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At Termination, State Labor Laws May Be Your Friend
ere is a familiar scenario. Firm terminates broker. Broker is owed wages - his commission payout for the prior month -but the firm refuses to pay. Indeed, the firm reminds the broker that he or she signed a promissory note for up-front money. There is a balance due on the note. Not only does the firm refuse to pay the broker's wages, it asks when will the broker send the check to satisfy the note.
Too often, brokers walk away from this scenario without being paid their wages. No one would dispute that brokers, as employees, are entitled to payment of their wages. But can the firm offset the amount of the wages due from the balance due on the note?
The answer depends upon where the broker resides. Each state has its own set of wage payment and collection laws. For purposes of this article, let's review the rights of brokers residing in Illinois, under the Wage Payment and Collection Act (the "Act"). As always, we would be happy to evaluate the labor laws in other states.
Courts have held that the purpose of the Act is to ensure that employees receive all earned benefits and that they not be forfeited. That includes receipt during employment and upon departure from employment. Brokers should pay close attention to one section of the Act, entitled "Deductions From Wages or Final Compensation".
Under that section, firms are prohibited from making deductions against wages or final compensation, unless one of 5 narrow exceptions applies. There are 4 exceptions possibly relevant to brokers. They are that the deduction is:
Required by law;
To the benefit of the employee;
In response to a valid wage assignment or wage deduction court order; and
Made with the express written consent of the employee, given freely at the time that the deduction is made.
The first three exceptions are self-explanatory. Note that, under the fourth exception, brokers cannot provide their "express written consent" through an employment agreement or an employee handbook. The consent must be given at the time that the deduction is made.
This is an important point. We recently represented a broker who had given his consent upon hire. Although the firm initially had refused to pay his wages, relying upon his written consent, the firm changed its mind when we presented the statute.
One can see that, absent one of the four exceptions stated above, firms have no right to withhold wages when they are owed money on a promissory note. That is good news for brokers. Even better news, though, are the enforcement provisions of the Act -- which make it an especially powerful weapon in the broker's arsenal.
Brokers, as protected employees under the statute, are not required to arbitrate their dispute. Instead, they can complain directly to their state's labor department, which will investigate and prosecute if appropriate.
Moreover, the labor department is not limited to prosecuting only the corporation. The Act applies to any officers or agents of the corporation - such as branch office managers. They too can be guilty of a wage offense if they a) willfully refuse to pay, b) with intent to annoy, delay or defraud the broker.
What catches the firm's attention is the fact that such a wage payment violation is a crime (a Class C misdemeanor), and that each day during which a violation is occurring is considered a separate and distinct offense! And if the prospect of criminal prosecution is not sufficient to ensure compliance, the Act requires the labor department to assess a penalty of 1% of the wages due each day, up to a sum equal to twice the amount of the unpaid wages!
Finally, firms cannot discriminate against brokers who exercise their rights under the Act. That discrimination also subjects the firms to criminal prosecution (a Class C misdemeanor).
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Sponsored by James J. Eccleston, an attorney representing stockbrokers, financial planners and
investors nationwide in arbitration, litigation and regulatory matters, and a shareholder with the law firm
Shaheen, Novoselsky, Staat, Filipowski & Eccleston
P.C.(www.snsfe-law.com). This Web site contains material
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