Commission Payment Terms in Employment Contract Trump Cable Rep’s ‘Procuring Cause’ Claim in Sales Contract Spat – IL Court

I once represented a client who sued his former employer – an energy company – for unpaid commission and bonuses.  Before he hired me, the client filed a pro se administrative claim with the Illinois Department of Labor (DOL) to recover the monies.  The DOL found in my client’s favor but could not decide on a specific dollar amount. Several months later, I sued to recover under the Illinois Wage Payment and Collection Act (Wage Act) and for breach of contract.  In that case, which settled favorably for us, the employer unsuccessfully argued my client’s prior DOL case precluded our civil Wage Act claim.  The trial court rejected this res judicata argument on the basis that the DOL proceeding was not equivalent to a prior adjudication on the merits.

Borum v. Wideopenwest Illinois, LLC, 2015 IL App (1st) 141482-U, a two-year old, unpublished decision, presents a similar fact pattern and considers whether an ex-employee’s earlier administrative claim prevents a later civil lawsuit against the same employer for the same claim.  The case also spotlights the interplay between an employment agreement’s payment terms and the procuring cause doctrine in a sales commissions dispute.

Defendant hired plaintiff to prospect for cable customers.  It agreed to pay plaintiff a commission based on customers he signed up.  The defendant’s standard employment contract documented the plaintiff’s commission payment rights: plaintiff earned his commission once a customer signed a right-of-entry agreement with the cable supplier.

After lodging an unsuccessful DOL, plaintiff sued the cable company in state court to recover unpaid sales commissions. The trial court granted defendant’s motion to dismiss all counts of the plaintiff’s complaint and plaintiff appealed.

Affirming the trial court’s dismissal, the Court first considered whether the plaintiff’s DOL proceeding barred his civil suit under res judicata or collateral estoppel principles.  Section 14 of the Wage Act authorizes an employee to file either a DOL claim or a civil action, but not both, to recover underpayment damages along with 2% per month of the underpaid amount.

The DOL ruled against the plaintiff.  It found the right-of-entry agreements were not consummated until signed by both a customer and the defendant employer.)

The Court found the DOL hearing was too informal and not “judicial” or “adjudicatory” enough to defeat plaintiff’s later civil suit under the res judicata rule.

Res judicata requires a final judgment on the merits by a court of competent jurisdiction.  Collateral estoppel precludes litigation of an issue previously decided in an earlier proceeding.  Res judicata and collateral estoppel can extend to administrative proceedings that are judicial, adjudicatory or quasi-judicial in nature.

So where administrative proceedings involve sworn testimony, are adversarial in nature and include cross-examination of witnesses, they can bar a subsequent civil suit.

Here, since the DOL conducted only an informal hearing with no cross-examination or sworn witnesses, the DOL had no adjudicatory power over the parties and so its finding for defendant had no preclusive effect against the plaintiff’s lawsuit.

The court also rejected plaintiff’s procuring cause argument.  Designed to soften the harsh impact of at-will contracts, the procuring cause doctrine allows a departed salesperson to recover commissions on sales he/she consummated before his/her employment ends even where the money isn’t paid to the employer until after the salesperson departs.  The procuring cause rule is only a gap filler though: it’s a default rule that only applies where a contract is silent on when commissions are paid.

Since plaintiff’s contract with defendant specifically provided plaintiff would be paid commissions earned during (but not after) the period of the employment, the court found this specific enough to vitiate the procuring cause rule.

Lastly, the Court considered whether defendant violated its handbook which stated compensation terms could only be changed on 30 days advance notice.  Plaintiff argued that the defendant made a unilateral change to its compensation policy without giving plaintiff the requisite notice.

The key question for the Court was whether the employee manual was an enforceable contract. For an employee handbook to vest an employee with binding contract rights, (1) the handbook promise must be clear enough that an employee reasonably believes and offer has been made, (2) the handbook offer must be distributed to the employee so that he/she actually receives it or is aware of its contents; the (3) the employee must accept the offer by commencing work after learning of the policy statement.

Since the plaintiff conceded he wasn’t aware of the employee manual until the day he was fired, the court found he couldn’t reasonably show the handbook provided him with enforceable contract rights. (¶¶ 83-85).

Bullet-points:

  • Administrative claims can support a res judicata defense but only where the administrative hearing is adversarial (judicial) in nature; such as where witnesses give sworn testimony that can be tested on cross-examination;
  • The procuring cause rule won’t trump specific contract payment terms;
  • A written employer policy on compensation adjustments isn’t binding against an employer where the aggrieved employee isn’t aware of the policy until on or after he/she’s fired.

 

 

 

 

:

Employee Handbooks: Are They Enforceable Contract Rights?

imagesWhen I hear the perks enjoyed by some corporate employees – the flex time, the telecommuting, bosses who live and work in other states, getting to “work” from home about 310 days a year, etc. – I can’t help but be a bit mystified and envious.  “I know I went to Starbucks 18 times and the gym 14 times today, but I AM working.  Honest!”  Good thing I’m not jealous (cough).  Or projecting (cough cough).

Now add a corporate Home Sale Buyout Program (the Home Sale Program) to the list of fringe amenities I’ve  neither heard of nor experienced.  That’s what’s involved in Carpenter v. Sirva Relocation, LLC, 2013 WL 6454253 (N.D.Ill. 2013), a recent Northern District case where a transferred Office Depot employee sued her employer and its relocation company for not honoring promised relocation benefits.

Facts:

The plaintiff agreed to move to another state to assume a manager position and sought relocation from her employer.

Office Depot offered a three-pronged program that included facilitating the employee’s home sale, providing moving expenses and an additional lump sum payment.  The relocation program was administered by a third-party relocation company -an Office Depot independent contractor.

A salient feature of the relocation package was that if the employee’s house didn’t sell after 90 days market time, The employer would buy the home based on a contractual pricing formula.

After plaintiff accepted the transfer and moved out of state,  The Office Depot told plaintiff that it couldn’t buy plaintiff’s Chicago home since it was a Co-op – a property type outside the scope of the relocation program.

Plaintiff brought contract and tort claims against Office Depot and its independent relocation contractor.  Both defendants moved for summary judgment on all claims.

Held: Plaintiff’s breach of contract claim against Office Depot survives summary judgment.  Plaintiffs’ claims against moving contractor don’t.

Why?

The Court denied Office Depot’s summary judgment motion on plaintiff’s breach of contract claim.

Plaintiff’s claim was premised on an email and written benefits guide that summarized the relocation benefits.  The guide contained profuse boilerplate disclaimers.

An Illinois breach of contract plaintiff must show (1) the existence of a valid contract, (2) substantial performance by the plaintiff, (3) breach by the defendant, and (4) resulting damages.

For an employee handbook to create enforceable contract rights, (1) the handbook must contain a clear promise such that the employee believes an offer has been made, (2) it must be disseminated to the employee such that the employee reasonably believes the handbook consists of an offer, and (3) the employee must accept the offer by starting or continuing to work after he sees the policy/handbook statement.  

An employment contract disclaimer – if clear and direct – is a defense to a breach of contract suit based on an employee handbook.  *5.

Applying these rules, the Court held that the plaintiff offered sufficient breach of contract evidence to defeat Office Depot’s summary judgment motion.  The Court found the e-mail attachment that sketched out the Relocation program was clear and definite enough to support a colorable contract claim.

The plaintiff also offered evidence that she never saw the benefits guide that contained the co-op disclaimer.  She also showed that she accepted the job transfer in reliance on Office Depot’s email that didn’t mention the co-op exclusion.  Taken together, this was enough for plaintiff to go to trial on her breach of contract claim.  *5-6.

The Court did sustain the relocation contractor’s summary judgment motion.  There was no direct contact between plaintiff and the contractor as all talks flowed through Office Depot.

The plaintiff also didn’t show she was a third-party beneficiary of the subcontract agreement between Office Depot and the moving company: there was nothing in the subcontract that reflected an intent to benefit the plaintiff.*6.

Take-aways: Employer handbooks and published policies can create enforceable contract rights if they are specific enough for a reasonable reader to infer that an offer or promise has been made.

The case also solidifies contract law axiom that there must be privity – a connection – between two parties to give rise to contract rights.  Here, since there was no direct contact between plaintiff and the relocation company, the plaintiff couldn’t state a breach of contract claim against the company.