Illinois has some of the most employee-friendly laws in the country. Even well-intentioned employers may unwittingly run afoul of our ever-evolving laws, suffering severe consequences. To help others avoid the same fate, we’ve put together this list of top 6 reasons employers get sued.
Mistake 1: Classifying Workers as “Independent Contractors” Because They Can’t Afford to Hire Them as Employees
In certain industries, like entertainment, it is common for workers to be misclassified as independent contractors so that employers can save money. This practice is ripe for litigation, with companies like Uber, Federal Express and Lyft being sued for misclassifying workers.
Misclassifying workers as contractors allows an employer to avoid several key tax and other payments, like minimum wage, overtime compensation, unemployment insurance taxes, and Social Security and Medicare contributions (FICA taxes). Contractors are also not entitled to share in company benefit programs, like health insurance, 401k, paid vacation, family leave, and workers compensation.
Simply because an employee wants to be classified as a contractor or an employer issues him a 1099 does not make him an independent contractor. While contractor status does not have a fixed definition, the primary determining factor is degree of control.
An employer who misclassifies employees as contractors risks significant penalties and back wages, such as back pay for overtime, penalties for failure to pay overtime and provide meal and rest breaks.
Mistake 2: Using Non-Compete Agreements for Employees of All Levels to Protect Confidential Information
More employers, across industries, have begun to require employees to sign Non-Compete Agreements in an effort to keep them from working for competitors and sharing trade secrets. However, many companies are using these agreements to prevent even low-level employees like fast food workers from working for their competitors.
In Illinois, Non-Compete Agreements are strictly prohibited for certain low level/wage employees. There are other ways companies can protect trade secrets besides using unenforceable Non-Compete Agreements.
Mistake 3: Refusing to Give Employees Their Final Check Unless Certain Conditions are Met
It is not uncommon for an employee who is terminated or quits to fail to return company property, such as laptops, cell phones or tools. While holding the final paycheck until such items are returned may seem reasonable, such actions carry huge penalties if the paycheck deadline is not met.
If an employee is terminated or quits, the final paycheck must be ready on the last day of work or no later than the next regularly scheduled payroll cycle. If an employer terminates an employee on the spot, the final paycheck is due, immediately that day, and must include payment for all hours worked through the last day, including any overtime, and any accrued and unused vacation.
Mistake 4: Classifying All Employees as Exempt, Whether They Are or Not
Improperly classifying workers as exempt can quickly lead to significant wage and hour penalties, as many companies in the restaurant industry have discovered.
Under federal and state law, there are two types of employees: exempt (not paid overtime, not entitled to meal and rest breaks) and non-exempt (entitled to overtime pay, meal and rest breaks).
An exempt employee is usually paid a specific annual salary regardless of the number of hours worked in a week, and is classified as a manager or other high-level executive, professional, or administrative employee. Some artists or outside sales staff may even be exempt.
Non-exempt employees include the rest of the employee spectrum, who receive hourly pay (even if it is annualized) for all hours worked in a pay period, including overtime. An employee may be paid an annual salary and have a fancy job title, but still be non-exempt.
Some employers will sometimes classify an employee as management, when the employee does not in fact manage anyone, all in an effort to avoid paying overtime. If an employee is misclassified as exempt, it is likely that his employer is not tracking the actual hours worked, which is a wage and hour violation. The wages and penalties an employer will be responsible for include back pay for overtime, penalties for failure to pay overtime and provide meal and rest breaks, just to name a few.
Mistake 5: Implementing a “Use it or Lose it” Vacation Policy
An employee’s accrued vacation is a form of wages and cannot be taken away. When an employee is terminated or quits, any and all unused but accrued vacation must be paid out at the current rate of salary.
Employers are allowed, however, to place a reasonable cap on the amount of vacation time that may be accrued. While “reasonable” is open to interpretation, it is not unusual for an employer to cap it at one and half to two times the annual accrual.
For example, if an employer provides for two weeks’ accrued vacation per year and two times the annual accrual, then the accrual would be capped at four weeks. If an employee has four weeks of accrued but unused vacation time, the accrual would cease until such time as the employee uses some vacation time and falls below the cap.
Mistake 6: Terminating Employees Who Take a Leave of Absence, No Matter the Reason
An employee’s job is legally protected when that employee takes a leave for any number of reasons, including pregnancy, disability, worker’s compensation, family and medical leave, military leave, jury duty, etc. The law also protects employees from retaliation for taking a leave. If an employee is terminated while he is on a protected leave or soon after he returns to work, the employer will have the burden of proving that the termination was for a legitimate, non-discriminatory business reason, unrelated to the protected leave.
Please know that this list is not exhaustive and there are many other areas that can lead to employment litigation. Year end is the perfect time to evaluate the legality and viability of your current employment practices. To determine if any of these practices affect your business, please do not hesitate to contact us.
With over 30 years’ experience in advising employers and employees on workplace issues, such as our previous post on holiday party precautions, let Boznos Law work with you to ensure you are ready to meet the challenges posed by the changes to the overtime laws. Call Bill Boznos today at (630) 375-1958 or contact us at through our website.
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