employment termination program offered to a group or class of employees.”  Legislators complicated matters by failing to define the key terms in this phrase.  Relevant regulations and considerable case law interpret them broadly to encompass any situation in which two or more employees are terminated at or near the same time under similar circumstances or are offered incentives which stem from a standardized plan.

Whenever a release is offered in conjunction with a reduction in force involving more than one employee or other group terminations, the employer must follow each of the requirements set forth above and must also disclose:

  • the “decisional unit” or class, unit, or group of individuals covered by such program – in other words, the pool of employees from which the employer chose those who would be involuntarily terminated or offered an incentive to leave;
  • the eligibility factors used to determine who was selected for termination or offered an exit incentive;
  • any applicable time limits; and
  • job titles and ages of all eligible or selected individuals and all individuals in the same job unit who are not eligible or selected.

If you are implementing a RIF or thinking about offering severance to a departing employee in hope of avoiding potential litigation, you should consult qualified legal counsel first.  It is important to make sure the ADEA waiver contained in your release is enforceable.

Update: New Rules Clarify the Minimum Wages for Tipped Employees, Overtime and Complaints Under the Chicago Minimum Wage Ordinance Going Into Effect July 1, 2015

Contributed by Sara Zorich and Michael Wong

The City of Chicago just issued new rules clarifying the Chicago Minimum Wage Ordinance with respect to the minimum wage for tipped employees, overtime calculations for tipped and non-tipped employees, and complaints against employers.

The Minimum Wage and Tip Credit for Tipped Employees
The Rules clarify that the minimum wage for tipped employees is $10.00 and that Section 1-24-030(a)(1) sets forth the minimum wage minus tip credit that tipped employees may be paid.Wage

As of July 1, 2015, the minimum wage minus tip credit is $5.45, or the state minimum wage of $8.25, minus the state tip credit of $3.30 (40% of $8.25), plus $.50 provided by the Ordinance. Thus, under the Ordinance’s current minimum wage of $10.00, the current tip credit for employers under the Ordinance is $4.55 (i.e. $10.00 minus $5.45).

Chicago’s minimum wage for tipped employees is calculated based on the State and/or Federal minimum wage and tip credits. So, if either the State or Federal minimum wage is increased or the tip credits are decreased, it will impact the Chicago minimum wage for tipped employees. For example, if Illinois increases the state minimum wage to $9.00 and decreased the state tip credit to 30%, the new Chicago minimum wage for tipped employees would be $6.80, or the state minimum wage of $9.00, minus the state tip credit of $2.70 (30% of $9.00), plus the $.50 provided by the Ordinance.

Overtime
Unless an employee is exempt from overtime under the Illinois Minimum Wage Law (IMWL), employers subject to the Chicago Ordinance must pay employees overtime of 1.5 times the City’s minimum wage. This means that on July 1st, the Chicago’s minimum overtime wage will be $15.00 per hour (i.e. $10.00 times 1.5).

Under the Ordinance, tipped employees must be paid an overtime hourly wage of 1.5 times the City’s minimum wage, minus the City’s tip credit. Under Chicago’s current minimum wage of $10.00, the minimum overtime wage for tipped employees will be $10.45 per hour (i.e. $10.00 times 1.5, minus Chicago’s tip credit of $4.55 [$10.00 minus $5.45]).

Again, it is important to remember that the Chicago minimum wage for tipped employees is tied to the State and/or Federal minimum wage and tip credit. Thus, if Illinois increased the minimum wage to $9.00 and decreased the tip credit to 30%, the new Chicago minimum wage for tipped employees would be $6.80 and the overtime hourly wage for tipped employees change to $11.80 per hour (i.e. $10.00 times 1.5, minus the City’s tip credit of $3.20 [$10.00 minus $6.80]).

More importantly, much like state law, under the Ordinance employers must be able to show that the employee’s wages plus tips equal Chicago’s minimum wage (which is currently $10.00 and $15.00 for overtime), or else the employer is required to pay the shortfall so that the employee’s wages plus tips equals the minimum wage.

For example, if a tipped employee works 50 hours in a particular week and makes $200 in tips, the employer would be required to pay the employee an additional $27.50 on the employee’s paycheck:

(40 hours of straight-time at $5.45 = $218.00) + (10 hours of overtime at $10.45 = $104.50) + (Tips Received = $200.00) = (Sub-Total = $522.50)

  • Under the Ordinance, the minimum wage owed for 50 hours would equal 40 hours times the minimum straight-time wage of $10 ($400) and 10 hours times the minimum overtime wage of $15 ($150), for a total of $550.
  • Under this scenario, the employer would be required to pay the employee an additional $27.50 on the tipped employee’s paycheck, since the amount received in wages and tips by the employee of $522.50 is $27.50 less than the $550 required to be paid.

Record Keeping for Tipped Employees
The Rules specifically state that employers must keep records of wages and tips for all tipped employees for at least three (3) years and that the records must include the following:

  1. An identifying symbol on payroll records indicating if an employee’s wages include tips;
  2. A report received from and signed by each tipped employee that state the tips received during each work day;
  3. A report that shows the amount by which the wage of each tipped employee was increased by his or her tips, as calculated by the employer;
  4. A record of the hours worked each work day in which each tipped employee received tips and the total daily or weekly straight-time and overtime earnings for such hours; and
  5. A record of the hours worked each work day in which each tipped employee receives no tips, and the total daily or weekly straight-time and overtime payment made by the employer.

Complaints and Investigations
Employers should note that there is no set time period in the Ordinance that employees must file a complaint with the City’s Department of Business Affairs and Consumer Protection (BACP) or a civil action. The Rules do provide that the BACP may choose not to accept a complaint filed more than one (1) year after the disputed wages were due. However, the ability or inability of an employee to file a complaint with the BACP, does not limit their ability to file a civil action.

It is important for employers to keep good records and be aware of the potential for complaints, as once a complaint is filed with the BACP and a copy of the complaint is sent to the employer, you will have 14 days to respond. Additionally, the BACP may request specific documents or records from employers, including copies of any checks or payments made to the employee. Indeed, under the Rules failing to respond to a complaint or provide requested documents could result in the BACP issuing administrative notices of violations seeking fines of $500-$1,000, license suspension or revocation and/or restitution for employees and/or former employees.

Copies of the new rules and FAQs issued by the City may be found here:

As previously noted, Chicago’s Ordinance goes into effect July 1st. While the rules and guidance from the City of Chicago continue to develop, employers will be required to comply with the Ordinance. As such, it is important to contact your legal counsel with any questions to make sure you are in compliance due to the penalties allowed under the Ordinance.