On March 11, 2021, President Biden signed into law the American Rescue Plan Act (ARP). Among its many provisions, the ARP addresses paid sick and family leave under the Families First Coronavirus Response Act (FFCRA), and payroll tax credits for providing such paid leave.

On December 31, 2020, FFCRA’s paid sick and family leave mandate for covered employers subject to FFCRA’s provisions (less than 500 employees) expired. However, after former President Trump signed the Consolidated Appropriations Act (CAA) into law on December 27, 2020, covered employers have the option to voluntarily offer paid sick and/or paid family leave to eligible employees, and may continue to receive a payroll tax credit for such wages beginning January 1, 2021 through March 31, 2021.

The ARP does not restore FFCRA’s paid sick leave and/or paid family leave mandate; rather, whether to offer such paid leave continues to be voluntary and at the sole discretion of a covered employer, just as it is under the CAA. The ARP does, however, extend the payroll tax credit to covered employers who voluntarily choose to provide paid sick and/or paid family leave under FFCRA to qualified employees from March 31, 2021, to September 30, 2021.

Notably, the ARP also expands the reasons in which a covered employer may voluntarily provide paid sick and/or paid family leave to include leave provided to an employee who is (1) getting the COVID-19 immunization shot; (2) recovering from an injury, disability, illness or condition related to getting the COVID-19 immunization shot; or (3) seeking or awaiting the results of a COVID-19 test or diagnosis because (a) the employee has been exposed to COVID; or (b) the employer requested the test or diagnosis. If offered as paid sick leave, employees are to be paid at their regular rate of pay for the duration of the two-week eligibility period. If offered as paid family leave, employees are to be paid at 2/3 their regular rate of pay for the duration of the 12-week eligibility period.

In addition, the ARP expands the reasons that a covered employer can voluntarily offer paid family leave under the Emergency Family Medical Leave Act (EFMLA) to include all the qualifying reasons under the Emergency Paid Sick Leave Act and still receive the payroll tax credit. The ARP also permits employers to pay employees for the first two weeks of paid family leave under the EFMLA (paid at 2/3 the employee’s regular rate of pay) and collect payroll tax credits for that two-week period, whereas under FFCRA, the first two weeks of paid family leave under the EFMLA were unpaid. This raises the maximum payroll tax credit limit for paid family leave under the EFMLA from $10,000 to $12,000 per employee, still capped at $200 per day, and paid at 2/3 the employee’s regular rate of pay for the 12-week period.

Further, employers may now voluntarily provide an additional 10 days of paid sick leave to employees, even if employees previously exhausted their allotted 10 days of paid sick leave prior to April 1, 2021, and the employer previously took tax credit for that paid leave.

Finally, the ARP mandates non-discrimination when a covered employer voluntarily chooses to provide paid sick and/or paid family leave to qualified employees. The ARP disqualifies an otherwise qualified employer from collecting the payroll tax credits on any paid sick and/or paid family leave wages paid in any calendar quarter if the employer discriminates in favor of (a) highly compensated employees (within the meaning of Section 414(q) of the Internal Revenue Code); (b) full-time employees; or (c) employees on the basis of employment tenure.

The ARP also makes temporary but significant changes to Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) coverage. A short (and high-level) summary of these changes is below:

  • The federal government will pay COBRA premiums for employees (and their covered family members) who from April 1, 2021, through September 30, 2021, are/remain eligible for COBRA coverage as a result of losing their group health insurance due to an involuntary termination (other than on account of gross misconduct) or reduction in hours in the prior 18 months (on or after November 1, 2019). This subsidy does not apply to those who voluntarily quit their employment.
  • Within 60 days of April 1, 2021, a notice of a special enrollment period must be sent to all eligible participants who (1) have not yet elected COBRA coverage by April 1, 2021; or (2) elected COBRA coverage, but then discontinued it. Eligible participants will have until 60 days after receipt of the notice to elect COBRA.
  • The Department of Labor is supposed to issue model notices within 30 days (by May 10).
  • Any election for these participants would be prospective only (i.e. April 1, 2021, through September 30, 2021), and not retroactive to the date coverage was lost.
  • The ARP subsidy does not extend COBRA coverage. Coverage will still expire 18 months after coverage was lost, even if that is in the middle of the subsidy period.
  • So, if an employee lost group health benefits on March 1, 2020, due to an involuntary separation, the employee’s 18 months of eligibility would expire on July 31, 2021, and COBRA premiums would be subsidized for five months, namely April 1, 2021, through July 31, 2021. And, if an employee loses group health benefits on July 1, 2021, subsidized COBRA coverage will be available only for the months of July, August and September 2021, even though the employee’s COBRA eligibility period extends 18 months to August 31, 2022.
  • Any employee or family member who is or becomes eligible for other group health coverage or Medicare is not eligible for the subsidy. The individual has the obligation to notify the employer if he or she is not eligible or loses eligibility.
  • There is no income cap for the subsidy.

Our Employment & Labor Practice Group attorneys are continuously monitoring developments and are available to answer questions related to COVID-19’s many effects on employers.

Several bills are pending in the Illinois House of Representatives and Senate that, if signed into law, could radically change the landscape of the use of covenants not to compete and covenants not to solicit in Illinois. Employers should be aware of this pending legislation because, if passed, it could have serious ramifications for businesses in Illinois. 

House Bill 3066 proposes to amend the Illinois Freedom to Work Act to restrict the use of covenants not to compete and covenants not to solicit.  While this bill seeks merely to only allow for the use of restrictive covenants with employees earning over a certain threshold annual amount, one House Bill and one Senate Bill seek to prohibit the use of covenants not to compete in their entirety.

Here is a summary of some of the proposed amendments involving covenants not to compete and covenants not to solicit in House Bill 3066:

Restrictions apply based on employee compensation: The use of covenants not to compete and covenants not to solicit can only be used with employees earning in excess of a certain annual dollar amount.

  • A covenant not to compete will not be valid unless the employee’s actual or expected annual compensation exceeds $75,000 per year. The $75,000 threshold will increase to $80,000 on January 1, 2027; to $85,000 on January 1, 2032; and to $90,000 on January 1, 2037.
  • A covenant not to solicit will not be valid unless the employee’s actual or expected annual compensation exceeds $45,000 per year. The $45,000 threshold will increase to $47,500 on January 1, 2027; to $50,000 on January 1, 2032; and to $52,500 on January 1, 2037.
  • A covenant not to compete will not be valid if an employee is terminated or furloughed as a result of “business circumstances or governmental orders” unless the employee is paid his or her base salary for the term of the restricted period, minus any compensation earned from subsequent employment. A separate House Bill (HB 4007) would require that the employee be paid “full compensation” during this period, including all benefits the employee would have received had employment not been terminated, until the time for the covenant not to compete has expired or the employee gains full-time employment at a commensurate rate of pay and benefits.

Codification of existing Illinois case law: The bills propose to codify existing case law in Illinois regarding restrictive covenants. Specifically, the bills provide that a covenant not to compete or a covenant not to solicit is not valid unless:

  • The employee receives adequate consideration, which is defined as (1) the employee working for the employer for at least two years after the employee agreed to the restrictions or (2) the employer otherwise provided consideration adequate to support the agreement, which could consist of the period of employment plus additional consideration or merely other consideration adequate by itself;
  • The covenant is ancillary to a valid employment relationship;
  • The covenant is no greater than is required for the protection of a legitimate business interest of the employer;
  • The covenant does not impose undue hardship on the employee; and
  • The covenant is not injurious to the public.

Employee to receive prior notice of restrictions. A covenant not to complete and a covenant not to solicit is not valid unless the employee is provided with a copy of the covenant(s) at least 14 days before the commencement of employment and the employer advises the employee in writing to consult with an attorney before agreeing to the covenant(s).

Employee entitlement to attorneys’ fees: In the event of litigation, if an employee prevails on a claim brought by the employer to enforce a restrictive covenant, the employee shall be eligible to recover from the employer all costs and reasonable attorneys’ fees.

Doing away with covenants not to compete: Unlike the bill outlined above, House Bill 3449 and Senate Bill 1838 would prospectively prohibit the use of covenants not to compete in agreements between employers and employees. This is different from House Bill 3066, which seeks to limit the use of covenants not to compete with employees who earn below a certain threshold amount. The Senate Bill does not currently address covenants not to solicit.

Covenants not to compete and covenants not to solicit play an important role in protecting businesses and allowing for fair competition. While no one wants to prevent someone from earning a living and seeking other employment, there are circumstances in which an employee should not be able to do that if doing so would unfairly injure the previous employer. That is where carefully drafted restrictive covenants are necessary and appropriate. The pending bills seek to draw lines and put unfair one-size-fits-all constraints on employers.

Several times a year, business owners tell me that restrictive covenants (such as non-competition, non-solicitation or non-disclosure provisions) are not enforceable in Illinois. That is not true. The state and federal courts in Illinois enforce restrictive covenants on a routine basis. However, to be enforced, the restrictive covenants need to have been properly drafted and kept up to date with changes in the law. Put another way, in the majority of cases where the courts do not enforce the restrictive covenants, the restrictive covenants could have been drafted in such a way that they likely would have been upheld.

Part of the challenge a business faces in drafting restrictive covenants is trying not to over-reach. A business has a much better chance of having a narrowly tailored restrictive covenant enforced than one that is overbroad. Furthermore, while an overbroad restrictive covenant may have some deterrent effect, if it is invalidated by a court, there could be severe consequences for the business.

For example, non-competition provisions contain geographic restrictions. As opposed to restricting the employee from competing anywhere in Illinois or in the United States (unless such a restriction is appropriate), the employer should spend some time to determine the proper area in which competition should be prohibited by that particular employee. Some of the factors a business should consider in making this determination include (1) where the company does and gets its business, (2) where the employee is located, (3) the employee’s role, (4) where the employee performs his or her job responsibilities, (5) the consequences of what would occur if the employee began competing against the employer and (6) other mechanisms that may be available to curb the employee from competing, such as other restrictive covenants. In addition, the geographic scope that is appropriate for one employee may not be appropriate for another employee. In the end, the narrower and more reasonable the geographic restriction, the more likely the non-competition provision will be enforced by a court.

Similarly, non-solicitation provisions frequently prohibit employees from soliciting customers and potential customers of the company for a period of time after the employee has left the company. However, many times courts are reluctant to enforce non-solicitation provisions against customers or potential customers that the employee has never had any interaction with or about whom the employee does not have any confidential or particular information. To make non-solicitation provisions more enforceable, companies should consider how “customer” and “potential customer” are defined in that provision. Depending on the business and the employee, one consideration may be to define a “customer” to include someone the employee has worked with in the 12 months prior to their departure or a “potential customer” as someone the employee has attempted to sell X to in Y months prior to their departure. 

Finally, non-disclosure provisions generally contain a boilerplate definition of “confidential information.” However, some courts have found that general boilerplate definitions of “confidential information” may not adequately inform the employee of the exact information that company considers to be confidential or a trade secret. Companies should think about including, in addition to the boilerplate definition, a list of specific things the company considers to be confidential and a trade secret.

In addition to the issues identified above, there are many other steps businesses can take to draft restrictive covenants that courts should find to be enforceable. Restrictive covenants are one of many tools a business is able to use to keep its employees from unfairly competing against them when they leave. Instead of recycling old agreements with restrictive covenants or using a one-size-fits-all approach, businesses of any size should make sure the restrictive covenants they use are drafted in such a way that they will be upheld in court.

Every employee and officer owes a duty of loyalty to their employer regardless of whether they have a written employment agreement.  In general, this duty requires employees and officers to treat the employer with the utmost candor, care, loyalty and good faith, and requires them not to act adversely to the employer’s interests.  However, the scope of this duty may vary depending on the assigned responsibilities of the particular employee or officer.

With regard to competition, the duty of loyalty prohibits employees or officers from improperly competing with their employers, enticing employees away from their employer, soliciting the employer’s customers, diverting business opportunities, exploiting their positions for their own self benefit, concealing important information and/or otherwise misappropriating the employer’s property or funds.  In other words, they have to act in the interest of their employer and not engage in self-dealing.  In addition, they may not take any action that is against the interest(s) of their employer. 

However, with regard to competing against their employer, provided the employee is not bound by any restrictive covenants or has not breached a duty of loyalty, an employee may prepare to compete against their employer.  An employee may form a competing business, enter into a lease or purchase office space, hire employees (provided they are not current co-employees) and otherwise outfit a competing business, all while still working for their employer.  However, that employee may not begin competing against their employer until after they have left their employment. 

Corporate officers are treated a little differently in that they owe a heightened duty of loyalty to their employer.  It has been explained generally that an employee’s duty is one of loyalty and non-competition, while an officer’s duty is not to actively exploit the company for his or her personal gain.  A corporate officer’s duty of loyalty includes (1) not actively exploiting their position within the corporation for their own personal benefit, and (2) not hindering the ability of the corporation to continue its business.  For example, an officer might be found to have breached their duty if they fail to inform the company that employees are forming a rival company or engaging in other fiduciary breaches, solicit business from a customer before leaving the company, use the company’s facilities or equipment to assist them in developing their new business or solicit fellow employees to join a rival business.     

Importantly, an employee or officer’s duty of loyalty to their employer ends once the employment relationship ends.  That is one of the reasons that many employers require officers and key employees to enter into non-competition, non-solicitation and/or non-disclosure agreements and keep those agreements up to date.  These agreements help prevent employees and officers from resigning and the next day starting to compete against their former employer using the knowledge and training gained during their employment.

When it comes to protecting a company’s competitive advantage, it is important to know the difference between confidential information and trade secrets. Knowing the difference allows businesses to design and implement the appropriate measures to protect their information and secure their competitive advantage.

In Illinois, confidential information has been defined by the courts as particularized information that has been disclosed to an employee during the employer-employee relationship. This information must be (1) unknown to others in the industry and (2) give the employer an advantage over its competitors.

Trade secrets are a subset of confidential information and are defined in Illinois through the Illinois Trade Secrets Act. Under the Illinois Trade Secrets Act, a trade secret is defined as information, including but not limited to, technical or non-technical data, a formula, pattern, compilation, program, device, method, technique, drawing, process, financial data, or list of actual or potential customers or suppliers that:

  1. is sufficiently secret to derive economic value, actual or potential, from not being generally known to other persons who can obtain economic value from its disclosure or use; and
  2. is the subject of efforts that are reasonable under the circumstances to maintain its secrecy or confidentiality.

In addition, while not determinative, courts in Illinois may also look to the following factors to assist them in determining whether information qualifies for protection as a trade secret:

  1. The extent to which information is known outside of the business;
  2. The extent to which the information is known by employees and others involved in the business;
  3. The extent of measures taken to guard the secrecy of the information;
  4. The value of the information to the business and competitors;
  5. The amount of effort or money expended by the business in developing the information; and
  6. The ease or difficulty with which the information could be properly acquired or duplicated by others.

All information that qualifies as a trade secret is confidential information. However, not all confidential information is a trade secret. As a result, the category of information that is potentially protectable as confidential information is more encompassing than a business’ trade secrets.

The first step a business should take in identifying its confidential information and trade secrets is to conduct an internal audit. Once a business has identified its confidential information and trade secrets, the business can put in place the necessary protections to help it maintain its competitive advantage. Those protections may include restricting access to the information through internal and external security measures, having employees and third parties sign confidentiality agreements and restrictive covenants, developing internal policies and procedures and implementing a compliance monitoring plan. There is no-one-size-fits-all approach to protecting confidential information and trade secrets. However, identification is the first step.

A recent case from the Illinois Appellate Court is a reminder to business owners of the need to be proactive in protecting their trade secrets and confidential information. In this case, three sales representatives left their employer, who was in the radio advertising business, and joined a competitor. When they left, the three sales representatives were alleged to have taken with them their sales and renewal lead lists to help them solicit customers for their new employer.

The court found that the lead lists were eligible for protection as trade secrets. The lead lists contained information regarding a customer’s name, telephone number, purchase history, public service announcements purchased and pricing. As a result, the compilation of customer information could be eligible for protection as a trade secret provided that the other hallmarks of a trade secret were met – that the information was kept sufficiently secret and that reasonable efforts were made to maintain the secrecy. This is where the former employer failed.

The court found that while the former employer provided the names of its customers to the radio stations, that did not necessarily mean that the information on the lead lists could not be protected as trade secrets. However, the court found that the former employer had not taken appropriate steps to protect the trade secrets. Among other things, the former employer had not entered into non-competition agreements with the three sales representatives. In addition, the former employer did not enter into confidentiality agreements with the radio stations, and once a competitor received the name of the customer, the competitor could contact the customer and acquire whatever information the customer is willing to provide to it.

While one cannot say that this case would have turned out differently if the former employer had been more proactive in protecting its trade secrets, there were certainly steps the former employer could have taken to better position itself for success. Among those steps were entering into employment agreements with the sales representatives that contained provisions that prevented them from competing against their former employer or soliciting their former employer’s clients; entering into confidentiality agreements with sales representatives in which the sales representatives specifically acknowledged that the lead lists were confidential information; and entering into non-disclosure agreements with the radio stations so that they could not disclose customer information to others. Regardless, this case is a reminder that businesses should take affirmative steps to protect their trade secrets and confidential information.

The case is Multimedia Sales & Marketing, Inc. v. Marzullo, 2020 IL App (1st) 191790.

On September 11, 2020, the U.S. Department of Labor (DOL) issued revised FFCRA regulations that clarify workers’ rights and employers’ responsibilities under the FFCRA’s paid leave provisions, specifically the Emergency Paid Sick Leave Act (EPSL) and Emergency Family and Medical Leave Expansion Act (EFMLEA). 

The primary impetus for the revisions to the FFCRA regulations was to provide clarity following the August 3, 2020, decision of the U.S. District Court for the Southern District of New York, which invalidated four different portions of the FFCRA regulations.

The revised FFCRA regulations, which take effect September 16, 2020, do the following:

1.  Reaffirm the requirement that an employee is not eligible for paid leave under the EPSL and/or the EFMLEA if his/her employer has no work available for the employee to perform, even if the employee is otherwise qualified for paid leave under FFCRA.

  • The DOL affirmed that for an employee to be eligible for paid leave under the EPSL and/or EFMLEA, his/her employer must actually have work available for the employee to perform at the time paid leave is requested.
  • Thus, if there is no work available for the employee to perform due to circumstances other than a qualifying reason for leave (DOL uses as an example, “perhaps the employer closed the worksite temporarily or permanently”), the FFCRA qualifying reason could not be, and is not, the reason for the employee’s inability to work.
  • The DOL clarified that the “work availability” requirement applies to all six qualifying reasons under the EPSL and EFMLEA.

2.  Reaffirm the requirement that an employee must have employer approval to take intermittent FFCRA leave.

  • As it relates to the school leave issues employers have been facing, the DOL explained, “The employer approval condition would not apply to employees who take FFCRA leave in full-day increments to care for their children whose schools are operating on an alternate day (or other hybrid attendance) basis because such leave would not be intermittent leave.”
  • The DOL used the example of a parent who needs to take leave due to his/her child’s school being closed on Monday, Wednesday and Friday of one week, and Tuesday and Thursday of the following week. According to the DOL, “For purposes of FFCRA, each day of school closure constitutes a separate reason for FFCRA leave that ends when the school opens the next day,” thus it is not intermittent leave.  Therefore, under the above alternate day/hybrid attendance scenario, if the employee is eligible for paid leave under the EPSL and/or EFMLEA, leave should be granted.
  • The DOL distinguished the above scenario from an alternative scenario when a child’s school is closed for a continuous and extended period of time (e.g. two months), and the employee wishes to take leave only on certain days. The DOL explained that this would constitute intermittent leave and require employer consent for the employee to be granted paid leave, even if the employee is otherwise eligible.
  • a parent learns that his or her child’s school will be closed Tuesday, after already reporting to work on Tuesday.

3.  Revise the definition of a “health care provider” who may be excluded by their employer from EPSL and EFMLEA to include employees who meet the definition of a health care provider under the FMLA regulations, and those individuals who are employed to provide diagnostic services, preventative services, treatment services, or other services that are integrated with and necessary to the provision of patient care which, if not provided, would adversely impact patient care.

  • The DOL adopted the FMLA’s definition of a “health care provider” (e.g. physicians and others who make medical diagnoses);
  • The DOL also expanded the definition of a “health care provider” to include an individual who is “capable of providing healthcare services.” According to the DOL, a “health care provider” must be “employed to provide diagnostic services, preventive services, treatment services, or other services that are integrated with and necessary to the provision of patient care, and that if not provided would adversely impact patient care.” The DOL explained that for purposes of this health care provider definition, the focus should be on the individual’s duties and responsibilities, “even if not performed by individuals with a license, registration, or certification.”
  • The DOL determined that an individual is “capable” of providing health care services “if he or she is employed to provide those services … the fact that the employee is paid to perform the services in question is, in this context, conclusive of the employee’s capability.”
  • The DOL identified three categories of individuals who may qualify as health care providers (and who may therefore be denied leave under the EPSL and EFMLEA):
    1. Nurses, nurse technicians, medical technicians, and others who provide diagnostic services, preventive services, treatment services, or other services that are integrated with and necessary to the provision of patient care;
    2. Employees who provide diagnostic services, preventive services, treatment services, or other services that are integrated with and necessary to the provision of patient care under the supervision of a doctor, nurse, nurse technicians, or medical technicians.
    3. Employees who may not directly interact with patients, and/or who may not report to another health care provider or directly assist another health care provider, but “nonetheless provide services that are integrated with and necessary components to the provision of health care.” One example provided is a lab technician who processes test results.
  • The DOL explained that individuals who provide services that affect, but are not integrated into the provision of patient care, are not covered under the definition of “health care provider,” e.g., IT professionals, building maintenance staff, human resources personnel, food service workers, managers, consultants, and billers.

4.  Clarify that employees must provide their employers with the required documentation (e.g. name, date(s) for leave, qualifying reason for leave, oral statement that employee is unable to work or telework, and any other supporting documentation such as quarantine or isolation order, doctor’s note advising employee to self-quarantine, school or place of care closure letter, etc.) supporting their need for EPSL and/or EFMLEA leave “as soon as practicable.”

  • The DOL stated that the previous requirement that an employee must provide their employers with the required documentation “prior to” taking paid leave will be removed.
  • Under the revised FFCRA regulations, employees requesting paid leave under the EPSL and/or EFMLEA must provide their employers with the required documentation, “as soon as practicable.” According to the DOL, in most cases this will be when the employee provides notice to his/her employer of the need for leave.

 5.  Correct an inconsistency regarding when employees may be required to provide notice of a need to take expanded family and medical leave to their employers.

  • FFCRA regulations will now state that when the need for leave under the EFMLEA is “foreseeable,” advance notice is to be provided to the employer “as soon as practicable.”
  • The DOL uses the example of a parent learning on Monday that his or her child’s school will be closed on Tuesday for a COVID-19 related reason. Under this scenario, the DOL instructs that the “employee must notify his or her employer as soon as practicable [likely Monday at work].”
  • Alternatively, when need for leave under the EFMLEA is not foreseeable, “the employee may begin to take leave without giving prior notice, but must still give notice as soon as practicable” (i.e. that same day). For example, this would apply when a parent learns that his or her child’s school will be closed Tuesday, after already reporting to work on Tuesday.

Our Employment & Labor Practice Group attorneys are continuously monitoring developments related to paid leave under the EPSL and the EMFLEA and are available to answer questions related to COVID-19’s many effects on employers.

Link to COVID-19 Resources page

As the COVID-19 pandemic continues, employers find themselves facing new challenges. Recognizing that the “new norm” has led to workplace circumstances not previously considered, the U.S. Department of Labor issued new guidance to address several wage and hour and leave-related scenarios employers may face. Highlights from the new guidance include:

Fair Labor Standards Act (FLSA) Guidance

  • Employees must be compensated for all hours worked via teleworking. Work performed away from the primary worksite is compensable in the same manner as work performed at the worksite. This is true even though the employer has less oversight of work performed from other locations (such as the employee’s home), and applies even if the work is not authorized. Employers are required to compensate employees for all hours reported to the employer and all hours the employer knows or has reason to believe were worked by an employee. This rule applies both to regular hours and overtime. An employer may implement rules prohibiting employees from working unauthorized hours and may discipline an employee for violating such rules, but the hours worked are still compensable. The DOL recommends employers impose reasonable time-reporting procedures to minimize problems in this area.
  • Employees need not be compensated for time spent tending to personal matters during the workday. The COVID-19 pandemic has created a number of issues, in particular for non-exempt employees/parents of school-aged children. While the Wage and Hour Division generally considers the time between an employee’s “first and last principal task” to be compensable, this rule is relaxed to allow non-exempt employees and employers to agree to more flexible schedules that allow employees time to care for, teach and otherwise tend to children who need such attention during the workday. Employees must only be compensated for time actually spent working. This rule similarly applies if an employee takes time out during the workday to tend to other personal matters unrelated to children.
  • Pandemic-specific rules for salaried, exempt employees. During a period of national emergency, such as COVID-19, certain rules applicable to salaried employees who are exempt from the overtime rules are relaxed. During the pandemic, exempt employees may temporarily perform non-exempt duties due to COVID-19 without losing their exempt status. Separately, employers may reduce an exempt employee’s salary so long as it is done (1) prospectively (i.e. not current, but subsequent pay period, (2) is in writing; (3) the employee’s weekly salary remains above $684; and (4) the reduction is the result of the pandemic or economic slowdown. The DOL also made clear that exempt employees will not lose their exempt status as a result of the exempt employee taking paid sick leave and expanded family and medical leave pursuant to the Families First Coronavirus Recovery Act.

Family and Medical Leave Act (FMLA) Guidance

  • Telehealth visits with a health care provider may satisfy the FMLA’s requirement of an in-person visit for purposes of determining a “serious health condition.” For now, this guidance applies only through Dec. 31, 2020. The telehealth visit must include an examination, evaluation or treatment.

Families First Coronavirus Response Act (FFCRA) Guidance

  • The FFCRA paid sick leave and expanded FMLA requirements are cumulative for 2020. If an employee uses their 80 hours of paid sick leave, is subsequently furloughed, returns to work and a need arises for additional sick leave, the employee is not entitled to additional paid leave under the FFCRA. Similarly, if an employee used six weeks of expanded FMLA during the spring of 2020 and needs additional leave in the fall because a child’s school or daycare is closed, the employee is entitled only to the amount of leave remaining (i.e. six weeks), not a renewed amount.
  • Employers cannot extend an employee’s furlough because the employee may qualify for leave under the FFCRA. An employer that is recalling employees from furlough may not extend an employee’s furlough because that employee may need leave under the FFCRA. For example, if an employee being recalled from furlough has a child whose school or daycare is closed, the employer cannot extend the furlough to avoid providing the employee with paid FFCRA leave.
  • Employers may require an employee to telework or provide a negative COVID-19 test before returning from an FFCRA leave, provided that the requirement is uniformly applied, and not only applied to employees who take FFCRA leave. For example, an employee requests two weeks of paid leave under the FFCRA to care for a family member who tested positive for COVID-19. Upon conclusion of the employee’s two weeks of paid leave, the employer may require the employee to provide a negative COVID-19 test or telework for a period of time only if the employer requires all employees to provide a negative COVID-19 test or telework for a period of time following exposure to someone who tested positive for COVID-19. If the rule is uniformly applied, it complies with the law. If it is applied only to employees who take FFCRA leave, then the rule violates the law.

Our Employment & Labor Practice Group attorneys are continuously monitoring developments and are available to answer questions related to COVID-19’s many effects on employers.

Link to COVID-19 Resources page

As COVID-19 continues to take its toll on the economy, some will be looking to avoid certain contractual obligations, while others will be looking to hold parties to their contractual obligations. For those looking to avoid their contractual obligations due to COVID-19 in Illinois, one defense being discussed is the doctrine of impossibility of performance.

The doctrine of impossibility of performance is also known as legal impossibility, legal impracticability and impossible performance. The doctrine excuses contractual performance when the performance is rendered objectively impossible either by operation of law or because the subject matter of the contract has been destroyed. See Innovative Modular Solutions v. Hazel Crest School District, 2012 IL 112052, ¶37. Said another way, the doctrine is applied if there is an unanticipated circumstance that made the performance of the contract vitally different from what should reasonably have been within the contemplation of the parties at the time they entered into the contract. See Sunshine Imp & Exp Corp. v. luxury Car Concierge, Inc., No. 13 C 8925, 2015 WL 2193808 (N.D. Ill. May 7, 2015).

If a government order, such as a state or local “stay in place” order, makes a party’s contractual performance impossible, that party may be able to avoid its contractual obligations under the doctrine of impossibility of performance. Generally, if parties enter a contract and subsequent events not described in the contract render performance impossible, the parties’ performance is not excused, but delayed. However, the doctrine of impossibility is an exception. In an instance where the continued existence of a particular circumstance is so necessary to the performance of the contract that, by law, it is implied to be a condition of the contract, the destruction of that circumstance excuses, not just delays, performance. Leonard v. Autocare Sales & Service Co., 392 Ill. 182, 187 (1945).

When can impossibility be applied?

A party raising impossibility as a defense to contract performance must show (1) an unanticipated circumstance, (2) that was not foreseeable, (3) that the party did not contribute to, and (4) and that the party seeking the defense tried all practical alternatives to avoid. Bank of America, N.A. v. Shelbourne Development Group, Inc., 732 F.Supp.2d 809, 827 (N.D. Ill. 2010). However, because the lawful purpose of a contract is to allocate risks that affect performance, and because contractual performance should only be excused in extreme circumstances, the doctrine is narrowly applied. See YPI 180 N. LaSalle Owner, LLC v. 180 N. LaSalle II, LLC, 402 Ill.App.3d 1, 6 (2010).

In addition, there are several important caveats to the application of the doctrine.

  • First, the doctrine does not apply to excuse performance as long as it lies within the power of the party invoking the doctrine to remove the obstacle to performance. See Downs v. Rosenthal Collins Group, LLC, 2011 IL App (1st) 090970, ¶37.
  • Second, the defense of impossibility fails when the party invoking it has not made reasonable efforts to prevent the occurrence of the event that has made performance impossible, i.e., the party must demonstrate that it has tried all practical alternatives available to permit performance. See First Nat. Bank of Chicago v. Atlantic Tele-Network Co., 946 F.2d 516 (7th Cir. 1991).
  • Third, the party asserting the doctrine must not have contributed to the circumstances causing the alleged impossibility. See Blue Cross Blue Shield of Tennessee v. BCS Inc. Co., 517 F. Supp. 2d 1050, 1056 (N.D. Ill. 2007).
  • And fourth, the party advancing the doctrine has the burden of proving impossibility. See Michigan Avenue National Bank v. State Farm Insurance Companies, 83 Ill. App. 3d 507, 514 (1980).

Courts in Illinois have applied the doctrine of impossibility of performance in the following instances:

  • Borrower defended its inability to obtain a construction loan commitment by a date certain, which resulted in the bank accelerating amounts due under a loan, by claiming that unforeseeable and unprecedented economic downturn and recession made its performance impossible. In asserting this defense, the borrower relied in part on statements by the bank’s own officers and executives that the current economic conditions were “unprecedented,” “unparalleled” and “not reasonably foreseeable.” The court recognized that generally when performance becomes economically burdensome, performance is not excused, but in this instance, the court found that if the borrower could establish that the parties could not have foreseen the extent of the economic downturn (the 2008 credit crunch) and performance was therefore impossible, it could satisfy the requirements for an impracticability defense. Bank of America, N.A. v. Shelbourne Development Group, Inc., 732 F.Supp.2d 809 (N.D. Ill. 2010).
  • In an old Illinois Supreme Court case, the court addressed the issue of whether a school district was required to pay a teacher who was ready, able and willing to teach during the time the school was closed by the state board of health as a result of an influenza epidemic. While recognizing the doctrine of impossibility of performance, the court found that the school district could have inserted into the teacher’s employment contract a provision exempting the district from liability in the event of a contagious epidemic. However, because the school district chose not to do so, the court held that it was not relieved from its liability to pay the teacher. See Phelps v. School Dist. No. 109, Wayne County, 302 Ill. 193 (1922). As a word of caution, this holding may be limited to its facts involving public school teachers following the Spanish flu epidemic, and does not analyze reasonableness or foreseeability found in later cases involving commercial contracts.
  • In a more recent Illinois Supreme Court case, the court addressed whether a school district would have to honor certain lease obligations where the lease was canceled under the authority of the Downstate School Finance Authority for Elementary Districts Law (“Act”). The school district argued that it was unable to satisfy its obligations under the lease because a third party exercising sole control over the district’s finances canceled the leases under the authority of the Act. After examining the Act, the court rejected the impossibility defense stating “the subject matter of the lease contracts … have not been destroyed, nor [had the statute authorizing the state body to take over the district’s affairs] rendered performance of the contracts objectively impossible by operation of law.” Innovative Modular Solutions v. Hazel Crest School District, 2012 IL 112052, ¶37.
  • As a defense to an employee’s claim that an employer had breached the employee’s severance contract by not paying severance benefits, the employer invoked the impossibility of performance doctrine, arguing that severance benefits were prohibited by the Federal Deposit Insurance Act (“FDIA”). While the trial court had ruled in favor of the employer, the appellate court found that there was a question as to whether the employee fell within an exception to the FDIA because the employer had the ability to seek an exemption from the Act and had failed to do so. See Rosenberger v. United Community Bancshares, Inc., 2017 IL App (1st) 161102.

Again, while the doctrine of impossibility exists in Illinois, the proponent seeking to excuse complete performance and nullify the contract has a narrow opportunity, and facts matter.

If you have questions about the doctrine of impossibility – whether performance is excused or delayed – contact Thad Felton at taf@greensfelder.com.

Link to COVID-19 Resources page

COVID-19 is impacting businesses and their operations, and parties are looking for guidance in the event that one or the other party to a contract is, or claims to be, unable to fulfill its contractual obligations. Whether or not the COVID-19 pandemic excuses contract performance largely depends on the language of the contract and the facts that either support excusing performance or not. For example, following the 1918 Spanish Flu Epidemic, a Court in California excused prompt performance, but not complete performance, after carefully analyzing the contract and the facts incident to delayed performance. See Citrus Soap Co. v. Peet Bros. MFG. Co., 50 Ca. App. 246 (1920).

Nuances of the Doctrine of “Commercial Frustration”

Courts in Illinois strictly interpret contracts, and in the absence of a clear intention to excuse or delay performance, for example as expressed in an unambiguous force majeure clause, Courts will be reluctant to excuse or delay performance due to COVID 19. However, one legal theory that may be available to contracting parties without reference to force majeure is that of “commercial frustration.”

In Illinois, the doctrine of commercial frustration is alive and well. The doctrine of commercial frustration will render a contract unenforceable if a party’s performance under the contract is rendered meaningless due to an unforeseen change in circumstances. Put another way, the doctrine of commercial frustration excuses performance only when the parties’ overall contractual intent and objectives have been completely thwarted by an unforeseen event. However, Courts do not apply the doctrine of commercial frustration liberally and a party seeking to excuse performance has a high hurdle to overcome.

Satisfying the two-part test

In Illinois, in order to apply the doctrine of commercial frustration, there must be a frustrating event that was not reasonably foreseeable and the value of the parties’ performance must be totally, or almost completely, destroyed by the frustrating event. Specifically, the party seeking to excuse performance under the doctrine of commercial frustration must satisfy the following, “rigorous,” two-part test.

  • First, the event that has caused the commercial frustration must not have been reasonably foreseeable.
  • Second, the value of the parties’ performance must be totally, or nearly totally, destroyed by the frustrating cause.

According to the Illinois Supreme Court, commercial frustration applies only to:

“cases where the cessation or nonexistence of some particular condition or state of things has rendered performance impossible and the object of the contract frustrated. It rests on the view that where from the nature of the contract and the surrounding circumstances the parties when entering into the contract must have known that it could not be performed unless some particular condition or state of things would continue to exist, the parties must be deemed, when entering into the contract, to have made their bargain on the footing that such particular condition or state of things would continue to exist, and the contract therefore must be construed as subject to an implied condition that the parties shall be excused in case performance becomes impossible from such condition or state of things ceasing to exist.”

See Leonard v. Autocare Sales & Service Co., 392 Ill. 182 (1946).

Examples of note

The doctrine of commercial frustration has been invoked in various breach of contract claims. Some examples are set forth below:

  • Doctrine of commercial frustration found to apply where lessee entered into a lease for an adjacent property to expand its store and the main store was subsequently destroyed by fire. Court upheld lessee’s defense of commercial frustration finding that: (1) while it might be foreseeable that the main store would be destroyed by fire and the leased premises would remain intact, it was a remote contingency to provide for it in the lease and was not reasonably foreseeable; and (2) although it would not be physically impossible to operate the store from the leased premises as a separate entity, the evidence revealed that operations would have had to have been changed drastically and that the leased premises was never intended to be autonomous. See Smith v. Roberts, 54 Ill. App. 3d 910 (4th Dist. 1977).
  • Doctrine of commercial frustration found to apply where lessee entered into a lease to operate a movie theater and thereafter the applicable zoning was changed to prohibit the operation of a movie theater at that location. As a result of the zoning change, the lessee was unable to conduct any of its intended business. See Scottsdale Limited Partnership v. Plitt Theatres, Inc., 97-C-8484, 1999 WL 281085 (N.D. Ill. March 31, 1999).
  • Doctrine of commercial frustration found not to apply to lessee where federal government appropriated leased premises for a portion of the lease term for war purposes. The court found that since the subject matter of the lease, i.e., the property, had not been destroyed and was still in existence, the federal government’s appropriation merely carved out a short term occupancy and did not destroy the lessee’s lease-hold estate. See Leonard v. Autocare Sales & Service Co., 392 Ill. 182 (1946).
  • Doctrine of commercial frustration found not to apply to a natural gas utility that sought to excuse performance under a naphtha supply contract where demand for utilities’ services was decreasing and the price of naphtha was increasing because of federal decontrol of natural gas supplies and increase in crude oil prices which increased the price of naphtha. The court found that “the only certainty of the market is that prices will change” and that the frustrating events were to a large extent foreseeable. See Northern Illinois Gas Company v. Energy Cooperative, Inc., 122 Ill. App. 3d 940 (3d Dist. 1984).

Next steps

Again, courts refuse to apply the doctrine of commercial frustration liberally, and parties seeking to excuse performance because of COVID-19 should carefully review the contract and analyze clauses, such as the force majeure clause, if any, in order to determine if the contract addresses the COVID-19 pandemic.

And, of course, facts are critical. Be prepared to address the following issues:

  • Is there evidence that supports the application of the doctrine of commercial frustration?
  • What was the purpose of the contract?
  • Was COVID-19 reasonably foreseeable?
  • And, has the purpose of the contract been destroyed as a result of COVID-19?

If you have any questions about an existing or future contract, please  contact Thad Felton or visit Greensfelder’s COVID-19 resources page at https://www.greensfelder.com/covid-19-resources.html.

A version of this article was also published in the April 2020 edition of the Illinois State Bar Association Real Property newsletter. Read it here.