On July 30, 2010, Governor Pat Quinn signed the Illinois Wage Theft Enforcement Act, which amends the existing Illinois Wage Payment and Collection Act (IWPCA). The amendments, scheduled to take effect January 1, 2011, are designed to strengthen employee rights in wage disputes with their employers. The following are some of the changes included in this new law:

• The Illinois Department of Labor (IDOL) will be able to adjudicate small wage claims for the first time ever.
• Employees who prevail on IWPCA claims will be able to recover attorneys' fees and costs.
• The IWPCA's definition of "employer" will be expanded to more easily establish personal liability for non-payment of wages.
• Civil and criminal penalties for employers found in violation of the statute will be stiffened.
• Employees will have the right of civil action in response to an employer's alleged retaliation for complaints about disputed wages, with attorneys' fees available to victorious claimants.

In order to more fully appreciate how this new legislation will affect Illinois employers, it is useful to review the current state of the law and explain how the amendments will change that landscape.

Broadened Definition of "Employer"

Current State of the Law: In Andrews v. Kowa Printing, the Illinois Supreme Court held that in order to establish individual liability of officers or agents of the employer for unpaid wages under the IWPCA, one had to establish that such nonpayment was "knowingly permitted" by the individual.

New Standard: The amendments clarify that individual liability can be obtained for officers or agents of an employer acting directly or indirectly in the interest of that employer in relation to an employee, without having to also establish that the violation was "knowingly permitted."

Significance: In Kowa, the plaintiff employees sought personal liability against an officer of a failed company for unpaid wages, but the Illinois Supreme Court concluded that the officer could not be liable as he did not "knowingly permit" the company to fail to pay because he was no longer in operational control of payment decisions when the wages were not paid. Presumably, personal liability will now attach in such situations (and generally) as long as the individual is an officer or agent acting in the employer's interest, either directly or indirectly.

New Administrative Adjudicative Process for Claims for $3,000 or Less

Current State of the Law: Historically, the IDOL has had no actual enforcement power on wage claims under the IWPCA. It could investigate claims of unpaid wages, but the results were not considered "adjudicative" or binding. Either the IDOL would refer meritorious claims to the Illinois Attorney General to file a lawsuit de novo, or the employee would sue in court on his or her own.

New Standard: The IDOL will have the ability to adjudicate wage claims for $3,000 or less. Its determination will be binding and enforceable, absent an appeal.

Significance: On the up side, this change will provide an inexpensive venue for employees and employers to adjudicate claims for small amounts. However, employers may feel constrained to simply pay the amount claimed, rather than attend a hearing and risk liability for the amount claimed, as well as for added penalties, costs and fines that the IDOL could assess should the employer lose.

New Attorney Fee-Shifting Requirement

Current State of the Law: If an employee prevails in a wage claim in court, the IWPCA does not require the employer to pay the employee's legal fees. Although another statute—the Illinois Attorneys Fees in Wage Actions Act—does allow recovery of attorneys' fees, certain prerequisites must be met and the statute does not apply universally.

New Standard: The amendments provide that individual employees on behalf of themselves and other employees similarly situated may bring a private action on behalf of themselves or a class and will recover all reasonable attorneys' fees should they prevail.

Significance: The availability of attorneys' fees under the IWPCA creates a greater incentive for attorneys to sue on behalf of employees with wage claims. Even if they expend more in attorney time than the value of the claim itself, they can recover those fees from the employer as part of a judgment. The amendments also explicitly provide that claims under the IWPCA can be brought as class actions.

Interest, Increased Penalties and Criminal Exposure

Current State of the Law: The IWPCA allows only limited recovery beyond the amount of the unpaid wage found to be due. If an employer fails to comply with a court order to pay or does not timely appeal that order, it can be liable to pay a penalty to the employee of 1% per calendar day for each day of noncompliance.

New Standard: The amendments provide that an aggrieved employee may recover interest from the date of underpayment at 2% of the underpaid amount for each month the wages remain unpaid. If an employer fails to comply with or timely appeal an IDOL or court order, the employer will also be liable to pay a penalty to the IDOL totaling 20% of the amount owed, along with a penalty to the employee of 1% per calendar day of the amount owed for each day of delay. Additionally, the amendments provide for enhanced criminal penalties, ranging from a Class A or Class B misdemeanor for a willful refusal to pay to a Class 4 felony for a repeat conviction within two years.

Significance: All of these changes increase the exposure for employers in resisting wage claims.

New Ability to File Suit for Retaliation

Current State of the Law: Illinois courts generally have refused to read into the IWPCA a civil cause of action for retaliation.

New Standard: An employee who alleges that he or she was discharged or otherwise discriminated against because the employee made a wage complaint to the employer, to the IDOL, in a public hearing, or to a community organization can now recover "through a claim filed with the Department of Labor or in a civil action...all legal and equitable relief as may be appropriate," as well as costs and all reasonable attorneys' fees in a civil action.

Significance: This amendment has the potential to be far-reaching, especially since employees frequently complain about their wages. An employer who discharges an employee following such a complaint now risks that the employee will file a civil action claiming that the discharge was motivated by the complaint and seek reinstatement, back pay and attorneys' fees. It remains to be seen how broadly the above-quoted language will be interpreted and applied, but it is likely that such suits will emerge as the amendment becomes better known.

Overall Import of the New Legislation

The Illinois Wage Theft Enforcement Act was spurred by the lobbying efforts of community-based worker organizations and organized labor. However, solely excepting state or federal government employees, the IWPCA applies to all employees in Illinois, exempt or non-exempt, regardless of the employer's size or location. Additionally, the term "earned wages" as defined in the IWPCA encompasses not only an employee's salary or hourly pay, but also any earned bonuses and vacation pay. The statute also has been interpreted as covering severance pay and other forms of compensation. Furthermore, the IWPCA does not simply require payment of earned compensation but, with limited exceptions, also prohibits employers from deducting anything from an employee's wages, unless the employee signs an authorization at the time of the deduction.

Over time, if not immediately, this new legislation has the potential to generate more lawsuits as employees at all levels, including senior executives, take advantage of the increased exposure to employers regarding wage claims and retaliatory termination.

Suggestions for Employers

As an Illinois employer, there are several actions you should take to become more vigilant in your compensation practices and procedures:

1. Honor all wages or other compensation promised in your employment agreements, manuals or offer letters.
2. Regarding departing employees, pay all final compensation owed—including wages, accrued vacation pay, bonus payments or earned commissions—in a single payment by the next regularly scheduled payday after the employee leaves.
3. Do not make deductions, such as for lost or stolen company equipment, from employee pay without the employee's express written consent at the time of the deduction.
4. Avoid terminating employees for complaining to you, a governmental agency or a community organization about their claims for wages.