Similar to the wage-and-hour enforcement scheme of many other states including New York, in Illinois, the payment of incentive compensation is largely a matter of contract. Entitlement to incentive compensation, in particular bonuses paid pursuant to a company policy taking into account many criteria, under the governing statute attaches when the terms of the contract or agreement providing for such compensation are satisfied. Further, in some cases Illinois law will deem a bonus, or a pro rata portion of a bonus, to have been “earned” by an employee even where not all terms of the agreement were met. A new opinion issued in the context of an attorney’s compensation arrangement elucidates these principles. Hess v. Kanoski & Assocs., 2014 U.S. Dist. LEXIS 42584 (C.D. Ill. Mar. 28, 2014).
In Hess, plaintiff was a medical malpractice attorney hired by a personal injury law firm pursuant to an employment agreement under which he would receive a salary and then bonus pay calculated as a percentage of fees generated above the base salary, with guaranteed minimum annual compensation. The agreement also provided the attorney with 30-day written notice of termination. The agreement was later modified to raise the base salary, with 40% of fee revenue above that benchmark eligible for a bonus. A number of years later, the firm terminated plaintiff, without providing the 30-day notice. The firm paid the bonus on all cases which resolved prior to the termination date. Subsequent to the termination date, the firm settled numerous additional cases that Hess had worked on during his tenure. Hess sued, alleging entitlement to bonus payments from those additional settlements.
In addition to a contract claim, Hess brought a claim under the Illinois Wage Payment and Collection Act’s provision requiring prompt payment at termination of “final compensation,” including “earned bonuses.” 820 ILCS § 115/2. The Court rejected the claim on two bases. First, the court found that his “bonus was not based solely on his performance” because further work (and ultimately the decision to settle the case) on the part of others unequivocally was required in order to obtain the settlements, fees from which could form part of a bonus calculation. Thus, plaintiff was in the same position as employees in prior Illinois state court cases rejecting such claims where the purported “right to a bonus was bound up in and determined by the performance of independent actors.” Further, the settled cases giving rise to the bonus claim indisputably settled more than 30 days after plaintiff’s termination. Given the statute’s requirement that such final compensation owed under the statute be paid within such 30 days, Hess’ interpretation of the statute as protecting the bonuses would have rendered compliance with the 30-day requirement an impossibility. Citing again to state court precedent, Judge Sarah Darrow noted that “it would be absurd to read…the IWPCA to penalize an employer for failing to pay a bonus within a period in which its amount—or whether it was due at all—could not possibly be ascertained.”
Hess reinforces the need for all organizations to consider applicable state law and then draft clear, unambiguous incentive compensation agreements.