The Illinois Supreme Court has ruled employers can’t halt class action litigation over allegations of underpayment through direct payments if the employees are still pursuing damages as allowed under state law, brushing aside employers' concerns the ruling will further open Illinois companies to potentially "ruinous" costs from still more class action lawsuits over allegedly unpaid wages.
Carmen Mercado and Jorge Lopez sued S&C Electric Company in Cook County Circuit Court in December 2020, alleging the company excluded some of their performance bonuses from the regular rate used while calculating overtime pay in violation of the Illinois Minimum Wage Law.
In addition to moving for dismissal, on grounds its calculations were legal, S&C also said it adjusted the payment to account for everything the complaint alleged, which should deprive the workers of standing.
Although a county judge and state appellate court agreed with S&C, the Supreme Court reversed the rulings in a 7-0 decision. Justice Joy Cunningham wrote the opinion.
According to the workers, S&C gave them adjusted payments near the end of July 2020 after both no longer worked for the company. Mercado got $486.74 and Lopez collected $10.33, but they alleged the amounts “were insufficient to cover the shortfall in overtime wages and statutory damages and penalties resulting from the underpayment.”
Cunningham noted the district court dismissal did not include consideration of whether the performance bonuses “were measured by or dependent on hours worked,” as that constituted a factual dispute, but instead relied on the company’s payments as reason enough to end the lawsuit. The Illinois First District Appellate Court panel affirmed on both grounds.
In addition to allowing the appeal, the Supreme Court accepted support briefs from the Illinois Attorney General and Department of Labor on behalf of the workers and the Illinois Chamber of Commerce, the Chicagoland Chamber of Commerce and the Illinois Manufacturers’ Association on behalf of S&C.
On appeal, the workers argued the payments at the root of their complaint were not gifts but nondiscretionary performance bonuses and therefore part of their regular compensation.
The Supreme Court agreed, finding S&C’s reading of the relevant state law - in which S&C attempted to frame as a gift any amount outside of hourly payment - improper because it “ignores the grammatical structure of the regulatory language and turns the plain language on its head,” Cunningham wrote.
In addition to agreeing with how the workers read state law, Cunningham pointed to the 1938 federal Fair Labor Standards Act and its distinction between gifts and pay lumped in with regular remuneration, quoting the part of the law that reads: “If it is measured by hours worked, production, or efficiency, the payment is geared to wages and hours during the bonus period and is no longer to be considered as in the nature of a gift.”
That determination served to agree with the initial refusal to dismiss on the nature of the bonus structure itself. The court then said the workers should be allowed to continue their lawsuit because if they can show they were underpaid, they can pursue trebled damages, 5% interest for each month the overtime was unpaid and compensation for their legal fees.
“There would be no reason for the legislature to include monthly statutory penalties if the employer could avoid the statutory requirements altogether by paying the employee the amount of the original underpayment many months or years later,” Cunningham wrote.
She balanced that against the requirement that employees have only three years to file a lawsuit after they find they were underpaid.
“This limitation rests on the premise that an employer must pay overtime payments on a date certain. If there were no deadline, as the appellate court found, the statute of limitations would be rendered a nullity," Cunningham wrote.
The Supreme Court sent the complaint back to Cook County Circuit Court for further proceedings.
The Chicago office of Gordon Rees Scully Mansukhani filed the support brief on behalf of the business interests. That filing put primary focus on whether S&C properly calculated overtime in the first place.
“Over the past few decades, it has become industry standard for employers to create individualized compensation packages that include a variety of benefits, incentives and perks to attract prospective employees,” according to the brief. “Whether or not the value of these benefits may be excluded from the ‘regular rate’ used to calculate overtime payments could affect the types of offerings employers have made and employees have come to expect in hiring practices, which has particular importance in today’s highly competitive labor market.”
The brief claimed the federal labor department updated FLSA regulations “to acknowledge the prevalence of benefit- and incentive-based payments and perks in the 21st century workplace and exclude all of them from overtime calculations because they are unrelated to hours worked. While Illinois businesses remain optimistic, the stakes are high for those still recovering from global economic downturns.”
In addition to the potential impact of having to calculate overtime payments under the Supreme Court’s reading, the brief also warned of “endless costly class action lawsuits like this one to recover allegedly unpaid wages. The litigation costs alone could prove ruinous for many Illinois employers, to say nothing of the potential treble damages awards, penalties, and attorney fees allowed by statute, all of which compounds employers’ hardships during this tenuous process of economic recovery.”
The Illinois Chamber of Commerce did not respond to a request for additional comment following the ruling.