Does an Employer’s Written Disclaimer Automatically Bar an Employee’s Illinois Wage Act Claim? The Seventh Circuit says “no.”
In employee compensation documents, how important is the fine print? What happens when glossy PowerPoint presentations are paired with sharply-written legalese? The United States Court of Appeals for the Seventh Circuit based in Chicago recently answered these questions in Das v. Tata Consultancy Services. Ltd. Santanu Das (“Das”) sued his former employer, Tata Consultancy Services Ltd. (“Tata”), under the Illinois Wage Payment and Collection Act (“Wage Act”). Das alleged Tata agreed but then failed to pay him a $432,040 bonus.
Tata invited Das to participate in an incentive compensation plan for outstanding salespeople designed to reward increased sales. Das was informed of the maximum compensation he could earn through the plan in a series of phone calls and a PowerPoint presentation that included details of the pay structures.
Months later, Tata emailed what it termed the “formal” version of the incentive plan, described as “a confirmation of the information in the presentation.” But Tata’s email also introduced a series of disclaimers, including one disclaiming the existence of a contract between it and Das, and another granting Tata total discretion to pay any amount of compensation under the plan. When Das exceeded the plan’s upper sales figures, Tata refused the maximum $432,040 payout and awarded only $97,000, “in its discretion.”
Das sued Tata for his bonus payment in federal court under the Wage Act, which allows employees to recover compensation under a contract or agreement. The District Court dismissed the case on the grounds that Tata’s disclaimers – both as to existence of a contract and as to Tata’s unilateral discretion on how much it could pay Das – barred any recovery.
Fortunately for Das, the appellate court reversed and reinstated his Wage Act claim. The Seventh Circuit held that while a written disclaimer can preclude a Wage Act claim, the existence of such a disclaimer is not an automatic bar. Indeed, the Wage Act does not even require a written contract; an informal agreement will suffice. Thus, Tata’s disclaimers were not dispositive. Simply put: “not all disclaimers are the same.”
The Seventh Circuit made two additional points worth noting.
First, in sharp contrast with the District Court, it found that Das and Tata’s past practices and course of conduct mattered in determining the terms of an agreement or contract to pay Das. This is consistent with longstanding Illinois law recognizing that parties’ course of conduct and behavior are relevant to contract formation and interpretation. Whether mutual assent actually existed could not be determined “on the complaint alone.”
Second, even if Tata had discretion to withhold Das’s compensation under the parties’ agreement, it was obligated to exercise that discretion consistent with the duty of good faith and fair dealing.
For employers, this case underscores the limits of discretionary pay practices and the importance of good faith in exercising discretion, while employees should take note of their rights under that same Illinois law. Discretionary compensation systems have their limits. This case also shows why contract disclaimers are not silver bullets. The scope and specific language of a particular disclaimer will matter.
Seeking the advice of counsel on these matters is recommended as violations of the Wage Act carry mandatory interest and penalties. A potentially lengthy claim process can significantly increase risk for employers as those damages continue to accrue over time.
Please contact Adam Hirsch with any questions at (312) 648-2300 or e-mail at [email protected].
