Employment separation happens in the course of doing business. It just does. Employees will leave their jobs and employers will terminate employees. Executives will feel they have not been properly compensated when they leave the organization. When employment separation happens, the Illinois Wage Payment and Collection Act requires that businesses promptly pay their employees earned wages and other compensation upon separation and provides employees, including executives, with enforcement tools to recover earned compensation from an employer. See 820 ILCS 115/1.
The Act covers all employees, except state or federal government employees, who perform work in Illinois for an Illinois employer. See §115/1; Khan v. Van Remmen, Inc., 325 Ill. App. 3d 49, 61 (2nd Dist. 2001). It does not matter whether the employee is a resident of Illinois. Adams v. Catrambone, 359 F.3d 858, 862 (7th Cir. 2004).
There are several provisions in the Act that cause many employers to pay close attention to the Act’s requirements. For example, the Act empowers a judge hearing the employee’s claim to award attorney fees and costs to the employee, to be paid for by the employer. See §115/14. Officers and directors can be held personally liable if they knowingly aided or allowed a violation of the Act to occur. See §115/13. An employer who knowingly terminates or discriminates against an employee for exercising the employee’s rights under the Act may be found guilty of a misdemeanor. See §115/14(a-5).
Illinois Sales Representative Act (“ISRA”) is a corollary to the Act. 820 ILCS 120/1. ISRA covers independent contractor sales representatives who, by virtue of their independent contractor status, are not covered by the Act.
1. Does the Act Apply?
In order to establish a claim under the Wage Payment and Collection Act, an employee or ex-employee must prove that: (1) that the defendant was an “employer” under the Act; (2) that the parties entered into an “employment contract or agreement,” as defined in the Act; and (3) the employee is owed “final compensation” under the Act. See Catania v. Local 4250/5050 of the Comm’ns. Workers of Amer., 359 Ill. App. 3d 718, 722 (1st Dist. 2005); 820 ILCS 115/1.
The Wage Payment Act defines “employer” and “employee” broadly. See 820 ILCS 115/2. “Employer” covers any person or business that makes wage payments for work performed by employees for the benefit of a third party pursuant to a contract between the business and the third party. See §115/2. “Wages” includes compensation owed by an employer to an employee pursuant to an agreement between the two parties. See §115/2. The Act’s reference to “agreement” is interpreted by courts loosely. A formal contract is not required; it only requires a “manifestation of mutual assent” between the employer and employee that work will be provided in exchange for pay. See Zabinsky v. Gelber Group, Inc., 347 Ill. App. 3d 243, 249 (1st Dist. 2004).
Only “employees” can recover wages under the Act. See §115/2. An “employee” is any individual “permitted to work by an employer in an occupation” who is not an independent contractor, meaning if the individual cannot be told how to do his job or runs his or her own full-time business providing those services. See §115/2.
2. When Must Earned Compensation Be Paid?
Employers must use semi-monthly pay cycles and must pay employees wages within 13 days of the end of every sem-monthly pay cycle. See §115/3, 4. Commissions and wages of executive, administrative and professional employees, as defined in the Federal Fair Labor Standards Act of 1939, must be paid once a month. See §115/3. Earned compensation must be paid to separated employees “at the time of separation, if possible, but in no case later than the next regularly scheduled payday.” See §§115/5.
3. If Compensation is Owed, What Must Be Included?
Employees are entitled to earned wages, commissions, bonuses, severance, the monetary equivalent of vacation and holiday time, and any other compensation owed to the employee. See §115/2. Employees who resign or are terminated must receive the monetary equivalent of all unused earned vacation. See §115/5. Employee benefit contributions owed by the employer to an employee’s benefit fund or trust pursuant to a collective bargaining agreement must be paid to the employee as wages. See §115/8.
A good employment agreement will specify a condition for when commissions are considered earned. If the parties’ agreement does not specify when commissions will become due, the “procuring cause” rule will apply. Under the procuring cause rule, an employee must be paid the commissions resulting from his or her activities prior to termination. Penzell v. Taylor, 219 Ill. App. 3d 680, 689 (1991). The rule “protects a sales person who is discharged prior to culmination of a sale but who has done everything to effect the sale.” See Penzell, 219 Ill. App. 3d at 689.
4. Special Provisions of the Act
There are several provisions of the Act that impose consequences intended to motivate employers to follow the Act. The Act is designed to give advantages to the employee in a wage claim dispute in order to offset the employer’s supposedly superior bargaining position. Whatever the reason, it is fair to say that the Act is pro-employee.
Generally, each party to a lawsuit must pay for its own court costs and attorney fees, unless there is a contractual provision or a statute shifting the responsibility to pay fees to another party. But the Act says that if the employer is found by a court to have violated the Act, then the employer must pay for the employee’s court costs and reasonable attorney’s fees. See §115/14. The Act also gives a judge or jury hearing the claim the power to award, in addition to the earned compensation, attorney fees, court costs, and in addition 2% of the amount of any such compensation per month since they were due. See §115/14.
There is an even more compelling reason than attorney fees for employers to pay attention to the Act’s requirements. Officers and directors of a corporation can be held personally liable to employees in a civil suit brought under the Act if the employer knowingly “aided or allowed” the corporation to violate the Act. See Andrews v. Kowa Printing Corp., 351 Ill. App. 3d 668, 680 (4th Dist. 2004); 820 ILCS 115/13. In Andrews, the court found that a corporate executive was not personally liability for his company’s failure to pay employees’ vacation or severance pay that became due upon a takeover because there was insufficient evidence of his knowledge that he was aiding or allowing the compensation to go unpaid. Andrews, 351 Ill. App. at 680.
Employers must also be careful not to violate the Act as they resolve a claim for wages. For example, employers may not unilaterally make deductions from an employee’s earned wages or other compensation. 820 ILCS 115/9. Doing so could give rise to additional liability under the Act. Employers must keep records of all employees’ names, addresses, and wages and must furnish an itemized statement of deductions to employees upon request. See §115/10. Employers must also post at the workplace the regular paydays and the time and place of payment. See §115/10. Retaliatory conduct by the employer is a misdemeanor. See §115/14(a-5). An employer who knowingly discriminates or terminates against an employee for exercising his or her rights in an investigation or proceeding under the Act may be found guilty of a misdemeanor. See §115/14(a-5).
An employment contract or employment policy cannot require an employee to forfeit earned compensation. See §115/5. Any such contracts or policies are unenforceable and ineffective. However, written disclaimers in employee handbooks can defeat a claim of mutual assent to the compensation asserted by an employee. See Skelton v Amer. Intercont.’l Univ. Online, 382 F. Supp. 2d 1068, 1075 (N.D. Ill. 2005).
Waivers or releases of claims of earned compensation are similarly invalid and ineffective. The Act says:
The acceptance by an employee of a disputed paycheck shall not constitute a release as to the balance of his claim and any release or restrictive endorsement required by an employer as a condition to payment shall be a violation of this Act and shall be void.
See §115/9. Therefore, it is not uncommon for employees to remain entitled to compensation even though they signed a release of it upon leaving the business.
5. Resolving a Wage Claim
An employee not timely paid earned compensation under the Act can file a claim with the Department of Labor or file a civil action, but not both. See §115/14. Attorneys used to have to issue a demand letter at least three days prior to suit in order to recover attorney fees, but the Act has been amended to allow fees without a notice period.
Before choosing to pursue or fight a wage claim in court, employers and employees alike should factor in the cost of court fees, attorney fees, and the time and effort that must be devoted to the lawsuit. Potential litigants should generally be aware that lawsuits often progress at a slower pace than most parties would like. This is due to a confluence of factors, including the rules of civil procedure giving each party time to file successive court documents, the hours of attorney work created by large numbers of documents involved and repeated court appearances, and the heavy caseload of some circuit courts, which may prevent courts from more promptly devoting time to the parties’ lawsuit.
If there is a relatively small amount of money at issue, many employers will choose to pay the employee what he or she claims is owed, even if the employer disputes the claim, in order to avoid the risk of paying the employee’s court costs and attorney fees, of their own court costs and attorney fees, of being held personally liable. Remember, bargained-for releases that settle Act claims for less than the amount of compensation owed will not be honored by courts. See §115/9. On the other hand, some employers wish to pursue litigation instead of paying a wage claim in order to demonstrate to third parties the employer has chosen to fight wage claims as a business decision for the purpose of deterring false claims.
No matter how an employer chooses to proceed, Illinois’ Wage Payment and Collection Act imposes obligations on employers that, if not followed, can have significant consequences. But if the employer has a working knowledge of the Act, and has in place practices that meet the Act’s requirements, it is highly likely that the employer will remain compliant with the Act and will avoid legitimate wage claims under the Act.