Illinois Sales Representative Act Doesn’t Apply to Construction Repair “Services” – IL 1st Dist

 

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The Illinois Sales Representative Act, 820 ILCS 120/1 (the “ISRA”) provides a cause of action for independent sales representatives who are owed sales commissions.  By covering independent contractors (as opposed to employees), the ISRA serves as a powerful gap filler to the Illinois Wage Payment and Collection Act, which applies specifically to employees owed wages by their employers.

Key ISRA terms include “sales representative”, “commission” and “principal.”  A sales representative is someone who solicits orders on behalf of a principal.  A principal is defined as a person who manufactures, sells, imports or distributes a “product” and who pays a sales representative on commission.  The ISRA defines  a commission as a percentage of the total dollar amount of sales or percentage of profits.  820 ILCS 120/1(1)-(3).

The ISRA principal must pay an earned commission to the sales representative within 13 days of either (a) the termination of the principal-sales rep contract or (b) the date on which the commissions are earned.  If the principal fails to pay within that 13-day period, the sales representative can recover treble damages (3 times the amount of the best commissions) plus attorneys’ fees and costs.  820 ILCS 120/1(1)-(3).

Johnson v. Safeguard Const. Co., Inc., 2013 ILApp (1st) 123616, examines whether a sales representative who solicits orders for a combination of goods and services can state an ISRA claim.

The plaintiff’s job was to try and sign up homeowner clients for the defendant’s  construction restoration services.  The plaintiff was paid a commission based on a percentage of the defendant’s profits.  The defendant didnt ‘t actually perform the construction repair work or supply the materials.  It did all work through subcontractors.

Plaintiff sued under the ISRA and for breach of contract for unpaid commissions.  The court entered summary judgment on the ISRA claim and plaintiff voluntarily dropped his breach of contract claim.  Plaintiff appealed the dismissal of the ISRA count.

Held: Affirmed.  The ISRA doesn’t apply because defendants don’t manufacture or sell a “product” under the ISRA.

Rules/Reasoning:

The ISRA applies to principals who manufacture, produce, import, or distribute “products” for sale.  Illinois caselaw has interpreted “products” to mean tangible goods, not services.  (¶16).  In “mixed product” cases – ones that involve goods and services, the Court looks to the main purpose of the contract and looks to whether goods are incidental to the services offered.  (¶¶ 18-20).  If services are the contract’s central aim and tangible materials are only tangential to the contract, the ISRA doesn’t apply.  Id.

The Court rejected plaintiff’s argument that the defendant supplied both goods and services to its construction restoration clients.  Even though the contract mentioned “products and services”, the Court still found that the ISRA didn’t apply.  The key factor was that the defendant didn’t perform the work or furnish any materials; but instead, sub-contracted the work and materials to third parties.

The Court held that since defendant didn’t actually perform the work or supply any tangibles  materials to its homeowner clients, the main purpose of the contract between plaintiff and defendant and between defendant and the homeowners clients was for plaintiff’s home restoration services.  Any goods or products offered were purely incidental to the contract’s main goal: signing up accounts for the defendant.  (¶¶ 21-22).

Notes:  This case espouses  a literal interpretation of a statute and shows that where a contract’s main purpose is rendition of services – as opposed to supplying tangible goods – the ISRA won’t apply.  The court distinguished this case from a Federal case (Nicor Energy v. Dillon, 2004 WL 51234) where the court allowed an ISRA claim involving the sale of energy and natural gas services.  In that case, because the contract required the plaintiff to sell specific quantities of natural gas and electricity to end users, the “goods” portion of the contract predominated over the services portion.

 

 

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PaulP

Litigation attorney at Bielski Chapman, Ltd. representing businesses and individuals in business litigation, post-judgment enforcement, collections and real estate litigation.

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