Significant Changes in the Law
Recently, and with the impending arrival of the New Year, businesses and high net worth individuals have several things to think about, including some new laws.
Illinois Business Corporation Act
A significant change to the Illinois Business Corporation Act ("BCA") occurred in 2005, and another will occur on January 1, 2006.
Effective July 1, 2005, an amendment to the BCA clarified Illinois law regarding the duties owed by shareholders who withdraw from privately-held corporations. Prior to the amendment, one Illinois case had held that a shareholder who resigned as a corporate officer, director and employee, but who remained a 50% shareholder, had post-resignation fiduciary duties not to compete with the corporation. The court held that such a shareholder was liable for breach of his fiduciary duties to the corporation when he resigned and, after his departure, started his own business and hired away the corporation's employees. The 2005 amendment to the BCA now allows a departing shareholder (regardless of the number or percentage of shares owned) to avoid similar fiduciary obligations by delivering a signed document to the corporation which waives the right to (1) vote his or her corporate shares; (2) be a director or officer in the corporation; and (3) control actions of the corporation (including the election or removal of officers or directors). For the waiver to be effective, at the time the waiver is executed, the departing shareholder may not be an officer or director of the corporation from which he or she is departing. The amendments also place an affirmative duty on the corporation to notify the remaining shareholders if it receives such a waiver. These changes have no effect on a member's withdrawal from a limited liability company, which requires a dissociating member to provide the LLC with "notice of the member's express will to withdraw" in order to terminate a member's fiduciary duties.
The BCA was also amended so that, effective January 1, 2006, there is no longer a five-year "window" in which an administratively dissolved domestic or foreign corporation must apply for reinstatement. Under the new amendment, reinstatement will be open-ended, but corporations and limited liability companies will still have pay to the requisite filing fees, interest and penalties.
Changes in Bankruptcy Laws in Preference Cases
Under bankruptcy law, certain transfers made by an insolvent debtor within 90 days before the date of filing for bankruptcy can later be avoided by the bankruptcy trustee as a "preference payment" that favors a creditor over others. A creditor defending a bankruptcy "preference" case may find it a frustrating endeavor. Effective October 17, 2005, however, changes in the Bankruptcy Act make it easier to assert a defense against a preference claim. If a business or individual receives a preferential payment from a debtor, there are several statutory defenses which, if successful, will allow the entity to keep all or a portion of the payment. An often-used defense is the "ordinary course of business" defense, which, previously, insulated preference payments from a trustee's avoidance powers if a preference defendant could prove that the payments were similar in amount, timing and form to (i) the previous payment history between the creditor and debtor, and (ii) the general payment practices in the creditor's relevant industry. The 2005 amendments, however, make the ordinary course defense disjunctive rather than conjunctive, so that preference creditors need only prove the payments at issue were similar to (i) the previous payment history between the creditor and debtor, or (ii) the payment practices in the creditor's relevant industry. By relaxing the burden of proof, it will be easier to successfully assert the "ordinary course of business" defense to preference claims.
Illinois Personal Information Protection Act
Following similar legislation in California, Illinois has enacted the Personal Information Protection Act to help Illinois residents defend themselves from identity theft. Effective January 1, 2006, any entity (regardless of the entity's location) that stores sensitive personal information relating to Illinois residents must notify Illinois residents "in the most expedient time possible and without unreasonable delay" if there has been or might have been unauthorized access to the personal information. The new law applies to "any data collector," including businesses, individuals engaged in business activities and governmental entities that collect information such as social security numbers, driver's license numbers or credit or debit card account numbers. The purpose of the new law is to give affected individuals time to take precautions against identity theft, such as checking their credit reports or credit card accounts.
Effective January 1, 2006, the annual exclusion for tax-free gifts increases from $11,000 to $12,000 per donee, and the estate tax exemption amount increases from $1,500,000 to $2,000,000.
Illinois Human Rights Act
Effective January 1, 2006, the Illinois Human Rights Act will prohibit employers and other entities from discriminating against individuals who are gay, bisexual or transgendered. The amendments proscribe discrimination in the areas of employment, housing, public discrimination and certain financial transactions on the basis of "actual or perceived heterosexuality, homosexuality, bisexuality, or gender-related identity, whether or not traditionally associated with the person's designated sex at birth." Employers with 15 or more employees should, among other things, revise their employment policies and equal opportunity and anti-discrimination statements to conform to these amendments. In addition, they should train their supervisors about the implications of the updates, especially with regard to their harassment policies. The amended Human Rights Act applies without regard to size in the areas of housing and public discrimination.
Illinois Family Military Leave Act
Effective August 14, 2005, Illinois employers must, under certain circumstances, now grant unpaid leaves of absence to employees who wish to spend time with spouses or children that are to be deployed on active military duty for longer than 30 days. To be eligible for this leave, employees must have worked: (a) for their employer for at least 12 months, and (b) at least 1,250 hours in the preceding year. The amount of leave depends on the size of the employer – businesses employing between 15 and 50 people must provide up to 15 days of leave, while employers with more than 50 employees must provide up to 30 days of leave. If an employee desires to take leave of more than 5 consecutive business days, he or she must provide the employer with at least 14 days' advance notice; however, for leaves of less than 5 consecutive days, employees need only provide "advance notice as is practicable." During an employee's family military leave, an employer must continue to provide, at the employee's expense, any benefits which the employee customarily receives. Upon conclusion of the family leave, an employee must be restored to the same employment position or another position with comparable seniority, pay and benefits, unless the employer can prove that the employee was not restored to his or her previous positions for reasons unrelated to the family military leave. The Act does not require that employers publicize the new leave law, but some employers are amending their handbooks to include a Military Leave Act policy.
Illinois Employee Blood Donation Leave Act
Another new Illinois law providing employment leave is the Employee Blood Donation Leave Act. The new law is effective on January 1, 2006 and applies to, among others, employers with over 50 employees. Only full-time employees who have been employed for over 6 months are eligible to take leave to give blood, which is limited to one hour of paid leave every 56 days. Employees seeking leave, however, must first obtain their employer's approval for the leave. Therefore, while the new law gives employees the right to take blood donation leave, it also appears to give employers the right to refuse such leave requests. Unfortunately, the law provides little guidance to employers about when they may refuse such requests. The Department of Public Health is supposed to be adopting rules to guide employers; however, they have yet to be issued. At this point, there are no requirements on employers to notify employees of their rights; however, some employers are amending their handbooks to include an Employee Blood Donation Leave Act policy.
Amendments to the Day Labor and Temporary Labor Service Act of 2000
On January 1, 2006, amendments to the Illinois Day Labor and Temporary Labor Service Act of 2000 go into effect to provide additional employment protections and benefits to "day laborers." The State of Illinois estimates there are 300,000 "day laborers" in Illinois that work on a temporary or irregular basis in industries such as landscaping, construction, food processing, factory work and domestic help. According to the legislative history, day laborers frequently gain employment through "fly-by-night" fee-based staffing agencies that, among other things, take unauthorized deductions from workers' paychecks or fail to pay all earned wages, neglect to provide requisite insurance and force laborers to work and travel in unsafe conditions. The amendments compel all staffing agencies to register with the State, procure adequate workers compensation insurance and create and retain certain records regarding staffing assignments. Staffing agencies must also provide workers with notice regarding new staffing opportunities which clarify the type of work, compensation, terms of transportation, etc., and refrain or limit charges to workers for certain services, such as transportation and meals. The amendments provide stiff fines to staffing agencies that violate the Act. Moreover, companies that procure temporary help through unlicensed staffing agencies will also be liable for fines; accordingly, businesses must verify that staffing agencies are registered with the State to avoid potential liability.
Changes to the Illinois Prevailing Wage Act
Effective August 10, 2005, an amendment to the Illinois Prevailing Wage Act requires contractors and subcontractors on public works projects to submit to the State copies of sworn monthly certified payrolls. The sworn payroll affidavit must attest that the contractor or subcontractor has paid its workers in conformance with prevailing wage requirements, and that the contractor understands that filing false records is a Class B misdemeanor. Moreover, the amendment increases the amount of information that contractors must include in its certified payrolls, and provides that contractors must make such records available to the State for inspection upon 2 days' request. Contractors' certified payrolls are also public records, and certain information contained therein will be made available to the public pursuant to an authorized and legal request. A contractor or subcontractor that fails to submit certified payrolls, or knowingly submits false certified payrolls is guilty of a Class B misdemeanor.
On January 1, 2006, another amendment to the Prevailing Wage Act increases penalties to contractors for second and subsequent violations of the Act for paying workers below the requisite prevailing wage (it increases the penalty to 50% of the underpaid amount; up from 20%). Moreover, contractors must pay 5% of the penalty to affected workers for each month in which wages are not repaid (up from 2%).
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