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Califf & Harper, P.C. bring you this, the latest edition of our firm Newsletter. This edition contains highlights concerning retirement planning, business planning and employment issues. Also included are helpful hints concerning identity theft.

We trust you will find this latest edition of our Newsletter to be of some relevance to you. Please be certain to check our website, www.califf.com, often for current information and developments, including seminar announcements. We are available to provide seminars regarding a broad range of subject areas to your association, your clients and managers, as well as any similar group. Finally, we would encourage you to subscribe to our newsletter by completing the form found at the following link: www.califf.com/newsletter.html.

We thank you, our clients and friends, for your continued interest in our firm.

Included below:

• New Wheaton Office Location
• Sexual Orientation Discrimination Claims in the Workplace
• New Illinois Laws Affecting Businesses
• Illinois Department of Labor Issues Final Rules on VESSA Leave
• The Residential Tenants’ Right to Repair Act
• Nonqualified Deferred Compensation
• Identity Theft: What Steps Can You Take to Protect Yourself?
  

Califf & Harper is pleased to announce the relocation of its Wheaton, Illinois office to 123 West Front Street, Suite 200, Wheaton, Illinois 60187. The telephone number remains 1-800-764-4999. The office is now located on the second floor of a historic building, built in the 1880’s, in downtown Wheaton. Our Chicago area practice is continuing to grow and our new space will allow us to better serve our clients’ needs.

Fourteen states and the District of Columbia have enacted laws prohibiting sexual orientation discrimination in private employment. Those states are California, Connecticut, Hawaii, Illinois, Maryland, Massachusetts, Minnesota, Nevada, New Hampshire, New Jersey, New York, Rhode Island, Vermont and Wisconsin. In addition, the following are municipalities in Iowa that have enacted ordinances prohibiting such discrimination:

Iowa

Ames
Bettendorf
Cedar Rapids
Davenport
Des Moines
Iowa City

Employers with operations in any of the above jurisdictions should be aware of what constitutes sexual orientation discrimination and what steps they should take to protect themselves from potential lawsuits.

What Constitutes Sexual Orientation Discrimination?

Most ordinances prohibiting sexual orientation discrimination define a discriminatory practice as any person refusing to hire, or discharging any individual, or otherwise discriminating in employment against any individual because of such individual’s sexual orientation.

Although few court decisions have interpreted state and/or local laws, California and Minnesota courts have stated the elements of a prima facie case of discrimination that a plaintiff must prove are the following:

(1) The plaintiff was a member of the protected class of homosexuals or persons perceived to be homosexuals.

(2) The plaintiff was qualified for the position she sought or she was performing competently in the position she held.

(3) She suffered an adverse employment action (such as termination, demotion or denial of an available job).

(4) Some other circumstance suggests a discriminatory motive (based on the plaintiff’s sexual orientation).

Because of the fourth element, discriminatory motive, the employer must be aware of the employee’s sexual orientation or have a reasonable belief about the employee’s sexual orientation. In many of the cases in which the court found no discrimination had occurred, the court based its finding on the fact that the plaintiff was unable to prove the employer was aware of the plaintiff’s sexual orientation.

Even if the employer is aware of the plaintiff’s sexual orientation, for a plaintiff to succeed he must show that the employer discriminated against him in some way; in other words, that he suffered an adverse employment action. It is not enough merely to show that the supervisor was “homophobic” or disliked the plaintiff or even that the supervisor uttered antihomosexual remarks or jokes. The plaintiff must prove that he was treated less favorably than similarly situated employees not of the plaintiff’s sexual orientation.

The California and Minnesota courts use the McDonnell Douglas burden-shifting method for the burden of proof. Under this method, the employee has the initial burden of establishing a prima facie case of discrimination (i.e., elements one through four above). Once an employee does so, the burden shifts to the employer to articulate a legitimate, nondiscriminatory reason for the adverse employment action. Once the employer does so, the burden shifts back to the employee to show that the employer’s proffered reason was a pretext for discrimination.

Employees have also brought actions against employers for discrimination based on workplace harassment or hostile work environment based on sexual orientation. To establish a claim of hostile environment harassment, an employee must prove that (1) he or she belongs to a protected group; (2) he or she was subject to unwelcome harassment; (3) the harassment was based on sexual orientation; (4) the harassment was sufficiently severe or pervasive so as to alter the conditions of employment and create an abusive working environment; and (5) employer liability. Again, the plaintiff must show that he or she is homosexual or is perceived to be homosexual by the alleged harassers.

What Should Employers Be Doing To Protect From Discrimination Claims?

To protect from these types, as well as all other types, of discrimination claims, employers in jurisdictions prohibiting discrimination based on sexual orientation should review their discrimination and harassment policies. Employers should be sure the language is broad enough to proscribe discriminatory and/or harassing conduct based on an employee’s sexual orientation.

However, it is not enough merely to have a policy on paper. Employers must be sure that the company practice is consistent with the policy. It is highly recommended that employers offer workplace harassment training including sexual orientation workplace harassment training to their managers and preferably their other employees on a regular basis. Annual training is recommended.

Employers should promptly respond to any reports of discrimination or harassment with an investigation. Employers should also be consistent in their handling of complaints and in their decisions as to discipline regarding all employees.

Finally, employers must take measures to ensure that they do not retaliate against an employee for reporting acts of discrimination, even if the report has no merit.

A legal cause of action for sexual orientation discrimination is relatively new. Therefore, managers and supervisors will need to become more sensitive to certain comments and slurs that might make reference to a person’s sexual orientation, whether cast in a positive or negative light.

What If Your Company Is Not Located In A City With An Ordinance Protecting Against Sexual Orientation Discrimination?

Even if an employer is not located in a city or state that protects against sexual orientation discrimination, an employer must beware that some claims that might have been brought for sexual orientation discrimination have been successfully brought as claims for sex discrimination, which is proscribed by federal law. These cases are otherwise referred to as stereotypical male/female cases.

In a stereotypical male/female case, an employer will be held liable if it discriminated against an employee because the employee did not conform to the stereotype for that employee’s gender. The United States Supreme Court described this type of discrimination in Price Waterhouse v. Hopkins. In Price Waterhouse, a woman was denied partnership, in part because she was deemed to be too aggressive. In order to improve her chances for advancement in the future, her male supervisors advised her to lose her “macho” and “masculine” demeanor and instead to “walk more femininely, talk more femininely, dress more femininely, wear makeup, have her hair styled, and wear jewelry.” The Supreme Court found that this conduct was in violation of Title VII of the Human Rights Act and that disparate treatment based on the use of gender stereotypes in the employment context was illegal.

In a Ninth Circuit case, Nichols v. Sanchez, the court found the employer liable after a male employee’s male coworkers harassed him because he was “effeminate” and failed to conform to the male stereotype. The plaintiff’s male coworkers regularly used female pronouns, describing the plaintiff as “she” and “her” as well as other comments found to be offensive. Because these terms indicated the harassers discriminated against the plaintiff because he “acted too feminine,” the harassment was closely linked to the employee’s gender and thus his claim fell under the purview of Title VII.

Conclusion

Employers in jurisdictions prohibiting such discrimination should examine their policies against discrimination in the workplace to be sure the policies cover sexual orientation discrimination and should be sure their employees receive harassment training. Employers should be sure their company practices are consistent with the policy. Finally, employers in jurisdictions which do not have laws against sexual orientation discrimination should beware of claims for sex discrimination based on an employee’s nonconformity with a gender stereotype.

The following is a brief summary of some of the new Illinois laws affecting businesses.

Insurance Cards and Social Security Numbers. Effective January 1, 2005, issuers of insurance cards may not print an individual’s social security number on an insurance card. Rather, the card issuer must create a unique identification number. All currently issued cards that contain social security numbers must be replaced by January 1, 2006, with an insurance card that complies with the new law if the individual’s eligibility for benefits continues after the effective date of the new Act.

Dental Hygienists. Effective July 28, 2004, the Illinois Dental Practice Act has been amended to redefine certain procedures that may be performed by dental hygienists. Additionally, the Act now requires that a patient for whom the dental hygienist performs services be a patient of record with the dentist, that the dentist have examined the patient within one year prior to the dental hygienist services, and that the dentist authorize the dental hygiene services by a notation in the patient’s record.

Mass-Layoffs. Effective January 1, 2005, employers may not order a mass layoff, relocation, or employment loss unless employers first give a 60-day written notice to all affected employees and their representatives as well as to the Department of Commerce and Economic Opportunity and the chief elected official of each municipal and county government within which the mass layoff, relocation, or employment loss occurs.

Military Protection. Effective August 16, 2004, the military status in the Illinois Human Rights Act is defined to include not only active duty, but also being a member of a reserve unit or the Illinois Army or Air National Guard. Thus, these members are now also protected by the antidiscrimination provisions of the Illinois Human Rights Act.

Gift Cards and Gift Certificates. Effective January 1, 2005, to comply with the Consumer Fraud and Deceptive Practices Act, certain disclosures must now be printed on gift cards and gift certificates. Any gift certificate subject to a fee must contain a statement clearly and conspicuously printed on the gift certificate stating whether there is a fee, the amount of the fee, how often the fee will occur, that the fee is triggered by the inactivity of the gift certificate, and at what point the fee will be charged. The statement must be visible to the purchaser prior to the purchase. All gift certificates that have an expiration date must clearly and conspicuously state the expiration date on the gift certificate. The expiration date must also be visible to the purchaser prior to the purchase.

Automatically Renewing Consumer Contracts. Effective January 1, 2005, the Consumer Fraud Act and the Automatic Contract Renewal Act have been amended to impose new requirements on consumer agreements that renew automatically after a period of time. Among the requirements, consumer contracts that automatically renew unless the consumer cancels the contract now must disclose the automatic renewal clause clearly and conspicuously in the contract, including the cancellation procedure. Another requirement is that a person or business that sells or offers to sell products or services to a consumer pursuant to a contract with a term of 12 months or more that automatically renews for a term of more than one month unless the consumer cancels the contract must send written notification to the consumer of the automatic renewal 30-60 days before the cancellation deadline. The new law contains specific provisions which must be stated in the written notification.

Internet Service Providers. Effective January 1, 2005, Internet service providers which use contracts that automatically renew must provide a secure method at the Internet service provider’s website for consumers to cancel their service, without having to make a telephone call or send correspondence through the mail.

Illinois Right to Breastfeed Act. On August 16, 2004, the Illinois Right to Breastfeed Act was signed into law. A mother may now breastfeed her baby in any location, public or private, where the mother is otherwise authorized to be, irrespective of whether the nipple of the mother’s breast is uncovered during or incidental to the breastfeeding. There are certain exceptions allowed to places of worship. A woman who has been denied the right to breastfeed by the owner or manager of a public or private location, except a residence or a place of worship, may sue to enforce her rights. If she prevails, she is entitled to attorney’s fees and litigation expenses.

Enacted in August of 2003, the Illinois Victims' Economic Security and Safety Act (“VESSA”) requires employers with 50 or more employees to grant employees up to 12 weeks of unpaid leave to address certain domestic violence issues and prohibits such employers from discriminating against any employee for exercising rights under VESSA.

On May 24, 2004, the Illinois Department of Labor issued Final Rules establishing procedures for the administration and enforcement of VESSA. Unlike the emergency rules, which had been issued in December of 2003, the Final Rules do not provide that an employer is required to provide 12 weeks of VESSA leave in addition to 12 weeks of leave under the Family and Medical Leave Act (“FMLA”). Therefore, according to Section 20(a)(2) of VESSA, an employer is only required to provide a total of 12 weeks of VESSA and FMLA leave.

The Final Rules also address records retention and release by employers and complaint procedures and contain an exemption for independent contractors. According to the Final Rules, employers must maintain the following records:

(1) Name, address, and occupation of each employee, rate of pay, terms of compensation, daily or weekly hours worked per pay period, additions to or deductions from wages, and total compensation paid each pay period.

(2) All dates VESSA leave is used by each employee must be designated in the records as such leave. If the leave is taken in increments of less than one full day, the number of hours taken must be recorded.

(3) Copies of all employee requests, if in writing, with any attachments.

(4) Copies of any written notices regarding VESSA given to employees.

(5) Any documents describing employee benefits or employer policies and practices regarding the taking of paid and unpaid leave.

(6) Documentation regarding paid time off for each year, including vacation, sick, or personal leave, and the dates on which paid time off was taken or paid.

(7) Records of any dispute regarding designation of VESSA leave, including any written documents stating the reason for the designation and for the disagreement.

(8) Records made in the ordinary course of business which relate to personnel records, employees’ qualification for promotion, transfer, discharge, or other disciplinary action, wage rates, skills testing certifications, job evaluations, job descriptions, merit systems, seniority systems, employment contracts, collective bargaining agreements, description of practices, or other matters that describe or explain the basis for any use of any type of paid and unpaid time off.

(9) Records and documents relating to certification, medical histories of employees or employees’ family and household members maintained in conformance with all state and federal laws, including all confidentiality requirements.

All of those records must be maintained by the employer for at least three years.

The Final Rules provide that VESSA applies to males as well as females. Additionally, the Final Rules provide that the Illinois Department of Labor will assist an individual with a claim when:

(1) The claim concerns work performed within the State of Illinois, but not when the claim concerns sporadic work performed in Illinois for an employer located outside of Illinois.

(2) The claim concerns work performed outside the State of Illinois if the specified employer is located within Illinois or the contract for hire was entered into in this State, but not when the claim is filed by an employee whose permanent work station was outside the State of Illinois and who performed a substantial portion of his/her duties outside Illinois.

The Final Rules discuss the procedure immediately after complaint and the administrative case review.

Califf & Harper, P.C. represents managers and employers in employment law matters. Contact us with any questions regarding this or any other law affecting employers.

A recently enacted law, the Residential Tenants’ Right to Repair Act (“Act”), which took effect January 1, 2005, allows tenants to perform repairs to their residence and deduct the cost of the repairs from the monthly rent.

The Act applies to repairs that are required under a residential lease agreement or required under a law, administrative rule, or local ordinance or regulation. The Act applies to such repairs the cost of which does not exceed $500 or onehalf of the monthly rent, whichever is less. In the event that such a repair is required, the tenant may notify the landlord in writing by registered or certified mail at the address of the landlord or his agent as indicated on the lease agreement. If no address is listed, the tenant may send a notice to the landlord’s last known address of the tenants’ intention to have the repair made at the landlord’s expense.

If the landlord fails to make the repair within 14 days after being notified by the tenant or more promptly in the case of an emergency, the tenant may have the repair made in a workmanlike manner and in compliance with the appropriate law, administrative rule, or local ordinance or regulation. To constitute an emergency the condition must be one that will cause irreparable harm to the apartment or any fixture attached to the apartment if not immediately repaired or it must be one that poses an immediate threat to the health or safety of any occupant of the dwelling or any common area.

After the tenant submits to the landlord a paid bill from an appropriate tradesman or supplier who is unrelated to the tenant, the tenant may deduct from his or her rent the amount of the bill which may not exceed the limit provided in the Act nor the reasonable price customarily charged for the repair.

The Act does not apply to public housing, condominiums, not for profit corporations organized for the purpose of residential cooperative housing, commercial tenancies, owner-occupied rental property containing 6 or fewer dwelling units, or mobile homes.

For purposes of mechanics’ lien laws, repairs performed pursuant to the Act will not be considered to have been performed with the landlord’s permission. This means that repairmen will only be entitled to a mechanics’ lien on the leasehold estate.

The Act holds the tenant responsible for ensuring that the repairs are performed in a workmanlike manner or in compliance with the appropriate law or ordinance. The tenant is also responsible for making sure the tradesman or supplier he or she hires to make the repairs holds any appropriate licenses or certificates required to make the repairs. The tenant must also be sure the tradesman or supplier is adequately insured to cover any bodily harm or property damage caused by the negligence or substandard repairs by the tradesman or supplier. In addition, the tenant is responsible for any damages to the premises caused by the tradesman or supplier hired by the tenant.

If the tenant does not comply with these requirements, the tenant will not be entitled to the benefits and protections of the Act. In other words, the tenant will not be able to deduct the repairs from his or her rent.

Califf & Harper, P.C. attorneys represent individuals and other entities in real estate and landlord-tenant matters. Contact our office with questions about this Act or any other law affecting real estate or landlord-tenant relationships.

Nonqualified Deferred Compensation

The American Jobs Creation Act of 2004 (“Act”) added a new Section 409A to the Internal Revenue Code. This is the first time the Code provides specific rules relating to elections and distributions for nonqualified deferred compensation arrangements.

New Section 409A substantially affects how nonqualified deferred compensation arrangements operate. This Code section applies to 457(f) plans, bonus deferral plans and many other types of nonqualified deferred compensation arrangements. On December 20, 2004, the IRS provided initial guidance concerning these arrangements. Despite providing significant guidance, the IRS guidance fails to address many questions, which remain unanswered.

The following is an overview of the IRS guidance:

Amendments

No plan compliance amendments are required until December 31, 2005. However, plans must be operated in good faith compliance with Code Section 409A prior to the required amendment.

Elections

For existing plans, deferral elections for amounts relating to services performed on or before December 31, 2005 must be made on or before March 15, 2005. The deferral election can only apply to amounts that have not been paid or become payable at the time of election.

Deferral elections for 2005 may be cancelled or revoked during 2005. Cancellation or revocation can be at the election of a participant or employer and given with respect to all or only certain participants. If cancellation or revocation occurs, any deferrals must be included in 2005 income.

Payment elections under existing plans may be modified before December 31, 2005, and such modification will not be treated as a change in the time or form of distribution.

Existing deferrals (and related earnings) may continue to rely on prior law, provided the deferral was earned and vested on or before December 31, 2004 and the plan under which deferral was made is not materially modified after October 3, 2004. A material modification includes an enhancement to a benefit or right or the addition of a new benefit or right.

Distributions

Limited acceleration of distributions is permitted. The IRS guidance provides limited ability to accelerate distributions for:

(1) De minimis amounts of $10,000.00 or less;

(2) Amounts awarded under a domestic relations order;

(3) Distributions necessary to pay taxes due by reason of vesting under a Code Section 457(f) plan for amounts necessary to comply with a certificate of divestiture (for government service); and

(4) Payment of FICA taxes.

Distributions are permitted upon a change in control of the employer or of the corporation liable for the payment. Change in control includes:

(1) A 50% change in ownership of a corporation;

(2) A change in effective control of a corporation (generally a person or group acquiring 35% voting power or a change in the majority of the directors); or

(3) A 40% change in the corporation’s total assets.

Plan Terminations

Existing plans may be terminated on or before December 31, 2005. All amounts deferred must be included in taxable income in the year of termination.

Miscellaneous

(1) Rolling vesting and noncompete agreements are not substantial risks of forfeiture for Code Section 409A purposes.

(2) Certain severance plans are excluded from compliance during 2005, namely collectively bargained plans or plans that cover no service providers who are key employees

What Is Lacking In The Way of Guidance?

(1) Distribution issues have not been addressed (including the application of the five year delay to changes in the form of distribution, availability of alternative distribution events and timing of key employee determination).

(2) Offshore plan and trust issues;

(3) Severance plans that do not meet the limited 2005 exemption.

Identify theft can have a devastating and unexpected current impact. To avoid allowing people access to personal information requires reasonable and prudent steps to protect oneself. The Financial Planning Association has offered some helpful suggestions to minimize the threat of identity theft. Califf & Harper, P.C. is pleased to provide these tips to you:

(1) Be alert. The first line of defense is to simply become more aware of and aggressive in personally protecting yourself against identity theft. A 2003 Federal Trade Commission report said 26% of all identity theft victims discovered the misuse within a week to a month after it began, but 12% took over six months to discover the problem. The longer it took victims to discover the fraud, the larger the loss to them and the companies with whom they did business.

(2) Guard your personal identity information. Protect your Social Security number, credit card and bank account numbers, PINS, passwords, and driver's license number. For example, don't put your Social Security number on your checks or driver's license. Avoid using obvious passwords such as the last four digits of your Social Security number, your mother's maiden name, or your pet's name. And when you punch in your PIN at an ATM, be sure to block the view from spying eyes.

(3) Shred documents. Cross shred all outdated financial documents. This includes canceled and voided checks, bank statements, ATM receipts, credit card and debit card receipts, investment documents, tax records, investment records, anything with PIN or driver's license numbers on it, expired passports, employee records, medical records, and anything with you signature. And shred those preapproved credit offers.

(4) Watch your mail. Get a locked mailbox, and mail outgoing bill payments and other financial related documents from a post office or drop off box, not your residence.

(5) Automate. You also can cut down the potential for stolen mail by automating as much as possible, from direct deposit of employee, Social Security, pension and dividend checks, to automatic bill paying or paying online.

(6) Protect your computer. Install a firewall to prevent access to your computer and install an antispyware program. Use a good antivirus protection program, and update it often.

(7) Avoid scams. An amazing amount of financial information is stolen through scams, such as e-mails or phone calls from crooks asking you to "update" your bank or investment account information. Scam artists send emails or set up websites masquerading as legitimate financial institutions and Internet sites, and some scam artists even claim to be in the identity theft business. So never pass out vital financial information over the phone or Internet unless you're positive it's both necessary and a legitimate institution. One way to verify this is by calling them back with a phone number from your statement.

(8) Monitor financial accounts. Start by paying attention to those monthly bank and credit card statements for signs of unauthorized use. This one of the first places you'll spot problems.

(9) Check credit reports. A good place to check for identity theft is your credit report. Get reports from the three main credit bureaus -- Equifax (800/685-1111), Experian (888/397-3742), and TransUnion (800/888-4213) -- and check for unauthorized activity such as opening of new accounts you didn't establish. (While you're at it, check to be sure the reports are accurate; mistakes in credit reports are common.)

Despite all your precautions, you still could become the victim of identity theft, though your chances will certainly be less than if you do nothing. If you suspect you've become a victim, immediately notify the three credit bureaus, your credit card companies, banks, and creditors and other financial institutions you deal with, as well as the police. You can request a "fraud" alert at the credit bureaus to stop any requests for new credit.

Legal Notice