Appellate Ruling Highlights Risk For Out-Of-State Employers Under Illinois Wage Payment And Collection Act

If your company has employees living or working in Illinois, you’d best take note of the recent ruling by the Illinois First District Appellate Court in Watts v. ADDO Management, LLC et. al. The ruling clears the way for unpaid employees who perform even small amounts of work in Illinois to sue both in-state and out-of-state employers under the Illinois Wage Payment and Collection Act (“Wage Payment Act”). Watts is also the first Illinois appellate ruling to address the territorial reach of the Wage Payment Act in light of new regulations issued by the Illinois Department of Labor in 2014. 

In a nutshell, the Wage Payment Act imposes requirements on when and how compensation should be paid to employees in Illinois. It also gives Illinois employees a right to sue employers to collect unpaid compensation. Although the Wage Payment Act does not apply to “true” independent contractors (as defined by the statute and regulations), it applies to virtually any other type of “agreement” to pay compensation. The Wage Payment Act applies not only to wages paid to hourly employees, but also to salaries, commissions, and compensation paid to administrative, executive, and professional employees (including bonuses, unpaid vacation, severance and golden parachutes, etc.). 

The Wage Payment Act:

• imposes significant penalties on employers who deliberately withhold compensation
• makes managers, officers, and executives personally liable under certain circumstances
• can make a willful violation a crime
• allows the Illinois Department of Labor to pursue employers directly and, where appropriate, impose additional fines and penalties
• can be the basis for class actions
• gives employees the right to collect their attorneys’ fees and interest in prosecuting a claim

In its opinion, the appellate court interpreted language in the statute that makes it applicable “to all employers and employees in this State.” Finding the phrase “in this State” to be ambiguous, the appellate court looked to the Illinois Department of Labor’s 2014 regulations, which suggested that the Wage Payment Act did not exclude employers physically situated outside of Illinois.  The regulations also provide that the Wage Payment Act could apply to work performed entirely outside of Illinois, if the employer is located here.

Relying on the regulations, the appellate court found that two truck drivers who had been dispatched from Illinois to deliver cargo to Oregon could assert a claim under the Wage Payment Act against an employer located in Michigan, even if only 8% of their work had been performed in Illinois. However, the court noted that out-of-state employers must still have “sufficient contacts” in Illinois to be held liable under the Wage Payment Act, and left open whether the employers had potential defenses to the statute.  

To any lawyer who hasn’t blocked first-year civil procedure out of their memory, “sufficient contacts” immediately calls to mind the related concept of “minimum contacts,” and the constitutional protection against being sued in states in which you have little-to-no operations. These fact-intensive concepts may give out-of-state employers potential defenses to the Wage Payment Act, as well as defenses against being sued in Illinois in the first place.

Watts serves as a reminder that employers should continuously consult with counsel to stay in compliance with state-specific wage-and-hour laws, including the Wage Payment Act. Watts also highlights the importance of retaining a skilled and knowledgeable litigator to pursue potential defenses.

For more information, please contact Eric VanderPloeg at 312/840-7129 or evanderploeg@burkelaw.com.