The Illinois Wage Payment & Collection Act (Act) regulates pay, including final compensation, and is enforced by the Illinois Department of Labor, Fair Labor Standards Division (IDOL). The Act has defined an “employer” as we commonly understand it for decades. It was amended in 2011 to allow personal liability when an officer or agent of an employer knowingly permits a violation of the Act. 

Recently, IDOL tried to maneuver around the well-known legal doctrine that separates a legal business entity from its individual shareholders, officers, and directors. Quality Therapy and Consultation (QTC) was an occupational, speech, and physical therapy business co-owed 50/50 by John and Frances Parise. After suffering several setbacks, QTC’s financial situation was dire enough that they realized they would not be able to meet payroll obligations. The Parises retained distressed business consultants and began winding down the business, believing they could use a $3 million line of credit to cover payroll obligations. However, when the bank was notified that the business would dissolve, it called the line of credit and froze all assets. The Parises tried to negotiate with the IRS to use the remaining assets to satisfy payroll, but the government refused, and their staff were not paid wages. 

IDOL filed a complaint against QTC and the Parises for unpaid wages and compensation under the theory that all three parties met the definition of employer, rather than pursue the Parises separately under the provision of the Act allowing for personal liability. The Illinois Circuit Court held that IDOL could only hold the Parises liable if they knowingly permitted the violation. The Circuit Court went a step further to say that even if IDOL tried to hold them liable, the evidence showed the Parises did not knowingly violate the Act because they believed they could use their $3 million line of credit and tried to negotiate with the IRS to use other assets to cover payroll. 

On appeal, IDOL pushed its argument that the Parises should be considered employers under the Act, asserting a novel argument that the amendment permitting personal liability for a knowing violation modified the definition of an employer. The appellate court did not buy this argument. The court emphasized that IDOL’s interpretation would amount to a piercing of the corporate veil without meeting the standards for doing so and the impact of such a decision would have drastic consequences, deterring businesses and discouraging individuals from taking on managerial or decision-making roles.  

In a win for employers, the appellate court’s decision preserved the common understanding of the definition of employer, and prevented business owners from being held personally liable for routine business decisions.