Spring 2016 / Volume 14, No. 1

THE ILLINOIS PERSONNEL RECORD REVIEW ACT AND WHY IT MATTERS

Illinois employers, in-house counsel and human resources staff should be aware of the Illinois Personnel Record Review Act (“PRRA”) which requires an employer with at least 5 employees to allow an employees, former employee terminated within the preceding year, or a representative of the employee or former employee to review his or her “personnel records” within 7 business days of a request. “Personnel records” under the PRRA include “any personnel documents which are, have been or are intended to be used in determining that employee’s qualification for employment, promotion, transfer, additional compensation, discharge or other disciplinary action…”

The PRRA contains noteworthy exceptions. Employers are not required to turn over test materials (except test scores), documents relating to business plans (unless used specially with respect to the employee), or personal information about another person contained in the employee’s personnel file. There is no requirement to turnover investigatory or security records related to an employee’s potentially criminal or destructive behavior, unless and until the employer takes action based on those records. Lastly, if there is already a pending claim between an employer and an employee, and he records can be produced in discovery, employers do not need to respond to a PRRA request.

Failing to comply with the PRRA can result in a number of adverse consequences. An employee may file a complaint alleging a violation of the PRRA with the Illinois Department of Labor. After exhausting all administrative remedies, the employee may bring a civil action against the employer and, if he or she prevails, can recover actual damages plus costs. If the employer’s violation was willful and knowing, the employee is entitled to recover his or her reasonable attorneys’ fees and a $200 penalty.

The PRRA further provides that an employer’s failure to provide a document in response to a personnel record request bars the employer from using the document in subsequent litigation between the employer and the employee. Under the PRRA, “[p]ersonnel record information which was not included in the personnel record but should have been as required by this Act shall not be used by an employer in a judicial or quasi-judicial proceeding.” The statue grants a judge discretion to allow the employer to use the document, but only if he or she rules that the document was not intentionally withheld, and the employee is given a reasonable time to review the document.

A personnel record request under the PRRA may be a signal that an employee or recently terminated employee is contemplating legal action. Plaintiff-side employment lawyers frequently use the PRRA as a pre-litigation discovery tool to investigate and evaluate the viability of an employee’s claims and the employer’s potential defense.  Some plaintiff’s employment lawyers even have a practice of requiring all potential clients to make a formal request for the employee’s personnel file as a condition to providing an opinion on the viability of the employee’s potential claim or agreeing to represent him or her.

In short, the PRRA functions as an “open records” law for private employers and employees, and failing to comply with its requirements can result in unintended consequences for employers, including an increased risk of liability and exposure. Further, contrary to the initial inclination for some employers, an employee’s request for records pursuant to the PRRA should be viewed as an opportunity to demonstrate that the employer has a legitimate, well-documented basis to bake adverse action against the employee.

By Matthew P. Tyrell


WILL THE GIG ECONOMY BE GAGGED BY THE MISCLASSIFICATION OF WORKERS?

On April 21, 2016, the ride-sharing service Uber settled two class-action lawsuits brought by drivers who claimed that Uber had improperly classified them as independent contractors, rather than employees.  The lawsuits, which covered 385,000 drivers, sought recovery of hundreds of millions of dollars in reimbursements for gas and vehicle maintenance, backpay and other benefits.  Left unresolved by the settlement is the question of how workers in the emerging “gig economy” should be classified.

An independent contractor is only responsible to a company for the results of the work and is free to exercise his own discretion as to the method or means by which it is accomplished.  A number of the most common factors used to determine whether someone is an independent contractor or an employee include: (1) the right to discharge; (2) the manner of direction of the servant; (3) the character of the supervision of the work done; (4) the nature of the work performed and its relationship to the business of the employer; (5) the method of payment; (6) whether the employer provides the tools, materials or equipment for the worker; and (7) the level of skill required to perform the work. 

Employers may receive significant advantages in reduced cost and liability when they classify workers as independent contractors, including not have to withhold taxes, pay minimum or overtime wages, pay into social security or Medicare or fund insurance. Independent contractors do not have the protection of discrimination laws or employee-protection laws. Also, companies are generally not liable for the negligence of independent contractors, but are liable for the negligence of their employees.

However, company decisions to classify workers as independent contractors are increasingly being challenged. The IRS estimates it loses $3-4 billion each year from misclassification of employees as independent contractors.  To protect revenues, both states  and  the  IRS  are becoming far more skeptical when examining whether workers have properly been classified as independent contractors.  Additionally, class action lawsuits asserting that workers have been misclassified and are entitled to employee benefits have become commonplace.  In these lawsuits, losing employers can be liable for all unpaid wages, a penalty equal to the unpaid wages, and the workers’ attorney’s fees.  In certain industries, such as construction in Illinois, an employer also risks significant monetary penalties for misclassification, as well as a hefty interest rate on unpaid deficiencies. Further, in some instances, managers or officers who intentionally misclassify workers can be personally liable for these penalties.

The charge of misclassification of employees is a complex legal issue and there is no bright-line test for determining whether a worker is an employee or a contractor. Proper classification is decided on a case-by-case basis after evaluation of the totality of the facts and circumstances.  Cases like Uber are especially challenging.  Uber claims that it is merely an “app” which connects drivers and riders, and, since drivers make their own hours and supply their own vehicle, it is a facilitator, not an employer. The drivers argue that since Uber can fire them, requires the use of certain types of cars, sets the fares, precludes tips, compels drivers to accept a certain portion of rides, and can enforce workplace standards, they are truly employees. 

Companies considering adopting Uber’s business model should be aware that courts and administrative agencies have not definitively answered how the workers for that type of business are classified. Any company intending to rely on the use of independent contractors is well-advised to seek legal counsel in light of the uncertainty and risks in using such a classification. 

By William R. Klein


Attorney Honor

Norman T. Finkel

The Firm is pleased to announce that for the third year in a row, Norm Finkel has been chosen by Super Lawyers® as one of IIlinois’ top attorneys in the area of business litigation.  Super Lawyers® is an independent rating service of outstanding lawyers who have attained a high degree of professional achievement and peer recognition.  Norm has also been selected by his own peers in a statewide evaluation as one of “Illinois’ Leading Lawyers” in commercial litigation and closely and privately held business law, a distinction accorded to less than 5% of the state’s most respected and experienced practicing attorneys.  As head of the firm’s litigation group, Norm brings over 33 years of litigation experience to the Firm’s law practice. 

Introducing Matthew P. Tyrrell

Attorney Matthew P. Tyrrell has joined the Firm as an associate in the firm’s litigation department.  Matt will focus his practice on commercial and employment disputes.  He previously practiced employment law at the Law Office of Fern Trevino, a boutique employment firm in Chicago.  In 2015, Matt was recognized as an Emerging Lawyer by the Leading Lawyers Network in the State of Illinois.  He was also selected to the Rising Stars list by Illinois Super Lawyers® Magazine in 2014, 2015 and 2016.


Schoenberg Finkel Newman & Rosenberg, LLC (312) 648-2300

This newsletter is not intended to be legal or tax advice and is not a substitute for obtaining legal or tax advice. This Newsletter is deemed to be advertising material by the Illinois Supreme Court.