Potential Exposure for Employers Under New Illinois Law

Changes to Illinois Wage Payment and Collection Act provide substantially more exposure to Illinois employers.

On January 1, 2011 changes to Illinois wage claim statute became effective.  The changes give employees substantially more leverage in claims for unpaid compensation.  The term compensation includes not just salary payments, but also benefits such as vacation pay, bonuses, commissions, incentives, etc.  So even an honest dispute about compensation can come within this new law.  The reason for concern is the increased potential damages can put employers at serious disadvantage.

Here are some of the important changes that give employees more leverage.

An employee in a private lawsuit against an employer can recover attorney’s fees.  This will encourage more attorneys to take wage claim cases since they can recover fees.  Those fees can be greater than the amount of the wages claimed.  This attorney fee’s provision is a one way street.  If an employer wins, there is no provision for getting the employee to pay the employer’s attorney’s fees.  This amounts to a “heads I win and tails you lose situation” for employees.

An employee who wins in a private lawsuit is also entitled to interest on the unpaid wages.  The interest is equal to 2% per month.  Yes, that is 2% per month (not per year).  The interest starts from the date that the payment should have been made up until it is finally paid.  In comparison, interest on judgments in Illinois is 9% per year.  And interest on judgments accrues from the time you win the lawsuit not from the time the claim arose.  So the interest under this law is not only at a much higher rate, but also it accrues from the time the claim arose.

There now is personal liability for the company’s officers even if they didn’t have knowledge of the dispute but have day to day operational control.  For many mid-size businesses that have human resources and payroll personnel handling employee compensation, the company’s officers who may also be its owners now have personal liability.   If lower level employees–say the payroll department person–have knowledge of the wage claim they now also can be personally liable.

For wages claims of $3,000.00 or less, the Illinois Department of Labor has the authority to hear those claims and now their findings will be binding.  An employer still can dispute the finding in the circuit court, but the standard for reversing that decision will be higher.

These changes mean that Illinois employers must be more careful about how they deal with employee compensation.  A dispute, if not resolved quickly, can be substantially more expensive for employers than the disputed amount.

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