On July 18, 2017, the Illinois Appellate Court, First District, affirmed the trial court’s judgment in favor of an executive employee against his employer in the amount of $2,838,968 for his earned bonus and severance pay. Schultze v. ABN AMRO, Inc., et al., 2017 IL App (1st) 162140 (7/18/2017). The plaintiff filed a lawsuit alleging that the defendants violated the Illinois Wage Payment and Collection Act (the “Act”) by failing to pay him the proper amount of his earned bonus and severance pay. After trial, the trial court ruled in favor of the plaintiff, and ordered the defendants to pay him $2 million as an earned bonus and $375,000 as severance, plus 5% interest and attorneys’ fees. On appeal, the defendants argued that the bonus was discretionary and that the plaintiff failed to execute a separation agreement and release that was a condition of receiving any severance.
The defendants contended that a discretionary bonus is not recoverable under the Act; that there was no unequivocal promise to pay a bonus pursuant to an employment contract or agreement; and that the trial court erred in awarding a bonus based on the plaintiff’s expectations and the defendants’ past practices. The Act allows employees to sue for the timely and complete payment of earned wages or final compensation. The Act defines final compensation as wages, salaries, earned commissions, earned bonuses, and the monetary equivalent of earned vacation and earned holidays, and any other compensation owed the employee by the employer pursuant to an employment contract or agreement. To establish a violation of the Act, a plaintiff must allege that: (1) the defendant was an employer; (2) the parties entered into an employment contract or agreement; and (3) the plaintiff was due final compensation. A formal employment contract is not required to recover under the Act. A plaintiff must prove the existence of a valid and enforceable contract to recover under a breach of contract claim, but that is not required to recover under the Act. In order to recover under the Act, a plaintiff is only required to demonstrate mutual assent to terms. Employers and employees may manifest mutual assent by conduct alone, including past practice.
The evidence demonstrated a long history of mutual assent and unequivocal promise to award the plaintiff a bonus according to established standards in exchange for his quality performance. The plaintiff always received a salary and bonus. There was no evidence indicating otherwise. A letter was also sent to the plaintiff notifying him that he was entitled to a bonus, which constitutes an unequivocal promise to pay a bonus. Moreover, the past practice of awarding the plaintiff an annual bonus for more than two decades manifested an agreement to award a bonus as a component of his total compensation. Therefore, there was an agreement and unequivocal promise that his compensation included a bonus, and payment of that bonus as part of his compensation was not discretionary. The record evidence also established that his earned bonus totaled at least $2 million. When the plaintiff took on an additional role, he was not informed that there would be any change in the longstanding policy regarding the calculation of bonuses. The evidence presented at trial demonstrated that in setting the plaintiff’s performance bonus for a substantially lower amount, the defendants deviated from the longstanding methodology that had been used to calculate executive bonuses. Not only did the defendants change the established methodology used to calculate bonuses, they also failed to communicate the change to the plaintiff before he fully performed his employment responsibilities to earn his bonus. Under the Act, an employee has a right to an earned bonus when there is an unequivocal promise by the employer, the employee has performed the requirements set forth in the bonus agreement, and all of the required conditions for receiving the bonus set forth in the bonus agreement have been met. When the plaintiff was awarded the bonus in the substantially lower amount, he had already performed the requirements to earn the much higher bonus that was unequivocally promised to him as part of his compensation. Consequently, the defendants’ change to the established methodology used to calculate the plaintiff’s bonus after he had already earned it violated the Act. The appellate court concluded that because the plaintiff fully performed the services required to earn his bonus and the defendants improperly and after the fact changed the methodology used to compute that earned bonus, depriving the plaintiff of his compensation, the trial court did not err in awarding the plaintiff $2 million.
The defendants also argued on appeal that the plaintiff was not entitled to severance of $375,000 because he failed to execute a separation agreement and release waiving all claims, which the defendants asserted was a condition to receiving severance benefits. However, the appellate court stated that settlement of claims in the form of a release signed by an employee relating to an employer’s violation of the Act is not permissible. By requiring the plaintiff to release all claims, including those relating to his bonus, as a prerequisite to receiving severance to which he was otherwise entitled, the defendants were seeking to preclude the plaintiff from pursuing his claim under the Act. The defendants improperly conditioned payment of severance on the plaintiff’s release of his bonus claim under the Act for no consideration other than the severance benefits to which he was already entitled. Thus, the trial court did not err in awarding $375,000 as severance.