On October 4, 2024 the Seventh Circuit U.S. Court of Appeals issued a compelling decision in favor of an executive regional sales leader allowing his claim for over $330,000 in unpaid incentive compensation to proceed against his employer under the powerful Illinois Wage Payment and Collection Act. The employer (a multi-billion dollar consulting firm) argued that it did not owe the bonus because the incentive plan terms stated that any payment under the plan was “at the sole discretion of the Corporate Vice President,” was “subject to the company’s discretion” and therefore, could not create a contract between the employee and the employer. Das v. Tata Consultancy Servs., 2024 U.S. App. LEXIS 25209 (7th Cir. Oct. 4, 2024)
The Wage Act defines “wages” as “any compensation owed an employee by an employer pursuant to an employment contract or agreement between the 2 parties, whether the amount is determined on a time, task, piece, or any other basis of calculation.” 820 ILCS 115/2 (emphasis added). For “separated” former employees, the Wage Act defines “final compensation” as “wages, salaries, earned commissions, earned bonuses, and . . . any other compensation owed the employee by the employer pursuant to an employment contract or agreement between the 2 parties.” 820 ILCS 115/2 (emphasis added)
Under the Wage Act, a current of former employee can prevail on a claim by showing that the employee entered into an “employment contract or agreement” and is owed “wages” or “final compensation”, as those terms are defined in the Wage Act. Schultze v. ABN AMRO, Inc., 2017 IL App (1st) 162140, ¶ 22; Landers-Scelfo v. Corporate Office Systems, Inc., 356 Ill. App. 3d 1060, 1068 (2nd Dist. 2005).
In the recent Das case, the Seventh Circuit confirmed that there does not need to be a formally negotiated “contract” for the employee to succeed (citing the well-known Illinois case of Landers-Scelfo v. Corp. Off. Sys., Inc., 356 Ill. App. 3d 1060, 1067 (2d Dist. 2005). Indeed the Seventh Circuit confirmed that under Landers-Scelfo, an “agreement” alone is sufficient, 820 Ill. Comp. Stat. 115/2, and an “agreement” is nothing more than “a manifestation of mutual assent on the part of two or more persons[.]” Landers-Scelfo, 356 Ill. App. 3d at 1067 (quotations omitted). The Court also confirmed that at the pleading stage, all the employee must do is plead facts showing mutual assent to terms that support recovery.
In Das, the Court identified the “key inquiry” as “whether under Illinois law the disclaimers are incompatible with mutual assent.” It noted that Illinois courts have not directly answered this question, but they have twice allowed Wage Act claims to proceed in the face of such language, and also noted that an Illinois Department of Labor regulation is in accord with the rule in those cases. Das, 2024 U.S. App. LEXIS 25209 at *4-6.
Indeed, Illinois courts have held that the Illinois “legislature purposely included the term ‘agreement’ in the definition of ‘final compensation’ (820 ILCS 115/2 (West 2008)), and an ‘agreement’ is more expansive than a contract because an ‘agreement’ merely requires a “manifestation of mutual assent by the parties without requiring the formalities and accompanying legal protections of a contract.” Schultze, 2017 IL App (1st) 162140, ¶ 23 (appeal denied) (citing Landers-Scelfo, 356 Ill. App. 3d at 1068 (holding that an “agreement” under the Wage Act can be entirely implicit) (quoting Zabinsky v. Gelber Group, Inc., 347 Ill. App. 3d 243, 249 (1st Dist. 2004)).
Moreover, the Das Court observed that the Illinois Administrative Code (56 Ill. Adm. Code 300.450), broadly defines the term “agreement” under the Wage Act, and states: “‘Agreement’ means the manifestation of mutual assent on the part of two or more persons. An agreement is broader than a contract and an exchange of promises or any exchange is not required for an agreement to be in effect. An agreement may be reached by the parties without the formalities and accompanying legal protections of a contract and may be manifested by words or by any other conduct, such as past practice. Company policies and policies in a handbook create an agreement even when the handbook or policy contains a general disclaimer such as a provision disclaiming the handbook from being an employment contract, a guarantee of employment or an enforceable contract. While a disclaimer may preclude a contract from being in effect, it does not preclude an agreement by two or more persons regarding terms set forth in the handbook relating to compensation to which both have otherwise assented. An agreement exists even if does not include a specific guarantee as to the duration of the agreement or even if one or either party reserves the right to change the terms of the agreement.”
The Seventh Circuit in Das emphasized even though a contact may have disclaimers indicating the employer has discretion, “[u]nder Illinois law, every contract has at least one limit—to perform within the bounds of “good faith and fair dealing.” Das, 2024 U.S. App. LEXIS 25209, *11. Accordingly, the Court in Das held that the “disclaimer language alone in the written plan does not preclude [the employer’s] agreement to pay [the employee] under the plan’s terms. Das, 2024 U.S. App. LEXIS 25209, *13.
In the end, the Seventh Circuit in Das reversed the decision of the federal district court which had dismissed Das’ Wage Act claim against his employer and remanded the case back to the federal district court where Mr. Das will be allowed to pursue his claim for the unpaid incentive compensation.
Attorney Antonio DeBlasio has been selected by Super Lawyers® in 2008 and in each year from 2014 through 2024. No more than 5% of Illinois attorneys receive this distinction. Mr. DeBlasio has over 30 years of experience as an Illinois attorney, representing businesses, individuals, employees, employers, estates and beneficiaries of estates in Illinois. For information on scheduling a consultation, call DeBlasio Law Group at (630) 560.1123, or you may reach us through our firm’s website at www.DGLLC.net/contact.