Time to Revisit Employee Handbooks…Again?

Contributed by Jon Hoag

The Chief Judge of the Northern District of Illinois recently issued a decision that should get the attention of employers throughout Illinois.  The Judge determined that statements in an employee handbook may be enough to constitute an “agreement” under the Illinois Wage Payment and Collection Act (IWPCA).  The Judge ruled that the handbook statements were enough for the plaintiffs to avoid dismissal of their IWPCA claims.  So what’s the big deal?

The “big deal” is that the IWPCA has a statute of limitations of 10 years compared with other wage and hour laws (e.g. Illinois Minimum Wage Law, Fair Labor Standards Act, etc.) that carry 2-3 year statute of limitation periods.  In addition, the courts have determined that an “agreement” under the IWPCA does not require the formalities and accompanying legal protections of a contract.  As such, the standard disclaimer language that the statements in the handbook do not create a “contract” does not effectively disclaim an “agreement” under the IWPCA.

Most employers outline general compensation guidelines in the employee handbook, including general statements about legal requirements related to employee compensation.  For example, employers might include a statement that non-exempt employees will receive overtime at 1.5 times their wage for all hours worked over forty in a week.  This is a fairly innocuous statement that simply mirrors the general requirements under the law.  However, employers now have to be concerned that a statement such as this in an employee handbook exposes the employer to possible liability over a 10-year period instead of a 2-3 year period.  And what if the statement is simply that employees that work over forty hours in a week are entitled to overtime?  Does that mean that exempt employees might have a claim for overtime under the IWPCA?  The bottom line is that defending a claim under the IWPCA is going to prove more difficult than defending that same type of claim under the Illinois Minimum Wage Law or Fair Labor Standards Act. 

We expect to receive more clarity from the courts on this topic in the coming years.  In the meantime, Illinois employers should review and revise employee handbooks to limit unnecessary legal exposure under the IWPCA.