In a case recently filed in the Circuit Court of Cook County, a former Sears executive seeks severance benefits and long-term compensation based on an alleged reduction in his job responsibilities after the Sears merger with Kmart. The executive filed claims for breach of contract and violation of the Illinois Wage Payment and Collection Act (the “Act”). The ability to collect severance benefits as part of a claim under the Act is important because Illinois law allows the recovery of attorneys’ fees for such claims.
The Act, among other things, requires an employer to pay “final compensation” to an employee no later than the pay period following an employee’s termination. Final compensation is defined as “wages, salary, earned commissions, earned bonuses, and the monetary equivalent of earned vacation and earned holidays, and any other compensation owed the employee by the employer pursuant to an employment contract or agreement between 2 parties.”
In determining whether the statutory term “wages” includes non-recurrent employment benefits such as severance, Illinois courts look to other jurisdictions for their treatment of the same, such as the New Jersey Supreme Court, which stated:
Severance pay is terminal compensation measured by the services given during the subsistence of the contract, in this case the collective bargaining agreement, payable on discharge from the employment not induced by misconduct, according to the prescribed formula, a means of recompense for the economic exigencies and privations and detriments resulting from the permanent separation of the employee from services for no fault of his own. In a real sense it is remuneration for services rendered during the period covered by the agreement.
Thus, Illinois courts have found severance benefits to be in the nature of wages earned during an employee’s employment and are payable as part of final compensation, unless the employee’s employment contract calls for payment over some other time period.
In order to recover attorneys’ fees for a claim under the Act, the employee must make a written demand on the employer. Attorney’s fees will be recoverable so long as the amount of final compensation included in the demand does not exceed the actual amount found to be due. Moreover, and most importantly, attorneys’ fees are recoverable even if the employment agreement or policy providing for the payment of severance benefits does not provide for the recovery of attorneys’ fees.
Finally, under Section 13 of the Act, “officers of a corporation or agents of an employer who knowingly permit such employer to violate the provisions of this Act shall be deemed to be the employers of the employees of the corporation,” and thus personally liable for amounts due.
If you have a question about a claim under the Act, please telephone a member of the firm.