Final Compensation Obligations to Terminated Employees*

Following up on the last Tuesday Topic (the last of three employee termination checklists) here, we now turn to providing a little more detail about some of those termination checklist items. This week’s Topic addresses the importance of knowing, understanding and paying departing employees any final compensation that they have earned under company policy, practice or the law.? ???

No matter the circumstances surrounding an employee's termination, a company is still obligated to compensate an employee for all wages and other compensation earned through the date of termination. Specifically, under laws like the Illinois Wage Payment and Collection Act (and there are similar state laws throughout the country), employers must pay all final compensation of a separated employee no later than the next regularly-scheduled payday. Some states, such as California, even require final compensation to be paid on the last date of employment. ?Final compensation includes wages, bonus payments, vacation/PTO, commissions and any other compensation that is earned by the employee through contract or otherwise (e.g., severance, expenses, etc.).

A frequent question that comes up when terminating an employee is, if the employee has company property (such as a cellphone, files or laptop) that the employee refuses to return or the employee damages certain property, whether the employer can refuse to pay or deduct the value of the property from the employee's final compensation. After all, why should the employee get to benefit from their own misconduct and refusing to return company property.? However, the quick answer, at least under Illinois law, is "no." The employer is still obligated to pay final compensation and is unable to deduct any amounts from the final compensation unless the employee gives express written consent contemporaneous with the deduction. There are some limited valid deductions such as wage assignments, but otherwise the employer must pay a terminated employee's final compensation in full.

Significantly, many state wage payment and collection laws allow employees who do not receive their final compensation to recover damages from any corporate officer or agent of the employer who knowingly permits the employer to violate the Act. Penalties and potential damages to employers and owners for violating such laws are significant. For example, in Illinois, a violation of the Act can lead to a Class A or B misdemeanor and a felony conviction for repeated violations. If an employee prevails, he or she will also be entitled to the final compensation, plus significant statutory damages based on a percentage of the underpayment amount for each month past the date on which the wages were due, as well as attorneys' fees and costs. In light of these potential damages, and the fact that the penalties and damages can far exceed the underlying underpayment at issue, the best course of action is to pay the terminated employee his or her final compensation on a timely basis.

Next week, we will discuss in more detail severance agreement and payment obligations to terminated employees.

* This is one of a series of weekly articles containing helpful tips and “best practices” for employers to keep in mind when managing their workforce.? These articles are partially adapted from my book, Employment Law Toolkit for Employers.? If you would like a copy of my book, please reach out to me at 312-876-6676 or [email protected]. Nothing contained in this article shall be construed as legal advice and this article does not create an attorney-client relationship between Saul Ewing LLP and any reader.?