Employers in Illinois could soon face substantially larger payouts under a new state law, should they be sued by workers who claim they weren’t paid enough.
And that, say business advocates, could result in companies opting to shift jobs out of state, reduce bonuses or other perks, or otherwise restructure their workforce and policies to reduce the risk of potentially massive lawsuit losses.
In May, the Democrat-dominated Illinois General Assembly approved new legislation that would more than double the interest employers would need to pay under lawsuits brought through the Illinois Wage Payment and Collection Act.
Alexander Reich
| Saul Ewing Arnstein & Lehr
The law is still awaiting a signature from Gov. JB Pritzker.
Illinois’ minimum wage law – known as one of the most strict in the nation - sets standards for how much employers must pay their workers, making it a popular vehicle for lawsuits against employers in famously plaintiff-friendly court jurisdictions like Cook County and downstate courts, such as those in Madison County, near St. Louis.
But employers are also frequently targeted under the IWPCA, which dictates when and how employers are to pay their workers, and can include disputes that date back 10 years. Often lawsuits brought under the IWPCA deal with disputes over non-wage forms of compensation, such as vacation pay, bonuses and commissions.
Lawsuits can be brought under the IWPCA even under oral agreements or understandings between employees and their employers.
Under the legislation, known as House Bill 0118, the state would rewrite the IWPCA law to require employers to pay 5% interest per month – or 60% per year – on top of allegedly unpaid or underpaid compensation. Under the current law, employers can be required to pay 2% interest per month.
Attorney Alexander Reich, of the firm of Saul Ewing Arnstein & Lehr, of Chicago, said the changes created by HB0118 make Illinois’ law even more of an outlier compared to other states across the country.
“The concern for employers is that the already harsh penalties will more than double,” Reich said. “There is no greater risk of litigation, but the lawsuits that are filed under the statute will now carry much higher exposure.”
The concern for employers was echoed by attorney Gerald Maatman, a labor and employment lawyer who represents employers for the firm of Seyfath Shaw, in Chicago.
“Wage & hour litigation is the No. 1 exposure for employers,” Maatman said. “The new amendment to Illinois law makes that risk even more acute in terms of the duties and obligations posed by HB0118.
“Misclassification of workers or failure to pay overtime is a real dollars and cents problem for Illinois employers by virtue of the new law.”
Unlike neighboring states, like Wisconsin and Indiana, Illinois’ law further imposes no cap on how much interest may accumulate on the claims. Wisconsin and Indiana cap the recovery at double the amount of the alleged underpayment.
“There is a nationwide trend of employment laws becoming more and more favorable for employees, especially in states such as California, New York, and Illinois,” Reich said.
But even in California, he said, “a notoriously employee-friendly state,” state wage payment law “limits penalties to 25% of the underpayment for each violation.”
“Under the proposed Illinois law, the penalties would reach 25% after only five months,” Reich said.
Jay Shattuck, an employment law consultant and lobbyist who works with the Illinois Chamber of Commerce, said the hiked interest rates, coupled with the law’s 10-year span, carries the potential to “financially bury many Illinois employers.”
At a minimum, Reich said employers may choose to simply roll over when faced with such claims, to reduce their risk of being hammered with the steep penalties, should lawsuits brought under the IWPCA go to trial.
“Practically speaking, employers may be disincentivized from fighting wage payment claims, even when they have a potentially viable defense, because the increased penalties skew the risk/reward analysis in favor of settlement,” Reich said.
However, Reich and Shattuck said the changes simultaneously encourage workers to not only hold out in court as long as possible, but also to delay filing their lawsuits to boost the potential size of their claims.
“Employees may be less inclined to settle claims when they know there could be larger pay day through litigation, thanks in part to the steep penalties,” Reich said.
Shattuck said employers in Illinois may respond by choosing to eliminate or reduce benefits or perks to workers, or to restructure their workforce in Illinois to reduce their exposure to the potential new penalties, in general. He said companies may “farm out” work to employees working remotely outside Illinois, for instance.
“If the 5% interest rate goes into effect, employers will reevaluate what they offer to employees and how such offerings can be utilized,” Shattuck said. “Guaranteed.
“The guillotine over their head could be too much. They will be asking, ‘Why risk it?’”