December 01, 2011

Production Bonuses and Overtime Wages Included in Average Weekly Wage

December 01, 2011

Arcelor Mittal Steel vs. IWCC No. No. 1-10-2180WC

The claimant, Robert Common, a union member, injured his right arm at work.  He testified that he worked a regular eight-hour shift Monday through Friday.  Each Thursday the next week’s schedule was posted: “2” on the schedule indicated that the individual would be assigned a 12-hour shift on a designated day.  In addition to this required 12-hour shift, Common also worked unscheduled overtime.  The union contract provided for both shift differential and incentive pay whose purpose was to produce as much high quality steel as safely possible.  Incentive pay varied weekly based on productivity and the specific crew.  If the requirements that triggered a productivity or safety incentive were not met, no incentive was paid out to any member of the crew.

The employer’s human resources manager testified that the production bonus plan was part of an employee’s payment package and of the collective bargaining agreement.  The plan had a production component and a safety component.  If certain production levels were met, the bonus was paid; if no time was lost due to a work-related accident, a safety bonus was paid.  If there was a work accident or production levels were not met, no bonus for those components was paid.  Once benchmarks were hit, each employee received a bonus; if the benchmark was not met, no member of the team received a bonus.  The manager testified further that the bonus was not tied to stock price, was not seasonal, and was not given due to the generosity of management.  If an employee was sick or did not work he received no bonus.

A letter from the employer’s general manager stated that Common was eligible to receive a weekly production bonus based on two components – quality tons per 12-hour shift and safety performance.  The letter also addressed overtime, stating that this would occur on the days when an employee is scheduled to work additional time.  An employee could be excused from this overtime upon request and a valid reason.  Otherwise, most overtime was on a volunteer basis.

The union president testified that overtime on the 12-hour days was mandatory but that an exchange of shifts was permitted with a supervisor’s approval.  If someone was scheduled to work and called off without the permission of the supervisor, that would be considered an ‘occurrence’ which could ultimately lead to discipline and discharge.  Common’s supervisor testified that 12-hour shifts were based on production and were normally done on Wednesdays but were actually based on the supply of iron received.  Shift switching and requests for time off were allowed if made 24 hours in advance.  If an employee was scheduled to work a 12-hour shift he was not permitted to refuse the extra four hours.  Unscheduled overtime on any given day was assigned on a voluntary basis based on seniority.

The Arbitrator and the Commission calculated weekly wages using both the bonus/incentive pay and overtime calculated at straight time.  The Commission did not include unscheduled or voluntary overtime wages in calculating the AWW.  The Commission found that the 12-hour shift was mandatory and that bonus/incentive was paid in ‘consideration for work.’

This decision was affirmed on appeal.  The Appellate Court cited Section 10 of the Act wherein the ‘average weekly wage’ is defined as:

“[t]he actual earnings of the employee in the employment in which he was working at the time of the injury during the period of 52 weeks ending with the last day of the employee’s last full pay period immediately preceding the date of his injury, illness or disablement excluding overtime, and bonus divided by 52. . .”(emphasis added)

With regard to overtime, the court cited Edward Hines Lumbar Company wherein ‘overtime’ was defined as:

“[c]ompensation for hours beyond those the employee regularly works each week and extra hourly pay above the employee’s normal hourly wage.

In that case, the evidence established that claimant was required to work whatever hours the employer demanded; therefore, the average weekly wage was based on all hours the claimant was required to work.  The holding in Edward Hineswas reiterated in several subsequent cases, including Ogle vs. Industrial Commissionwhere the normal workweek consisted of 48 hours and overtime was mandatory, and in Edward Don Company vs. Industrial Commissionand Fressen, Inc. vs. Industrial Commission,where overtime hours were excluded from wages because there was no evidence the claimants were required to work overtime as a condition of employment or that consistent overtime hours were worked weekly.  Later, in the Airborne Expresscase, overtime was excluded because the claimant was not required to work overtime as a condition of employment.  Rather, the claimant in that case used his seniority and requested overtime.

In the case at hand, the evidence showed that Common worked scheduled overtime as well as unscheduled, voluntary overtime.  The Commission included only contract mandated and scheduled overtime in calculating wages.  The court found this consistent with prior case law because the scheduled overtime was a condition of employment.

The court then addressed the production bonus issue.  Webster’s Dictionary defines ‘bonus’ as “something in addition to what is expected or strictly due,”which creates,

a distinction between incentive-based pay which an employee receives in consideration for specific work performed as a matter of contractual right, and a bonus which an employee receives for no consideration or in consideration of overall performance at the sole discretion of the employer.”

Based on this distinction, the production bonuses paid pursuant to the collective bargaining agreement were not an extra benefit provided gratuitously by the employer.  The employer had no discretion in paying the bonuses – these were “strictly due” based on the volume and quality of steel produced and the number of days worked without accidents.  Only employees who worked on the dates scheduled received the production bonuses.  Consequently, the court held that the production bonuses were not bonuses “as contemplated by Section 10 of the Act,”but rather were received in consideration for work actually performed.  Therefore, the production bonuses were included in the weekly wage.


The discussion of the overtime issue reflects current case law after the recent Tower Automotivecase.  This case was not cited but Towercatalogued previous case law and laid down the circumstances where overtime hours will be included in the AWW: 1) overtime is a condition of the employment; or 2) overtime is worked a consistent number of hours each week.  Here, the 12-hour shifts were a condition of Common’s employment.  This would place his workweek in the same category as the claimants inEdward Hines Lumberand Ogle, where overtime was included in weekly wages.

Regarding the incentive pay/production bonus issue, it is apparent that the word ‘bonus’ in the statute includes only those sums paid at the discretion of an employer – something in addition to what an employee expects, such as an envelope passed out by an employer at a Christmas party.  Here, both the collective bargaining agreement and the actual operating arrangements spelled out qualitative and quantitative criteria which, if met, triggered an obligation to pay certain sums.

Thus a ‘bonus’ is not always a bonus as defined by the statute.  It is obvious that the Commission and the courts will look at both functional and contractual arrangements and not mere nomenclature when determining whether pay other than hourly wages should be included in weekly wages.