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On October 4, 2024, the U.S. Court of Appeals for the Seventh Circuit held that “boilerplate disclaimer language” in an incentive compensation plan does not automatically prevent the formation of an “agreement” between an employee and his or her employer for purposes of a claim under the Illinois Wage Payment and Collection Act (<a href="https://law.justia.com/codes/illinois/chapter-820/act-820-ilcs-115/">IWPCA</a>). This decision is significant because it puts employers on notice that employees may have a claim for unpaid compensation under the IWPCA even if the employer expressly disclaims that it ever agreed to pay such compensation.

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Santanu Das v. Tata Consultancy Services Ltd., No. 23-3209 (7th Cir. 2024).

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Under the IWPCA, an employee may file suit for compensation owed “pursuant to an employment contract or agreement.” 820 ILCS 115/2. An “agreement” under the IWPCA need not be a formally negotiated contract, and whether an agreement exists is frequently disputed, particularly at the pleading stage. Indeed, compensation plans often contain boilerplate disclaimer language stating, for example, that the compensation is discretionary, the employer retains full discretion to alter the terms of the plan at any time, and the terms of the plan should not be construed as a contract between the parties. But courts have taken different approaches regarding what constitutes an agreement under the IWPCA, and there had been no clear answer from the Seventh Circuit as to whether an agreement under the IWPCA can ever be formed when an employer includes such boilerplate disclaimer language—until now.

In <a href="https://cases.justia.com/federal/appellate-courts/ca7/23-3209/23-3209-2024-10-04.pdf?ts=1728073819">Case No. 23-3209</a>, Santanu Das filed a complaint against Tata Consultancy Services Ltd. (“Tata”) in the U.S. District Court for the Northern District of Illinois alleging, among other claims, violation of the IWPCA. The claims arose out of an incentive compensation plan in which employees like Das participated that allowed Tata’s highest-performing employees to earn a bonus exceeding $400,000 if the employee met a certain sales target. Das met the sales target but ultimately received less than $100,000 from Tata. Tata moved to dismiss Das’s claims, arguing with respect to the IWPCA claim that it did not owe Das a higher bonus because the formal written plan was not an agreement to pay wages. According to Tata, it was impossible for Das to establish that any “agreement” between Tata and Das had ever been formed because the plan contained the following language:

Any incentive bonus payment made to an individual under the Plan is made at the sole discretion of the Corporate Vice President …. It is at the sole and total discretion of management whether there is any bonus …. It should not be assumed that past payments have established a pattern for future payments.… Payment under this Plan is subject to the company’s discretion. It does not create a contract between you and [Tata] ….

The district court agreed with Tata and held that “Illinois views boilerplate disclaimer language as fatal to mutual assent” for purposes of an IWPCA claim.

As relevant, Das appealed the dismissal of his IWPCA claim to the Seventh Circuit. The Seventh Circuit reversed, concluding that Das had sufficiently alleged an agreement between him and Tata in order to make out an IWPCA claim.

The Seventh Circuit noted that “the key inquiry [was] whether under Illinois law the [company’s] disclaimers are incompatible with mutual assent.” In answering this question, the court explained that, per two Illinois Appellate Court decisions, Illinois “does not treat disclaimer language as necessarily preventing the formation of mutual assent to terms.” The court also noted that its interpretation of Illinois law is consistent with a position the Illinois Department of Labor has taken in a regulation, which is “at least persuasive guidance.”&nbsp;

Next, the Seventh Circuit discussed Illinois cases involving contracts containing boilerplate disclaimers and remarked that “[s]ometimes, other sources [beyond the written terms of an alleged contract] can establish that a contract was formed despite the drafter’s inclusion of [boilerplate disclaimer] language.” And here, Das alleged—and Tata did not deny—that Tata had a practice of compensating sales employees with incentive plans. This, according to the Seventh Circuit, “may constitute the manifestation of mutual assent to terms” necessary to establish an IWPCA claim.&nbsp;&nbsp;

The Seventh Circuit summarily concluded: “[O]n a motion to dismiss, a written incentive plan with boilerplate disclaimers does not categorically preclude the finding of a[n] [IWPCA] agreement between the parties. This is especially true where the plaintiff has alleged a history between the parties of the type of conduct at issue in the putative agreement.”

Companies frequently include boilerplate disclaimer language in personnel-related documents—including alongside the written terms outlining an employee’s incentive compensation—thinking that the language will preclude future liability. The Das decision is an important reminder that including such disclaimer language in employee documents is typically helpful, but it will not automatically bar claims under the IWPCA on the ground that no agreement between the parties was ever formed. As the Seventh Circuit noted, past practices (or something else) may be sufficient to establish mutual assent to the terms of an agreement requiring the employer to make payment, regardless of any contrary disclaimer language.

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The Seventh Circuit did not indicate whether its analysis would have been different if the written terms had provided that that they do “not create an agreement between [Das] and [Tata],” as opposed to only stating they did not create a “contract.” However, given the court’s focus on the parties’ conduct beyond the plan’s written terms, it is unlikely that a change in the disclaimer language from “contract” to “agreement” would have made a difference in Das given the other facts alleged.

The Das decision may make it more difficult for employers to defeat IWPCA claims at the pleading stage. Accordingly, in addition to carefully drafting the written terms of any compensation for which an employee may be eligible, employers should always be mindful of whether they are establishing a pattern or practice with respect to compensation that could form the basis of an agreement to pay under the IWPCA.

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For more information on this topic or assistance in preparing your employee compensation documents, please contact <a href="/people/james-p-looby/">James P. Looby</a> at <a href="mailto:jlooby@vedderprice.com">jlooby@vedderprice.com</a>, <a href="/people/fernanda-contreras/">Fernanda Contreras</a> at <a href="mailto:fcontreras@vedderprice.com">fcontreras@vedderprice.com</a> or any Vedder Price employee with whom you have worked.

Are Boilerplate Disclaimers Enough? Illinois Employers May Still Face Unpaid Wage Claims

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