Voluntary Payment of Wages Sinks Transit Agency’s Conversion Counterclaim Against Ex-Employees – IL ND

In Laba v. CTA, 2016 WL 147656 (N.D.Ill. 2016), the Court considers the contours of the conversion tort in a dispute involving former Chicago Transit Authority (CTA) employees who lied about their hours worked.

The CTA claimed the employees converted or “stole” paycheck monies by falsifying employee time records in order to get paid by the agency.

The Court dismissed the CTA’s conversion claim based on the involuntary payment doctrine.  Conversion applies where a plaintiff shows (1) a defendant exercised unauthorized control over the plaintiff’s personal property; (2) plaintiff’s right to immediate possession of the property; and (3) a demand for possession of the property.  

A colorable conversion claim must involve specifically identifiable property.  Money can be the subject of  a conversion claim but it must be a specific source of funds.  A general obligation (“John owes me money and so he basically stole from me,” e.g.) isn’t enough for actionable conversion.

A well-established conversion defense is the voluntary payment rule.  This rule posits that where one party voluntarily transfers property to another, even if the transfer is mistaken, there is no conversion.  In such a case, there is a debtor-creditor relationship: the debtor would be the person to whom the funds were paid and the creditor the paying party. 

Here, since the CTA voluntarily paid money to the employees, in the form of regular paychecks, those monies could not be subject to a later conversion suit.  The CTA did not pay the ex-workers under duress.  The fact that the workers may not have earned their pay doesn’t change the analysis.  At most, according to the court, the time sheet embellishments created a “general debt arising from fraudulent conduct.”  The CTA has a remedy to recoup the funds; it’s just not one for conversion. 

Afterwords:

This case presents a creative use of the conversion tort in an unorthodox fact setting.  The case lesson is clear: where an employer pays an employee of the employer’s own volition, the payment will be considered “voluntary” even where it turns out the employee didn’t deserve the payment (i.e. by not working).  In such a case, the employer’s appropriate remedy is one for breach of contract or unjust enrichment.  A civil conversion claim will not apply to voluntarily employer-employee payments.

Wage Payment and Collection Act Amendments Allowing for Attorneys’ Fees and 2% Interest – One Applies Retroactively, the Other Doesn’t – IL 1st Dist

Aside from its application of the apparent agency doctrine to a dispute over commissions, Thomas v. Weatherguard Construction Company, 2015 IL App (1st) 142785 also provides an interesting analysis of when attorneys’ fees and statutory interest can be tacked on to a successful Illinois Wage Payment and Collection Act (“Wage Act”) plaintiff’s suit for unpaid wages against an employer.

The Wage Act was amended in 2011 to allow a winning plaintiff to add to his unpaid damage award (a) attorneys’ fees and costs, plus (b) 2% monthly interest on unpaid amounts. 820 ILCS 115/14(a).

Before this change, a Wage Act plaintiff could still recover fees but he had to do so under the Attorneys Fees in Wage Actions Act, 705 ILCS 225/1.  Since the plaintiff in this case filed suit in 2007 (before the amendment), the question was whether Section 14(a) (the section with the attorneys’ fees provision) applied retroactively.  The defendant argued that the amended Wage Act could not apply retroactively since it fastened two new liabilities – an attorneys’ fees provision and a 2% interest term – on Wage Act defendants.

Generally, procedural changes in a statute do apply retroactively while substantive changes do not.

Deciding whether a statutory amendment is procedural or substantive isn’t always easy though.

‘Procedure is the machinery for carrying on the suit, including pleading, process, evidence and practice, whether in the trial court, or in the processes by which causes are carried to the appellate courts for review, or laying the foundation for such review.’ By contrast, a substantive change in the law establishes, creates or defines rights. (¶ 66)

A procedural statutory amendment will not be applied retroactively if the statute would have a “retroactive impact” – meaning the amended statute would impair rights a party possessed when he acted, increase a party’s liability for past conduct, or impose new duties with respect to transactions already completed.

Here, the amended Section 14(a) of the Wage Act was not a substantive change since it did not create a new attorneys’ fees remedy.  At the time plaintiff filed suit (2007), a Wage Act plaintiff could recover fees under the Attorneys Fees in Wage Actions Act cited above.  In addition, the amended law didn’t have retroactive effect on the defendant.  The amended statute didn’t impair any pre-existing rights of the defendant, increase the defendant’s liability for past conduct or impose new obligations on the defendant.  Again, a prevailing Wage Act plaintiff could recover attorneys’ fees under the prior version of the statute that existed when the lawsuit was filed. (¶¶ 66-74)

The court reached the opposite conclusion concerning the 2% monthly interest provision though.  Where a statutory amendment creates a new liability that didn’t exist under a prior version of a law, the new liability is a substantive change.  Since the 2% monthly interest provision didn’t exist in the earlier version of the Wage Act, its presence in the current statute was a substantive change that could not be applied retroactively.

The end result was that the court remanded the case so that the trial court could assess plaintiff’s attorneys’ fees incurred in his partially successful Wage Act claim.

Take-away:

This is a pro-claimant case as it gives added strength to a Wage Act remedy.  By raising the specter of prevailing plaintiff attorneys’ fees on top of the unpaid wages amount, the amended Wage Act may level the playing field between former employees who might normally lack the resources to fund litigation against deeper-pocketed ex-employers.  By allowing for fees and interest, the Wage Act provides an incentive for aggrieved employees to sue under the statute.

 

No Future Damages Allowed in Wage Payment and Collection Act Claim – IL 2d Dist.

Eakins v. Hanna Cylinders, LLC, 2015 IL App (2d) 140944 is the third in a trio of recent Illinois Wage Payment and Collection Act, 820 ILCS 115/1 et seq., (“Wage Act”) cases that address an employee’s rights to recover future damages after an employer prematurely terminates a multi-year contract.

(The other two cases – Majmundar v. House of Spices (India), Inc., 2013 IL App (1st) 130292 and Elsener v. Brown, 2013 IL App (2d) 120209 are summarized here and here.)

The Eakins plaintiff sued after he was fired 14 months into a 24-month contract to serve as a plant manager for the industrial company defendant.  The employment contract was silent on grounds for termination.  The plaintiff sought as damages, compensation for the ten month remaining on the employment contract under a breach of contract theory and he joined a Wage Act claim.  The trial court entered summary judgment for the defendant on both claims and the plaintiff appealed.

Held: Breach of contract judgment reversed; Wage Act judgment for employer affirmed.

Q: Why?

A: The appeals court reversed the breach of contract judgment for the defendant employer.  In Illinois, an employment agreement with no fixed duration can be ended at the will of either party.  The contract here was clearly for a fixed term, 24 months, and so wasn’t at will.  By firing the plaintiff 14 months into the contract term, the defendant breached.

The court rejected defendant’s argument that the plaintiff’s failure to meet certain performance metrics (e.g. keep costs down, grow market share, meet sales quotas, etc.) justified defendant’s premature termination of the plaintiff.  The court found that since the contract didn’t specify poor performance (as opposed to outright failure to perform – e.g. by not showing up to work) as a ground for contractual cancellation, the defendant breached by firing plaintiff before the 24 months was up.

Otherwise, according to the court, any employer could transmute a fixed-term contract into an at-will one by claiming the employee didn’t meet the employer’s performance requirements.  The court remanded to the lower court so it could decide plaintiff’s money damages. (¶¶ 23-29).

The court did affirm judgment for the defendant on the Wage Act claim though.  Looking to Majmundar for guidance, the court held that unpaid future compensations coming due under an untimely ended employment contract doesn’t qualify as “final compensation” under the Wage Act.  The reason for this is that once an employee is fired, he no longer performs any services for the employer.  So the employer isn’t receiving anything of value from the employee to support an obligation to make future payments. (¶¶ 31-32).

Take-aways:

Where a contract is for a fixed term and doesn’t provide for “for cause” firing or otherwise spell out grounds for termination, the contract will be enforced as written in the employee’s favor and his failure to meet an employer’s subjective work standards won’t constitute a basis for nullifying the contract;

Future payments due under a fixed-term contract aren’t considered final compensation under the Wage Act since there is no reciprocal exchange (services for wages) once an employee is fired;

Procedurally, the case makes clear that the denial of a summary judgment motion is appealable so long as there are cross-motions for summary judgment filed and the disposition of those motions resolves all issues in a given case.