Employee Handbook May Create An Enforceable Obligation To Pay Overtime Under Illinois Law

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A federal court in the Northern District of Illinois recently ruled that language in an employee handbook providing that employees would be paid overtime when they worked more than 40 hours in a week potentially created an enforceable “agreement” that obligated the employer to pay overtime under the Illinois Wage Payment and Collection Act (IWPCA). In Wharton et al. v. Comcast Corp., the court held that a group of Comcast employees could proceed with their lawsuit against Comcast to recover overtime wages based on language in the employee handbook and other Comcast policies, even though the handbook contained standard disclaimer language under which Comcast reserved sole discretion to interpret its policies and resolve any conflict between or among policies, and reserved the right to change, delete, suspend, discontinue, or otherwise revise the handbook or any policies within it for any reason, with or without notice.

The IWPCA generally requires an employer to pay any compensation owed to employees pursuant to a “contract or agreement” between the parties. 820 ILCS 115/2. Courts have consistently held that the IWPCA does not provide an independent right to payment of wages or benefits, or payment of overtime wages; instead it only enforces the terms of an existing contract or agreement.  In Wharton, Chief Judge James Holderman held that the language in Comcast’s written handbook could potentially create an enforceable “agreement” to payment of certain wages, despite the disclaimer language.

This decision broadens a pre-existing split among other judges within the Northern District of Illinois. As explained by the court in Wharton, at least five judges in the District have held that disclaimer language in a handbook precludes the formation of an enforceable agreement under the IWPCA. Two other judges have held that handbook disclaimers, although preventing the creation of an enforceable contract, may be evidence of an agreement enforceable under the IWPCA.

In its ruling, the Wharton court focused on the legal distinction between a “contract” and an “agreement.”  Under Illinois law, a “contract” generally requires the exchange of promises to be enforceable, and an “agreement” requires mere “mutual assent” to terms. The IWPCA provides for enforcement of either an “agreement” or a “contract.” The court reasoned that compensation policies described in the handbook could be sufficient to create an enforceable “agreement” under the IWPCA to pay overtime wages even though the disclaimer language prevented the handbook from becoming a binding “contract.” 

In so holding, the court rejected Comcast’s argument that its decision would create a dis-incentive for employers to describe compensation policies in employee handbooks, reasoning that employers were legally obligated to communicate compensation policies to employees in any event and employers could avoid liability by ensuring that all handbooks and policies were up to date and reflected current practice.  

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