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Paid Sick and Other Leave Update: Chicago Employees

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Get ready for more employment law complexity, this time courtesy of the Chicago City Council! Effective July 1, 2024, the vast majority of employees working in Chicago will be covered under the city’s new Paid Leave and Paid Sick and Safe Leave Ordinance (“Ordinance”). This law forges a sizable managerial task for employers, further complicated by the swift 60-day turnaround from its finalization to May 1, 2024, to its legal applicability.

All employers with at least one employee working in the geographical limits of the City of Chicago should pay special attention to this new Ordinance, if even for small amounts of time (including part-time, periodically, or remote). Its broad applicability, new accrual rates and usage rules, and accompanying wage theft implications for failure to pay a covered employee make it especially important for all employers to assess the necessary adjustments – and quickly!

The City of Chicago has also made available several resources online including Ordinance Rules, a one-page Overview, and FAQs.

As a guide for understanding and applying the new law, employers should be especially careful to do the following:

1. Recognize differences between paid sick leave and paid other leave, and comply with resulting legal compliance aspects (especially for employers who offer only “PTO” covering all types of sick and personal leave);
2. Correctly identify covered employees and employer size;
3. Properly notify employees (through conspicuous posting of a public notice);
4. Determine whether to use accrual or frontloading approaches, with resulting correct applications;
5. Allow usage of leave under prescribed terms;
6. Pay terminated employees their unused accrued time as legally required;
7. Maintain records, as may be required for inspection by the Department of Business Affairs and Consumer Protection;
8. Update policies and employee handbooks in alignment with the new law; and
9. Consider potential liability and ramifications for noncompliance, as part of follow-up steps.

The following sections address the many technical intricacies of the new Ordinance, particularly for employers that now will need to consider potential modifications of their employee policies and prompt changes for legal compliance.

Chicago Ordinance Supersedes Illinois Law, for Chicago Employees

Of prime importance, the Ordinance supersedes the Illinois Paid Leave for All Workers Act state law, based on Illinois Home Rule requirements and Illinois law. In Illinois, “Home Rule” refers to a local municipality’s ability to exercise autonomy when more than one law applies to a geographical area. For example, an employee could geographically fall under the State of Illinois, Cook County, and the City of Chicago, and each jurisdiction has laws governing employee paid leave. In this case though, the “Home Rule” gives autonomy to the City of Chicago.

Identify Covered Employees and Employer Size

Under the Ordinance, a covered Chicago “employee” is broadly defined as any employee, full-time or part-time, if they work at least 80 hours within any 120-day period. As a tangible reference, the Ordinance’s coverage could result for an individual working 5 hours per week for 16 weeks.

Employers of any size, with at least one covered Chicago employee, must afford new accrual rates of “Paid Leave” and “Paid Sick and Safe Leave.” Notably, employers need not be primarily positioned in Chicago either. If an employer has an employee working remotely or otherwise performing their job duties within the geographical area of the City of Chicago, the law applies.

Employers are further distinguished by size, which becomes relevant in terms of financial payout requirements upon employment termination, addressed further below (see Termination Rules). “Small Employers” (up to 50 employees), “Medium Employers” (51 to 100 employees), and “Large Employers” (more than 100 employees) are classified based on their number of employees located within Chicago.

Once an employee meets the definition of a Chicago employee per the Ordinance, the person will remain under the Ordinance’s coverage for as long as employment continues with the same employer. Consequently, if the employee later moves to another work location, it is possible that the employee could be covered under employment laws of other jurisdictions too. For purposes of the Chicago Ordinance, the employee will be entitled to the benefits of the Ordinance for the hours worked in the geographical area of Chicago.

Note too that for the purposes of this article, the Ordinance’s “Paid Sick and Safe Leave” will be referred to as “Paid Sick Leave.”

Notifications

The Ordinance requires specific notification requirements, as follows.

Employers must notify all current employees about the Ordinance’s applicability and paid leave with the first paycheck issued after the Ordinance’s July 1, 2024, applicability. Thereafter, employers must provide annual notices by July 31st each year. Additionally, employers must notify new employees as part of their first paychecks. Employers must also keep their employees up-to-date on their paid sick leave and paid leave available balances, such as through pay stubs or online accessibility. Employers must provide a copy of their leave policy upon commencement of employment too (in employees’ “primary language”), as well as within five days of any policy change.

If the employer has a physical business location within the City of Chicago, they must post a public notice in a conspicuous place at each facility. The notice must be posted in English and in a size of no less than eleven by seventeen inches. If a significant portion of the employees (more than 5%) are not literate in English, the notice must be posted in the respective primary language. (The City of Chicago has made readily available several language variations on their website). Employers that do not maintain a business location in the City of Chicago are exempt from this posting requirement.

Accrual Rates vs. Advance Crediting and Frontloading

The Ordinance requires that employers annually provide covered employees with both (1) Paid Leave off for any reason and (2) additional Paid Sick Leave. For full-time employees, such legally required leave amounts to a minimum of 40 hours of Paid Leave off for any reason, and an additional 40 hours of Paid Sick Leave. Otherwise, both types of paid leave accrue at the rate of one hour for every 35 hours worked (effectively 2 hours for every 35 hours worked).

Such accrual starts on July 1, 2024, with minimum hour increments and no fractional accruals allowed – unless the employer offers its employees more paid leave than the Ordinance’s minimum requirements. In that case, the Ordinance appears to permit fractional accruals. Consequently, if an employer does not offer more generous paid leave than under the Ordinance, monthly allocations for accrued leave may warrant some adjustments.

Note too that full-time exempt employees are presumed to work 40 hours per week (e.g., managers, professionals, other employees not subject to the Fair Labor Standards Act’s and comparable state law overtime requirements).

If an employer offers its employees more hours of Paid Leave and Paid Sick Leave than the minimum 40 plus 40 requirements of the Ordinance, then the employer may provide leave credit proactively on a monthly basis rather than through proportionate accruals over time.

Consequently, and under related Ordinance requirements, it may be helpful for employers to credit paid leave in advance – on a monthly basis, or perhaps even frontloading for an entire year (as addressed further below).

Usage Regulations

The Ordinance has special regulations regarding usage, which creates a framework for employers and employees to understand the Paid Leave and Paid Sick Leave usage rights of employees under the law. In cases where an employer may wish to be more generous or favorable to the employee (i.e. allowing earlier usage, less documentation, etc.), that would be allowable if consistently applied. The established usage policies of an employer should be outlined clearly within an employee handbook or otherwise distributed in writing to covered employees in line with the regulatory terms of the Ordinance.

Qualifying Timeframes Upon Employment Commencement

Under the Ordinance, once an employee commences work, they may use accrued amounts after established employment timeframes as follows: (1) Paid Leave: May be used after 90 days; and (2) Paid Sick Leave: May be used after 30 days. However, if an employer offers at least 80 hours of paid leave without distinction between sick and other types of leave, then employees may use accrued paid leave starting 30 days after employment commences (see related considerations below).

Carryover

Paid Leave: Employees may carry over up to 16 hours of paid leave (for any reason) from one year to the next, unless an employer frontloads such paid leave benefit each year.

Paid Sick Leave: Employees may carry over up to 80 hours of paid sick leave per year, regardless of any frontloading, per the City of Chicago's FAQ #35. The City's FAQ #36 further addresses carryover and balance implications for both Paid Sick Leave and other Paid Leave.

Minimum Usage Rules

The Ordinance requires that any minimum usage rules established for employee benefits are not to be limited further than the following rules: (1) Paid Leave: Not to exceed a 4-hour minimum usage requirement; and (2) Paid Sick Leave: Not to exceed a 2-hour minimum usage requirement. Applying these requirements, an employer could provide that employees may take either kind of paid leave in minimum increments of two hours per day. That would be legally compliant. By comparison, an employer who offers only “PTO” without distinction as to the types of paid leave could not require 4-hour increments for all such PTO; that would violate the Ordinance’s requirements for Paid Sick Leave.

Reasons for Leave, Notification, and Substantiation

Employers may require information and documentation from employees regarding their leave usage, and depending on the type, certain regulations exist here too.

Paid Leave: May be used for any reason of the employee’s choosing, with no supporting documentation or reason provided. Employers may require “reasonable notice,” so as not to unduly disrupt operations, but such requirement may not be for more than 7 days’ advance notice.

Paid Sick Leave (remember, the Ordinance addresses this as “Paid Sick and Safe Leave”): May be used for illness, injury, or for the receipt of professional care related to preventive care, diagnosis, or treatment for medical, mental, or behavioral issues (including substance use disorder) of an employee or a family member. Paid Sick Leave additionally includes leave due to domestic violence of the employee or employee’s family member, as well as for operational shutdowns.

When an employee’s need for Paid Sick Leave is reasonably foreseeable, the employer may require up to seven days’ notice before such leave is taken. Otherwise, an employer may require such advance notice as may be reasonably practicable. For Paid Sick Leave periods of at least three consecutive days, an employer may require a doctor’s note or other medical substantiation. Note too, the Ordinance also requires policies are in place such that an employer “that denies a Paid Leave request must do so in writing; the denial must state pre-established policy rationale and be issued to the Covered Employee immediately upon the denial” (Rule PTO 2.09).

These specific employee notification and substantiation requirements highlight potential issues for employers that offer only PTO leave without differentiation between sick leave and personal leave. Thanks to the Ordinance, employers will need to consider such differences in connection with potential medical substantiation as well as notification requirements.

Termination Rules by Employer Size

The Ordinance requires employers to comply with specific unused Paid Leave payout requirements, based on employer size (per number of employees working in Chicago). An employer will be classified by the number of Chicago employees at the given time of an employee’s termination, and further directed to pay out accrued time off as indicated below.

Small Employers (up to 50 Chicago employees) - Unused paid leave payout is not required; Medium Employers (51-100 Chicago employees) - Unused paid leave up to 2 days is required to be paid out until July 1, 2025, and thereafter all unused paid leave must be paid out upon termination; and Large Employers (More than 100 Chicago employees) - All unused paid leave must be paid out upon termination.

This aspect of the Ordinance is a bit odd, however, since accrued Paid Leave for vacation or otherwise unspecified is otherwise legally required to be paid out upon employment termination, if earned but unused. On the other hand, unused Paid Sick Leave does not need to be paid out upon termination – if offered to employees as separate from paid leave for personal reasons.

This consideration has been a key reason for employers to distinguish between Paid Sick Leave and paid other leave, but not always. Many employers have found it administratively easier to provide only “PTO” – and with no requirements for medical substantiation or other verification. The Ordinance may cause at least some employers to reconsider using only PTO for employees’ paid leave (and apart from family, bereavement, or other types of special leave).

Note too that employers are otherwise legally obligated to pay out the dollar value of accrued but unused paid leave. Consequently, only to the extent an employer offers “paid leave” solely pursuant to the Ordinance or otherwise not required under Illinois law (e.g., the Illinois Wage and Payment Act - 820 ILCS 115/5) would an employer be excused from such monetary obligation.

Interestingly too, the Ordinance includes a provision for potential “unlimited time off.” If an employer offers such benefit, then an employee will be entitled to the monetary equivalent of 40 hours of paid time off minus the hours of paid time off used by the employee in the last 12-month period before employment termination.

Maintaining Records

Specific record-keeping requirements apply too, obligating employers to maintain records for at least five (5) years (or longer, for any claims) for each employee including name, contact information, job title, dates pertaining to hire and first usage eligibility, hours worked, pay rate, any wage agreement, number of paid time off hours earned each year and dates on which paid time off hours were taken and paid, and other records showing legal compliance with the Ordinance.

The Ordinance further details that if the Commissioner determines an employer is operating in violation of the Chapter, an order may be issued (in the form of a subpoena, if desired), directing the employer to provide information. Employers then will have 30 calendar days from the date on which such order was issued to provide the information or to file a legal objection.

Updating Policies and Employee Handbooks

In tandem with the Ordinance’s effectuation, employers should make sure to update policies and employee handbooks in alignment with any Paid Leave and Paid Sick Leave changes. As mentioned earlier, an employer may choose to offer (a) more favorable benefits to Chicago employees above what is required, or (b) broadly offer favorable benefits to larger geographical area of employees – it must, however, offer the minimum benefits required to Chicago employees in accordance with the local law. Employers that offer only PTO should think through the Ordinance’s implications, then make adjustments as warranted.

The Ordinance also outlines requirements of the Paid Leave and Paid Sick Leave usage policies and notification policies, for which a summary is provided below:

1. Shall be made available in English (or a language in which an employee is literate).
2. May be part of an employer manual, employer handbook, or separate document;
3. May require a covered employee to give reasonable notice;
4. Outlines that an employer denial of a Paid Leave request must do so in writing and such denial must state pre-established policy rationale and be issued to the covered employee immediately upon the denial;
5. May require an employee to obtain reasonable pre-approval from the Employer before using Paid Leave for the purposes of continuity of employer operations – relevant operational considerations may include whether granting of leave would significantly impact business operations, whether the employer provides an critical need or service to the people of Chicago (i.e., health, safety, or welfare), whether similarly situated employees are treated the same for reviewing, approving, and denying Paid Leave, and whether the employee has “meaningful access” to use paid leave over the course of an established benefit year.

Liability

The City of Chicago classifies failure to provide Paid Leave and Paid Sick and Safe Leave as “wage theft,: which may be viewed further in its Chicago Minimum Wage and Wage Theft Rules Supporting Article II of Title 6. Employers may be fined up to $3,000 for each separate violation of the Ordinance. Failure to post the public notice start at $500. Further, employees with wage theft claims may file a private lawsuit for treble damages plus attorneys’ fees.

Next Steps

Understanding the intricacies of the new City of Chicago Ordinance will surely be worth the time, both for providing fair benefits to employees and for employer legal compliance. Employers across the country must identify any remote employees within the geographical boundaries of Chicago. Further, they should also identify any part-time employees that fall under the Ordinance, and those who temporarily work in Chicago city limits, who may trigger applicability.

Accordingly, it may be beneficial to seek legal counsel to evaluate such fringe scenarios, and also in developing, or at least reviewing any updated policies or employee handbooks, to ensure compliance with the new Ordinance. And, as employment law is constantly changing – onward!

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