If Pain (Or Anything Else), Yes Gain – Part 115: Chicago Enacts Novel Dual Paid Sick Leave / Paid Time Off Law

What You Need To Know:

• On November 9, 2023, the Chicago City Council passed a brand new “Chicago Paid Leave and Paid Sick and Safe Leave Ordinance” (the “Ordinance”). The Ordinance is effective December 31, 2023, and will replace the current Chicago Paid Sick Leave Ordinance (“PSLO”) at that time.
• The Ordinance will require employers with employees working in Chicago to provide eligible employees with up to (i) 40 hours of Paid Leave for any purpose and (ii) 40 hours of Paid Sick Leave per year – for a total of 80 hours – making it one of the most expansive paid leave laws in the country.
• The Ordinance changes the current accrual method under Chicago’s existing paid sick leave law, and eliminates Chicago’s existing carryover and use exceptions for FMLA-covered employers.
• The Ordinance also contains notable provisions on a number of other substantive requirements, including: (a) treatment of earned, unused paid leave at separation of employment; (b) unlimited paid time off policies; (c) rate of pay; (d) treatment of new hires; (e) treatment of earned, unused Paid Leave and Paid Sick Leave at year-end; and (f) annual usage amounts. These are all described in greater detail, below.

Background:

The amended Ordinance passed the Chicago City Council by a vote of 36-12. It overcame opposition from smaller businesses, following certain compromises for small and medium-size employers (see below), and passed notwithstanding opposition from many business industry groups. The changes also come as Illinois employers – outside Chicago – have been preparing for the State’s new Paid Leave for All Workers Act (“PLAWA”) going into effect on January 1, 2024,[1] which exempted Chicago and parts of Cook County.

Cook County also has an amendment pending to its current Earned Sick Leave Ordinance that would convert the ordinance from a paid sick leave to a paid leave mandate, effective January 1, 2024. The proposed amendments call for eligible employees to earn and use up to a minimum of 40 hours of paid leave per year that can be used for any purpose.

Substantive Highlights:

Employer Coverage:  The Ordinance applies to any person who employs at least one employee. However, certain substantive obligations differ depending on whether an employer is a “Small Employer” (50 or fewer employees), “Medium Employer” (51-100 employees), or an employer who is neither based on the size of its workforce.

Covered Employees:  Like the current Chicago PSLO, all employees who performs at least two hours of work for an employer in the City of Chicago in any particular two-week period are covered by the Ordinance. Notably, for purposes of determining eligibility, time spent traveling in Chicago that is compensated time, including sales calls, deliveries, and travel related to business activities, is counted towards this requirement. Domestic workers, regardless of whether they work as employees or independent contractors, are also covered by the Ordinance.

Relatedly, and unlike the PSLO, the Ordinance does not require covered employees to work at least 80 hours for an employer within a 120-day period in order to be eligible for paid time off.

Accrual: Beginning January 1, 2024, or on a covered employee’s first day of employment, whichever is later, an employee must accrue: (i) 1 hour of Paid Sick Leave and (ii) 1 hour of Paid Leave for every 35 hours worked, up to 40 hours of Paid Sick Leave and 40 hours of Paid Leave per 12-month period. Of note, this reflects a change in the existing accrual rate standard under the Chicago PSLO (presently, 1 hour per 40 hours worked). 

Leave must accrue in one hour increments and may not accrue fractionally.  Exempt employees will be assumed to work 40 hours per week for purposes of accrual, unless the employee’s normal workweek is under 40 hours, in which case paid time off will be accrued based on that workweek. 

The Ordinance also has a provision for a monthly accrual, if an employer offers more Paid Leave and Paid Sick Leave than the minimum requirements.

Carryover: Employees may carryover up to (i) 16 hours of Paid Leave and (ii) 80 hours of Paid Sick Leave at the end of their 12-month accrual period.  However, if employers deny employees the use of Paid Leave or Paid Sick Leave in a way that deprives them of “meaningfully having access” to such time, despite employees’ compliance with their policy, then employers must allow employees to increase their carryover to account for such denied time off. Employers do not need to pay an employee for any unused leave time that is not carried over at year-end.

For purposes of the transition from the Chicago PSLO to the Ordinance, the Ordinance states that earned, unused paid sick leave under the PSLO (i.e., paid sick leave that was earned pre-2024) must be transferred to Paid Sick Leave under the Ordinance.

Use: Employees may begin to use Paid Sick Leave on their 30^thcalendar day of employment. This is a change from the new hire usage waiting period under the Chicago PSLO. For Paid Leave, employees can begin to use available time on their 90^thcalendar day of employment.  Employers may set minimum increments for use of leave – 4 hour increments for Paid Leave and 2 hour increments for Paid Sick Leave (also a change from the existing Chicago PSLO). 

Importantly, as drafted the Ordinance does not appear to set a cap on the amount of available Paid Leave or Paid Sick Leave that an employee can use per year. 

Frontloading: In lieu of accrual, employers can grant employees 40 hours of Paid Leave and 40 hours of Paid Sick Leave on the first day of employment or the first day of a 12-month accrual period.  The Ordinance states that year-end carryover of Paid Leave is not required if sufficient leave is frontloaded – but does not address if frontloading obviates year-end carryover for Paid Sick Leave. 

Unlimited Paid Time Off: The Ordinance explicitly allows employers to use unlimited paid time off policies for compliance, in lieu of accrual. If an employer uses an unlimited paid time off policy, carryover is not required. However, the Ordinance still requires payout of up to 40 hours of paid time off upon separation or transfer outside the geographic boundaries of Chicago – less any paid time off used during the prior 12-month period. As a broad matter, the Ordinance states that its substantive provisions for Paid Leave and Paid Sick Leave apply to unlimited paid time off setups.

Calculation of 12-Month Period: The 12-month accrual period for a Covered Employee shall be calculated from the date that the employee begins to accrue Paid Sick Leave and Paid Leave.

Reasons for Use:

• Paid Leave: Like the Illinois PLAWA, employees may use Paid Leave under the Ordinance for any purpose. Employers may not require employees to give a reason for using Paid Leave, or submit any documentation for such leave. But, employers can require employees (a) give “reasonable” notice (not to exceed 7 days before the Paid Leave absence) and (b) obtain “reasonable preapproval” for the use of such leave in order to maintain continuity of operations. Rules will be promulgated by the Office of Labor Standards regarding these restrictions for use. 
• Paid Sick Leave: The covered reasons for use of Paid Sick Leave under the Ordinance are the same as those under existing Chicago PSLO. A covered employee may use Paid Sick Leave when:

(A) The employee is sick, injured, or receiving professional care, including preventative care, diagnosis, or treatment for medical, mental, or behavioral issues, including substance use disorders.

(B) The employee’s family member is ill, injured, or ordered to quarantine, or the employee is caring for a family member receiving professional care, diagnosis, or treatment for medical, mental, or behavioral issues, including substance use disorders.

(C) The employee or the employee’s family member is the victim of domestic violence, a sex offense, or trafficking in persons.

(D) The employee’s place of business is closed by order of a public official due to a public health emergency, or if the employee’s family member’s school, class, or place of care has been closed.

(E) The employee obeys an order issued by the Mayor, the Governor or Illinois, the Chicago Department of Health, or a treating healthcare provider, requiring the employee to:

a. Stay at home to minimize the transmission of a communicable disease;

b. Remain at home while sick or experiencing symptoms of a communicable disease;

c. Obey a quarantine order issued to the employee;

d. Obey an isolation order issued to the employee.

Importantly, the Ordinance does not appear to define “family member” for purposes of covered Paid Sick Leave absences. In addition, employers retain the right to request documentation for employees’ use of Paid Sick Leave, after more than three consecutive days of absence.

Employee Notice: Employers may require employees to provide “reasonable notice” for both Paid Leave and Paid Sick Leave.  As noted above, employers may require employees to give reasonable notice, which may not exceed 7 days, before using Paid Leave and may require preapproval for the use of Paid Leave, subject to certain limitations.  Employee notice requirements for Paid Sick Leave remain unchanged from Chicago’s current PSLO.  If an employee’s need for Paid Sick Leave is foreseeable, an employer can require that the employee provide up to 7 days’ notice for such leave.  If the need for Paid Sick Leave is not reasonable foreseeable, an employee must give notice as soon as practicable. 

Written Policy, Notice and Posting: Employers must have a written policy for Paid Leave and Paid Sick Leave. Among other topics, the written policy must explain the rate of Paid Leave and Paid Sick Leave accrual and include information on the employer’s notification requirements.  Written notice of the policy must be provided to employees at the start of employment and within 5 calendar days before any change to the paid time off policy requirements. Additional specific written policy standards exist regarding treatment of earned, unused Paid Leave at separation.

Employers must also post a notice advising employees of their right to paid time off under the Ordinance.  Employers who do not maintain a worksite in Chicago are exempt from the posting requirement.

Further, and as with the Chicago PSLO, the Ordinance requires that employers provide a notice to employees of their right to Paid Leave and Paid Sick Leave both (a) with the first paycheck issued to the employee, and (b) annually with a paycheck issued within 30 days of July 1. 

Additionally, employers must provide notice of employees’ Paid Leave and Paid Sick Leave balances with each paycheck, including the accrued paid time off used since the last notification, the used paid time off since the last notification, and any unused paid time off available for use. This may be done on paystubs or through an online system where employees can access their paid leave information.   

Rate of Pay: The Ordinance states that Paid Sick Leave and Paid Leave shall be compensated at the same rate that employees regularly earn during hours worked.  Importantly, the Ordinance further notes that for non-exempt employees, wages must be calculated by dividing the employee’s total wages by their total hours worked in the full pay periods during the past 90 days. Wages do not include overtime pay, premium pay, gratuities or commissions, but must be at least the highest applicable minimum wage. 

Payout at Separation and Transfer: There is a critical distinction between the Chicago Ordinance and the Illinois PLAWA on treatment of earned, unused Paid Leave at separation of employment. Specifically, and unlike the Illinois PLAWA, the Chicago Ordinance expressly requires payout of earned, unused Paid Leave upon separation. When an employee is terminated, resigns, retires, or otherwise separates from employment, employers must pay the monetary equivalent of all unused, accrued Paid Leave as part of the employee’s final compensation.

Certain carve outs and exemptions to the above payout obligation exist for Small Employers and Medium Employers. Small Employers are exempt from the above Paid Leave payout requirement. By comparison, Medium Employers are only required to payout up to 16 hours of earned, unused Paid Leave until December 31, 2024. Beginning on January 1, 2025 and going forward thereafter, Medium Employers will be required to pay the full monetary equivalent of all unused and accrued Paid Leave. There remains no requirement to payout unused Paid Sick Leave at separation.

The Ordinance states that its provisions on payout of Paid Leave at separation should not be construed to waive or limit an employee’s right to final compensation for promised and earned vacation time or paid time off under the Illinois Wage Payment and Collection Act.

The above Paid Leave payout requirements, including the different treatment for Small and Medium Employers, also apply when an employee is no longer a covered employee under the Ordinance due to a transfer outside of the City of Chicago’s geographic boundaries.

Collective Bargaining Agreements: The Ordinance does not apply to an employee working in the construction industry who is covered by a collective bargaining agreement. For other unionized employees, the Ordinance does not apply if the collective bargaining agreement is in effect on January 1, 2024. Thereafter, the Ordinance’s requirements can be waived if the agreement contains an explicit waiver in clear and unambiguous terms (like the existing PSLO).

Existing Policies: Employers who already have policies that grant employees Paid Leave or Paid Sick Leave in an amount that meets or exceeds the requirements of the Ordinance do not need to provide any additional Paid Leave or Paid Sick Leave.

Violations:  Violations of the notice provisions are subject to a first-time fine of $500, and a $1,000 fine for each subsequent violation. Importantly, each day that a violation continues is a separate offense. Employers that violate other provisions in the Ordinance face fines between $1,000 and $3,000 for each violation.

Employers that violate the ordinance are also liable for damages to the affected covered employee equal to three times the full amount of any leave denied or lost by reason of the violation, with interest, as well as reasonable attorney’s fees.

The Ordinance also provides employees with a private right of action. Employees may recover civil damages equal to three times the full amount of leave denied or lost by reason of the violation, with interest, as well as reasonable attorney’s fees. The private right of action is available for Paid Sick Leave violations on December 31, 2023. The private right of action will not be available for Paid Leave until January 1, 2025.

What Employers Need To Do:

As the Ordinance’s December 31, 2023 effective date approaches, here are some steps for employers to consider:

• Absent any update that postpones the effective date of the Ordinance, employers should immediately review their existing paid leave and paid sick leave policies to ensure they meet or exceed the Ordinance’s requirements, and prepare any updates as needed.
• Employers should also ensure that their payroll or other systems are prepared to identify employees’ paid time off balances, as required by the Ordinance, in addition to issuing other required notices and policies.
• Employers should review their rates of pay for calculating paid time off for Chicago employees, to ensure compliance with the Ordinance.
• For employers currently using an “unlimited” time off policy, those policies should be revisited and reassessed in light of the Ordinance’s applicable standards.

With the paid leave landscape continuing to expand and grow in complexity, we encourage companies to reach out to their Seyfarth contact for solutions and recommendations on addressing compliance with these laws and paid leave requirements more generally.  To stay up to date on paid leave developments, please click here to sign up for Seyfarth’s Paid Leave mailing list.  Companies interested in Seyfarth’s paid sick leave laws survey should reach out to sickleave@seyfarth.com.

 

[1] For more information on the Illinois PLAWA, see our prior Legal Updates here and here.