Wage and Hour

The explosion of lawsuits, often seeking collective action or class certification, claiming violations of the Fair Labor Standards Act and related state laws, likely will continue in 2011. By filing such actions, plaintiffs’ lawyers are able to seek damages and are afforded strategic advantages that are not available in most discrimination claims. Wage and hour lawsuits run the gamut from off-the-clock and break period pay claims to cases alleging employees were not properly paid for travel time or work performed before and after the work day (such as for checking voice and e-mail messages). The greatest spike of activity, however, has been and will likely continue to be collective and class actions in which employees allege that they were improperly denied hundreds of thousands of dollars in overtime pay because their employers improperly misclassified them as exempt under the Act. Certain recent court decisions even implicitly invite plaintiffs’ counsel to file such suits combining federal and state law wage claims (also see Seventh Circuit Permits Combined FLSA and State-Law Wage Class Actions). Job classifications that have fallen under particular scrutiny include IT professionals, financial analysts, insurance agents, retail assistant managers and customer service workers.

Worker Classification

As the New Year gets under way, companies in Illinois and elsewhere are well advised to review their current and proposed independent contractor relationships. Federal and state government agencies have dramatically increased their review, including on-site audits, of whether companies should have classified independent contractors as employees – and are imposing significant penalties and interest when violations are found. The U.S. Immigration and Customs Enforcement (“ICE”) has announced its strategy of “robust use of Form I-9 inspections,” including “prioritizing the criminal prosecution of employers who knowingly hire undocumented workers.” The Internal Revenue Service boasts of its plan to randomly select 2,000 employers for payroll tax audits specifically targeting worker misclassification. State unemployment insurance agencies, including the Illinois Department of Employment Security, have hired droves of new auditors, focusing on what government views as employers’ rampant misclassification of workers. Agencies and courts are setting increasingly more stringent rules for contractor relationships, requiring such things as that the worker perform services for multiple companies, has a federal employer identification number (a FEIN, not a social security number), an independent website and business cards, and that it hires its own employees. This trend is likely to continue as federal and state governments find increasing need for the estimated billions in revenue lost due to employers failing to classify workers as employees. Employers should expect such scrutiny of worker classification to continue and increase in 2011.


Just this past month, the Supreme Court reiterated the lurking danger for employers of retaliation claims. In Thompson v. North American Stainless, the unanimous court held that an employee can claim retaliation even if he did not personally complain about discrimination (also see Friends Can Claim Retaliation Based on Co-Worker’s Discrimination Charge). This is just the latest in a series of cases by the otherwise conservative Court to expand the right of employee-plaintiffs to allege retaliation for taking actions protected by the anti-discrimination laws. Not surprisingly, these decisions have coincided with a skyrocketing of retaliation claims before the EEOC and state agencies. So too there has been a dramatic increase in the number of retaliation cases that have been allowed to proceed to trial even though the underlying discrimination claims have been dismissed. Employers should anticipate this trend to continue in 2011 and examine potential retaliation risks when taking any adverse actions against employees.

Americans with Disabilities Act

One of the little known legislative achievements of the last Bush administration was the passage of the Americans with Disabilities Act Amendments Act. This law greatly expanded the definition of disability under the ADA and made it easier for employees to sue for allegedly discriminatory practices. A “disability” now includes any physical or mental impairment “which in any way limits” any major life activity. The Amendments Act and its accompanying regulations provide a broad list of major life activities and impairments that qualify. Employees are also now considered disabled if an impairment makes achieving a major life activity more “difficult,” even if there is no present disabling affect and regardless of whether most corrective or mitigating measures could have been used. The Amendments Act began increasing the number of disability discrimination claims filed in 2010. Employers should expect such claims to increase further in 2011. This underscores the importance of employers exercising particular care before imposing adverse action on an applicant or employee with even an apparently minor impairment.

National Labor Relations Board

Now that the pro-unionization Employee Free Choice Act is effectively dead, even non-union employers need to keep an eye on the recently pro-union National Labor Relations Board in 2011. Unions are turning their attention to the newly constituted NLRB to push a pro-union agenda. Just recently, the board proposed a regulation that would require most private employers – whether or not they currently have a union – to post formal government notices informing employees in detail of their right to unionize. However, the proposed notice gives little attention to employees’ rights not to join a union. This would be the first time that the Board has issued a formal rule in years. The Board is also considering reversing several Bush-era decisions that would increase union access to company property and computer systems.

Patient Protection and Affordable Care Act

While lawyers and politicians fight over the individual mandate scheduled to take effect in 2014, employers should remain focused on other aspects of the new healthcare laws that take effect in 2011. These include new rules for flexible spending accounts, health reimbursement accounts and health saving accounts, as well as a new rule that most over-the-counter drugs no longer qualify and the tax on non-qualifying distributions goes from 20% to 40%. The Department of Health and Human Services is also required to set an annual limit on essential health benefits for insurance policies – with all such limits to be phased out by 2014. Further, unless a further waiver is granted, employers will now be required to disclose the value of each employee’s health benefits on year-end W-2’s. While some federal trial courts recently have found certain aspects of the Patient Protection and Affordable Care Act unconstitutional, the ultimate legality of the Act may not be resolved during 2011. Accordingly, employers should proceed cautiously this year in implementing—or deciding not to implement—the provisions of the new healthcare law taking effect in 2011 and thereafter.