A Chicago federal court decision reminds employers that statements in an employee handbook can have far-reaching consequences in litigation. In Wharton v. Comcast Corp., 2012 U.S. Dist. LEXIS 173036 (N.D. Ill. Dec. 6, 2012), U.S. District Court Judge James F. Holderman ruled that statements in an employee handbook constituted an agreement to pay wages, thereby implicating the Illinois Wage Payment and Collection Act (“IWPCA”). The IWPCA applies a 10-year statute of limitations and a two-percent-per-month penalty for wages that are not paid pursuant to an agreement between an employee and an employer.
Wharton was a class action case in which the plaintiffs alleged their employer failed to compensate them for pre- and post-shift work and work during meal breaks, and failed to pay overtime wages. In addition to seeking redress for alleged violations of the Illinois Minimum Wage Law and the Fair Labor Standards Act, the plaintiffs alleged the employer violated the IWPCA.
The IWPCA requires employers to pay “any compensation owed an employee by an employer pursuant to an employment contract or agreement.” 820 ILCS 115/2. According to the plaintiffs, the timekeeping and overtime policies in the employer’s employee handbooks constituted an “agreement” to pay employees an hourly wage and overtime pay at 1.5 times the hourly rate when they worked more than 40 hours a week.
The employer moved to dismiss the plaintiffs’ complaint. Among other things, the employer argued the policy statements did not constitute an “agreement” because the handbooks also contained a disclaimer stating, “The contents of the. . . Employee Handbook are not intended to create an express or implied contract of employment and you may not rely on it as such.” The employer also pointed out that the handbooks contained a disclaimer that the employer reserved the “right to change, delete, suspend, discontinue or otherwise revise the Employee Handbook, or any individual policy contained in it, for any reason, with or without notice.” Finally, the employer argued that at certain times, the handbooks contained a disclaimer stating the handbooks do not constitute a “legally enforceable promise.”
Judge Holderman first observed that an agreement requires only “a manifestation of mutual assent on the part of two or more persons,” a far less demanding standard than the requirements needed to prove the existence of a usual contract. According to Judge Holderman, “the disclaimers’ statements that the handbooks do not create a ‘contract,’ therefore say nothing, by themselves, about whether the handbooks create an agreement.” Similarly, the Judge continued, that some of the handbooks disclaimed the creation of a “promise,” was of no help to the employer because even without a “promise” the handbooks demonstrated mutual assent between the parties. Likewise, the Judge stated, the employer’s reservation of rights to change the terms of the handbook may have precluded the creation of a “promise,” but that disclaimer was ineffective as long as the employer continued to follow the provisions of the handbook.
The ability of a plaintiff to utilize an employer’s handbook to establish a cause of action under the IWPCA can enhance greatly the value of a plaintiff’s case. The statutes of limitations under the Illinois Minimum Wage Act and the Fair Labor Standards Act are no longer than three years, while that under the IWPCA is 10 years. Further, the IWPCA’s two-percent-monthly penalty for violations can be recovered in addition to penalties available under the Illinois Minimum Wage Act and Fair Labor Standards Act. Therefore, to lower risk, Illinois employers are encouraged to assess the wording of their compensation policies as well as that of their handbook disclaimers as part of any handbook review.