Bonus Payments-Earned or Not?

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As the end of the year approaches, employers are preparing to reward employees with year-end and performance bonuses and make important human resource decisions relative to employee retention. Similarly, employees view the year-end as a time to explore transition to new positions. Conflicts often arise with respect to the payment of bonus compensation when an employee leaves or is terminated at years-end.

Employers commonly take the position that former employees are no longer entitled to receive a bonus as they are no longer employed. While this might be true relative to a discretionary bonus, it does not always hold true for performance or guaranteed bonuses. Once earned, a bonus, whether commission-based or otherwise, is viewed in the law as earned compensation. Accordingly, the earned bonus is no different than an hourly wage or salary, and final payment must be made shortly after termination in accordance with federal and state law.

In Illinois, earned bonus payments are protected under the Illinois Wage Payment and Collection Act, 820 ILCS 115/1 et seq. Under the Wage Payment Act, the failure to timely pay earned bonus compensation following the end of employment can result in a monthly 2% penalty in addition to the payment of the former employee’s legal fees. However, the Wage Payment Act does not define the concept of an “earned bonus.” Consequently, Illinois courts are filling the void.

In decisions such as McLaughlin v. Sternberg Lanterns, Inc., 395 Ill.App.3d 536, 917 N.E.2d 1065, 335 Ill.Dec. 1 (2nd Dist. 2009) and Hess v. Kanoski & Associates, 2014 WL 1282572 (C.D. Ill. 2004), state and federal courts in Illinois are applying the “unequivocally promised” standard to bonus compensation. This is a high standard under which even contractually guaranteed bonus payments might not be considered “earned” if they are dependent on other factors, such as employment on a given date or total sales.

Uncertainty surrounding how bonus payments must be handled after employment ends can prove costly to employers and employees alike. When confronted with such circumstances, the attorneys at Griffin | Williams LLP are available to counsel and, if necessary, litigate to ensure rights are protected.