Tuesday, January 22, 2013

Contracts, Promises, and Enforceable Agreements in Illinois

Think your Illinois employee handbook disclaimer language protects you from Illinois state wage claims? Think again.

The issue arose in this recent Illinois federal court decision --one of the most confusing opinions I ever read coming out of a federal court. Unfortunately for employers, its confusing conceptual analysis conceals a holding that results in virtually unavoidable coverage for employers under Illinois’ Wage Payment and Collection Act (“IWPCA”).

The case at issue is a relatively straightforward failure to pay wages claim on behalf of a class of cable TV installers. They alleged that their employer failed to compensate them for pre-shift work, post-shift work, and work during meal breaks. The employees allege that the company violated the Fair Labor Standards Act, the Illinois Minimum Wage Law, and the IWCPA as a result. The IWPCA requires employers to pay all wages earned to employees, where wages are defined to employees as compensation owed pursuant to “an employment contract or agreement between the two parties.” In other words, for there to be a claim under the IWPCA, the plaintiff must allege that wages were due under the terms of an employment contract or agreement.

The company defended the IWPCA claim by moving to dismiss it, noting that the employees were "at-will", and that there was no written or oral contract between them and the company.

The employees claimed that the employer failed to pay them overtime, and that this was a violation of an "agreement" that was documented by statements in the employee handbook describing its overtime policy. The employees also cited company statements in parallel litigation noting that the handbook required the employer to pay employees for all time worked, as well as company documents describing  its overtime policy and some other unspecified statements by employer management with respect to its obligation to pay overtime.

That the company would make such statements in its internal documents is hardly surprising – the Fair Labor Standards Act requires an employer to pay overtime. As an initial matter, I am wondering whether the employer’s attorneys raised a preemption argument that this type of a IWPCA claim was in fact preempted by, or at least totally duplicative of, the Fair Labor Standards Act claim in the case. Of course, the FLSA does not prohibits states from enacting their own minimum wage requirements, but I have some difficulty in thinking that this particular claim is not treading heavily on FLSA territory.

No matter--that was hardly the most confusing aspect of this case. The employer initially try to argue that it did not have a contract or agreement with these employees based on its handbook, because like most employers, the company expressly declaimed that its handbook could create a contract. This has been enough to void IWPCA claims with the Illinois federal court in the past, but not now. The judge in this particular case seized on the “agreement” term of the IWPCA and determined that an agreement to pay is different from a promise to pay, which in turn is different than a contract to pay.

Relying on some fairly sloppy language in an Illinois state proceeding, the federal judge held that parties can enter into an agreement without the formalities and accompanying legal protections of a contract. This appears to me to be a distinction without a difference – the legal protections of a contract are that its terms can be enforced; the judge was unclear as to what lesser protections attached to an agreement. The court determined that an enforceable agreement requires only a mutual “agreement” to an employer's policies and the obligations contain therein. This agreement effectively becomes an enforceable contract under the IWPCA. But the judge reemphasized at several places in his opinion that this was not a contract or even a promise, but merely an “agreement.”

The reader at this point is likely as confused as I was when I read the opinion. Further clouding the waters, the court noted that Illinois courts generally treat at-will employment relationships as contractual in nature with respect to wages, benefits, duties, and working conditions. Really? I have yet to see a case brought in Illinois by a plaintiff whose at-will job description was changed, who was then successfully able to sue for breach of contract. But that’s another blog entry, for some other time.

The end result of this holding is that employers are locked into coverage for IWPCA claims as long as they advise as their employees (and the statute requires them to do so) of the rate of pay and time and place of employment. Employers should understand that the requirement for an agreement under the statute does not require anything other than the parties having a mutual understanding of wage rates and time and place of employment. That’s enough to form a binding and enforceable “agreement” here in Illinois.

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