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Claim for Failure to Pay Bonus Did Not Fall Within Illinois Wage Payment Act

Freehauf v. TCB Design/Build, LLC, 2014 IL App (1st) 132928-U

“Claim for Failure to Pay Bonus Did Not Fall Within Illinois Wage Payment Act”

On September 5, 2014, the Illinois Appellate Court (1st District) affirmed the circuit court’s finding that the individual defendant, Mark Vandenberg, had not violated the Illinois Wage Payment and Collection Act.

The Plaintiff, Gregory Freehauf, had been employed by TCB Design/Build, LLC, whose sole manager was Vandenberg. Freehauf’s complaint alleged that on April 11, 2006, he was offered a promotion to become president of TCB, which he accepted. The complaint further alleged that in a letter dated August 24, 2006, TCB guaranteed him a year-end bonus of no less than $200,000.00.

Freehauf left TCB in June 2008 and claimed that TCB owed him $232,297.50 in unpaid bonus earnings for 2006, 2007, and a pro-rata portion of 2008. In 2010, Freehauf filed a complaint against TCB and Vandenberg for breach of contract and violation of the Wage Act for allegedly failing to fully compensate him for his bonus earnings.

In its August 15, 2013 order, the circuit court had found TCB was liable to Freehauf for $474,702.15 under his 2006 employment agreement. The circuit court, however, found that Vandenberg was not an “employer” within the meaning of the Wage Act, and was not liable for Freehauf’s outstanding bonus earnings, stating:

The Illinois Wage Payment [and Collection] Act, 820 ILCS [ ] 115/13 provides: ‘Any officer of a corporation or agents of an employer who knowingly permits such employer to violate the provision of this Act shall be deemed to be employers of the employees of the corporation.’ 820 ILCS [ ] 115/13 [ (West 2008) ] ( [E]mphasis added.) Plaintiff is an employee pursuant to the definition of ‘employee’ contained in [section] 115/2 of the Act: ‘the term’ “employee” shall include any individual permitted to work by an    employer in an occupation.’ 820 ILCS [ ] 115/2 [ (West 2008) ]. Employees have a private right of action under the Act. Defendant Vandenberg is an officer of TCB. The Act also requires payment of employee wages no ‘later than 13 days after the end of the pay period in which such wages were earned.’ 820 ILCS [ ] 115/4 [ (West 2008) ].

The First District affirmed the circuit court’s finding that Freehauf failed to offer proof that Vandenberg “knowingly failed” to permit the payment of bonuses for 2006 and 2008, and further found that Vandenberg’s actions in not providing the appropriate bonus amount for 2007, did not amount to “knowingly” under the Wage Act.

In his appeal, Freehauf argued that the circuit court erred in finding that the Wage Act required Vandenberg to have acted “knowingly” to be considered an employer. After affirming the circuit court’s finding that TCB undoubtedly was an employer under the Wage Act, the Appellate Court analyzed whether the Wage Act required individual employees to act “knowingly” to be liable as an employer.

The Appellate Court concluded that the definition of employer under the Wage Act did in fact contain a knowledge requirement. This conclusion, the Appellate court reasoned, was required to avoid the absurd result of making “every supervisory employee strictly and personally liable for payment of his or her subordinates’ wages.” While the Wage Act holds employers strictly liable for not only its own violations of the Wage Act but also for any violations committed by its agents, individual employees are not strictly liable. This requirement that an individual employee must “knowingly” fail to pay wages or bonuses avoids the problem of holding individual employees strictly liable.Because Freehauf failed to present evidence to establish that Vandenberg knowingly failed to pay Freehauf’s bonus earnings, Vandenberg was not liable under the Wage Act.

The Chicago unpaid wage attorneys at DiTommaso Lubin Austermuehle near Chicago and Oak Brook represent business owners and professionals regarding wage claims, non-competition agreements, covenants not to compete, restrictive covenants and other claims throughout the Chicagoland area, including Wheaton and Orland Park; and in the Mid-West region, including Indiana, Wisconsin and Iowa. You can contact us by calling our toll free number (877) 990-4990 for a consultation or contact us online by filling out the form at the side of this blog.