What to Do When "The Check Is in the Mail"

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What to Do When "The Check Is in the Mail"

“The check is in the mail!” is one phrase no employee wants to hear about her hard-earned wages. Unfortunately, this is a reality for some workers. Businesses, especially start-ups, sometimes become cash-strapped and cannot meet payroll. So what’s an employee to do in such a situation? Remain patiently loyal, keeping her head down and focused on work while hoping for the best—or instantly dart to the myriad of online job boards in search of new employment with hopes of stanching the loss of compensation? And what about the consequences an employer faces if it cannot pay its workers?

Governing Law in Illinois

First, there are countless laws and regulations governing the payment of wages. The federal Fair Labor Standards Act (FLSA) and the Illinois Wage Payment and Collection Act (ILWPCA) generally require that an employer pay its employees the full minimum wage and any statutory overtime due on the regularly scheduled payday for the workweek. Both laws provide penalties for employers who fail to pay (e.g., an FLSA penalty can cost up to $1,100 for each violation for repeated or willful violations), as well as opportunities for attorneys’ fees for employees that are forced to file claims to obtain their wages. The ILWPCA and other state law equivalents further expand the definition of “wages” that must be paid to include not just an hourly rate or salary, but also “earned commissions, earned bonuses, and the monetary equivalent of earned vacation and earned holidays.” This means that an employer must pay promised and earned bonuses, as well as earned and unused vacation pay, upon termination. Commissions are also governed by the Illinois Sales Representatives Act, which provides additional damages and remedies to employees. Particularly significant, the ILWPCA and FLSA can also hold corporate officers or agents personally liable for knowing violations of the Acts.

Employees: Demand Your Wages

If you do not receive all of your promised wages on your regular payday, immediately inform your supervisor that you did not receive your wages and ask when you can expect them. Be sure to document your demand for wages—either conduct the conversation via email or follow up by email later, memorializing your request and your employer’s response (and don’t forget to copy your non-work email). If your employer says that the wages are forthcoming, ask that this promise be made in writing (e.g., via email) so that you have evidence to ensure there is no confusion later on.

The law also prohibits employers from retaliating against employees for engaging in protected activity, such as exercising your rights under relevant wage payment laws; your demand for payment can be one sort of protected activity. If you are fired or demoted soon after you demand payment of your wages, you may have a claim against your employer for retaliation. Your email records can help establish that you engaged in protected activity.

As a practical matter, once your employer misses a pay date, regardless of whether you are promised that you will be paid, seriously consider whether to continue employment. You may be better off resigning and focusing your efforts on finding new employment, rather than working for wages that may never materialize. If you are told or suspect that the wages will not be paid to you, quitting may be your only option. Trust your instincts! An employer’s failure to make payroll can signal serious problems with the organization and does not bode well for the future of your career there. Bankruptcy or acquisition may be on the horizon; if that is the case, you may have the opportunity to get payment for your wages eventually, but not in full and sometimes not at all if certain requirements are not met.

Keep Detailed Records

If you are not paid (or you continue to work based on the promise that wages are coming), keep meticulous records of the work you perform: write down exactly what you are doing and when the work is performed in a detailed spreadsheet with dates, times, and descriptions. Make and keep these records even if your employer has some other way to record your working time (e.g., timecards). This will ensure that you have the evidence you need to support your claim for payment in your possession if and when you need to make a claim.

Check your Employment Contract

If you signed any documents when you started your job, be sure to carefully reread these documents. You may have signed a contract that gives you rights against your employer for its failure to pay your wages, such as attorneys’ fees. Also, the employer’s failure to pay may relieve you of restrictions on your future employment (non-compete or non-solicitation clauses). Consult with an attorney for more information on your rights.

File a Wage Claim

If your employer does not make payment (or fails to make payment when promised), it is always best to consult with an attorney to determine your options, including evaluating what claims you have, how and where they should be filed, and the relevant dates by which they must be filed. Most claims can be filed either in court or with the state or federal agencies tasked with enforcing them. Your remedies and filing deadlines may be different depending on where your claims are filed.

Recognizing that it is not always possible or practical to retain an attorney, the U.S. Department of Labor and the Illinois Department of Labor both have user-friendly, no-cost processes to help you secure your unpaid wages without an attorney. For additional information, answers to frequently asked questions, and to file a claim for wages, visit the U.S. Department of Labor or the Illinois Department of Labor. You can find more information illustrating the claim-filing process in Illinois here.

Employers: What if I cannot make payroll?

As a practical matter, before deciding that you cannot pay wages, ensure that you have undertaken every effort possible to pay your workers in full and on time. Consider loans, lines of credit, credit cards, or even offering equity in your business to workers as payment.

There are not many things more demeaning or demoralizing for employees than not being paid wages for their hard work. Your workers will lose trust and faith in you, as well as their belief in your business. More significantly, failure to pay wages can cause financial ruin to your workers: they (and their families) are depending upon those wages to make rent and put food on the table. Your workers will start to leave. And though you could later try to replace those employees lost by your failure to pay, it may be too late—word will get out and it will be that much more difficult to hire the employees you need to operate your business.

Moreover, failure to pay wages can mean significant penalties from state and federal agencies, and severe federal and state tax consequences. Further, consider that you could be facing personal liability—meaning you could owe money as an individual and put your own personal assets at risk—for your failure to pay wages.

Communicate with Your Team

If you cannot pay, tell your workers as soon as possible. Admitting the problem, as difficult and humbling as it may be, and working together on a solution directly with your employees and your own team of advisors (your attorney, accountant, and banker) can help stave off disaster. It will show your employees that they are valued members of your team and help avoid claims against your company.

Once a solution to the immediate problem is found, step back and consider how your business ended up unable to pay its workers and whether your business has a path forward. Is this a temporary or endemic problem? Do you have too many employees? Are your resources allocated appropriately? Are your accounts receivable too high? Is your business model workable? Seek help. Resources abound, such as the City of Chicago Small Business Center, 1871, and SCORE.

Most often, the business’ ownership must make rapid and radical changes to prevent another payroll misstep, and take actions such as restructuring the business, liquidating assets, offering discounts for a customer’s immediate payment of outstanding invoices, or finding investors who can provide a cash infusion with which to pay workers. Furloughing workers, reducing employee hours, making layoffs, or even shutting down the business may be advisable. Whatever the plan, the goal must be to avoid any future situation where you are unable to pay employee wages.

Paying wages to workers is one of the fundamental values of our society, as expressed by the multitude of regulations in this area. If you have not been paid for your work or are faced with the possibility of being unable to pay your workers, contact our office today to help determine your options and next steps.

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