In People of the State of Illinois ex rel. Illinois Department of Labor v. Quality Therapy & Consultation Inc. et al., 2024 IL App (1st) 241953, the Illinois Appellate Court, in an opinion containing very strongly worded language, flatly rejected the Illinois Department of Labor’s attempted broad definition of “employer” under the Illinois Wage Payment and Collection Act (IWPCA) in its attempt to hold two individual business owners liable for unpaid wages. The IWPCA was enacted to ensure the timely and complete payment of employees’ earned wages, final compensation, and wage supplements, and to provide a remedy when an employer wrongfully withholds such amounts. The Act permits employees to pursue recovery either by filing a claim with the Illinois Department of Labor (IDOL) or by bringing an action in court, and it authorizes penalties for noncompliance, including civil damages and, for willful violations, potential criminal liability.
Section 2 of the IWPCA defines the term “employer” as follows:
As used in this Act, the term ‘employer’ shall include any individual, partnership, association, corporation, limited liability company, business trust, employment and labor placement agencies where wage payments are made directly or indirectly by the agency or business for work undertaken by employees under hire to a third party pursuant to a contract between the business or agency with the third party, or any person or group of persons acting directly or indirectly in the interest of an employer in relation to an employee, for which one or more persons is gainfully employed.
820 ILCS 115/2 (emphasis added). However, Section 13 of the IWPCA was amended in 2011. Section 13 provides that “In addition to an individual who is deemed to be an employer pursuant to Section 2 of this Act, any officers of a corporation or agents of an employer who knowingly permit such employer to violate the provisions of this Act shall be deemed to be the employers of the employees of the corporation.” 820 ILCS 115/13.
Employers who have been named as a respondent in an IDOL complaint under the IWPCA are undoubtably familiar with the fact that the IDOL consistently names an individual in the complaint as well as the employing entity. The name of the individual included by the IDOL, however, is not typically someone the complainant identified as having a direct involvement in the wage payment decisions. Instead, it seems to be generated by the IDOL locating corporate information and naming the highest ranking individual it can find (e.g. CEOs, owners, presidents, CFOs, etc.), without regard to the likelihood that those officers or owners had anything to do with the company’s day-to-day operations.
In December 2019, the IDOL filed a three-count complaint, which it amended in February 2020, directing individual counts against Quality Therapy and Consultation Inc. (QTC) and its two officers (Frances and John Parise, the co-founders and executive officers), concerning QTC’s unpaid wages and other compensation. QTC had provided therapy services for 20 years before closing in 2017. QTC’s financial problems began, however, in 2015 due to a federal Medicare billing investigation and slow state payments. Frances and John Parise each owned 50% of QTC and held officer positions in the company. In September 2017, QTC could not meet its payroll obligations and wanted to pay its employees with what funds it had but was advised against it by counsel due to federal oversight.
The IDOL contended that all three defendants met the definition of an employer under Section 2 of the Wage Act. QTC had been dissolved and was found to be in default. Frances and John moved for summary judgment on the amended complaint, arguing that the Illinois Supreme Court’s decision in Andrews v. Kowa Printing Corp., 217 Ill. 2d 101, 108 (2005), precluded a corporate officer’s individual liability under Section 2 of the Wage Act. In Andrews, the Court had found that Section 13 of the IWPCA and not Section 2 defines who, other than the employer itself, may be treated as an “employer” for purposes of liability under the act. Id. at 109. Specifically, the Court in Andrews held that Section 2 confirms that an employer is liable both for its own violations of the Wage Act and for any Wage Act violations committed by its agents. Id. Section 13, in turn, imposes personal liability on any officers or agents who knowingly permitted the Wage Act violation. Id. The IDOL responded by arguing that Frances and John each acted directly or indirectly in QTC’s interest, which made them “employers” within the meaning of Section 2. Id.
After the trial, the court entered a default judgment against QTC in the amount requested by the IDOL. The trial court, however, rejected the IDOL’s argument that the Parises were “employers” as that term is defined in Section 2 of the IWPCA and found that only QTC was the wage claimants’ employer under Section 2. The court further noted that “[t]he only proper Wage Act claim brought under the pleadings against Frances and John is grounded in § 13.” The court found QTC had been unable to pay its employees as of September 22, 2017, and, since the employer was incapable of meeting its payroll, its corporate officers had not knowingly permitted the underpayment and were not liable under Section 13.
The IDOL appealed the decision, arguing that the trial court erred in finding that the Parises were not employers within the meaning of Section 2 of the IWPCA. The IDOL’s appeal focused on the last clause of Section 2 that states that “any person or group of persons acting directly or indirectly in the interest of an employer in relation to an employee,” is deemed an “employer” for purposes of the Wage Act. 820 ILCS 115/2. The IDOL argued that although their position was counter to the Illinois Supreme Court’s decision in 2005 about Section 2 in Andrews, Section 13 of the IWPCA, which took effect in 2011, impliedly amended Section 2 and superseded Andrews. Specifically, the appellate court noted that “[b]ased on the Department’s reading of the amendment, it adopted a regulation in 2011 that blends Sections 2 and 13 and would render anyone who had a decision-making role in payment decisions personally liable for unpaid wages and final compensation.”
The appellate court affirmed the trial court’s ruling that Frances and John were not “employers” as that term is defined in Section 2 of the IWPCA. The court noted that the fact that the Wage Act imposes liability pursuant to two separate and distinct definitions of “employer” was specifically addressed in 2013 in Elsener v Brown, 2013 IL App (2d) 120209, ¶ 66 and that Elsener “unquestionably” indicates that QTC was the “employer” with strict liability under Section 2, and that Frances or John would have been an “employer” subject to liability under Section 13 only if they had knowingly permitted QTC’s violation of the Wage Act.
The court stated that its reading “avoids the extreme and negative consequences that the Department’s interpretation would cause,” including upsetting well-established principles of corporate law. As part of its analysis the appellate court looked at how this ruling would impact the doctrine of piercing the corporate veil. The court noted that “ruling that Frances and/or John could be held strictly liable for the actions of their employer, QTC, would effectively authorize piercing the corporate veil without meeting established standards for doing so.” Specifically, the court held that “[a] literal reading would result in absurdity or unjustness in part because of an employer’s strict liability for wages.” The court also stated that the IDOL’s contention that the Legislature impliedly created the potential for personal liability against individuals “is not only legally unsound, it is unjust.”