Client Alert - Employment Law Update
Illinois Appellate Court Finds that Employee is not Entitled to Share of Annual Performance Bonus Upon Termination
An Illinois Appellate Court recently decided a case, involving an employee's right to receive part of an annual performance bonus after separation under the Illinois Wage Payment & Collection Act. Understanding the decison's clear guidelines will help employers reduce their exposure to potentially costly wage claims.
The case of McLaughlin v. Sternberg Lanterns, Inc., No. 2-08-0831 (October 16, 2009) began when Donald McLaughlin was terminated because of his abrasive management style and insubordination. He was employed by Sternberg Lanterns, Inc. as its vice president of sales. As part of his compenstion, he was paid a yearly performance bonus based upon increase levels in the company's sales. After being fired, he filed suit, claiming in part that he was owed a portion of his annual performance bonus. The trial court ruled against Mr. McLaughlin, and he appealed.
Payment of Final Compensation under the Illinois Wage Payment & Collection Act
The Wage Payment & Collection Act mandates that employees receive their final compensation upon separation, or no later than their next regularly scheduled payday. Employers that fail to do so are subject to harsh sanctions, including the personal liability of their agents, and can be required to pay the attorneys fees of their former employees.
"Final compensation" is defined as "wages, salaries, earned commissions, earned bonuses, and the monetary equivalent of earned vacation and earned holidays." Earlier cases have held that, as with earned vacation pay, employees are entitled to receive a proportionate share of their earned bonuses upon separation. However, no Illinois state court decision had addressed the meaning of the term "earned bonus," which is not defined in the statute.
In affirming the trial court, Illinois' Appellate Court for the Second District adopted the rationale of various federal court decisions. It held that in order for an employee to be entitled to a proportionate share of a bonus, the employer must have made an unequivocal promise to pay it. Because Mr. McLaughlin's employment contract made his bonus dependent on yearly increases in sales, it was not an unconditional guarantee.
What to Do
For employees with incentive-based compensation, it is important that the language in their specific contracts or employee handbooks make clear that such payments are discretionary and not guaranteed. It is also worth noting that the standard outlined in this decision does not apply just to bonuses, but also to any form of incentive-based compensation, including stock option grants.
If you would like more information about this decision, or have questions about your employment policies and practices in general, please contact Mr. Gonzalez at 312-558-9779 or at egonzalez@elvisgonzalezltd.com.
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