Tag: Illinois Wage Payment and Collection Act

Faulty Service on LLC Defendant Dooms Administrative Agency’s Unpaid Wages Claim Versus Security Company

The Illinois Department of Labor’s (DOL) decision to send a notice of hearing to a limited liability company and its sole member to the member’s personal post office (p.o.) box (and not to the LLC’s registered agent) came back to haunt the agency in People of the State of Illinois v. Wilson, 2018 IL App (1st) 171614-U.

Reversing summary judgment for the DOL in its lawsuit to enforce an unpaid wages default judgment, the First District austerely applies the Illinois LLC Act’s (805 ILCS 180/1-1 et seq.) service of process requirements and voided the judgment for improper service.

Key Chronology:

February 2013: the DOL filed a complaint for violation of the Illinois Wage Payment and Collection Act (the Wage Act) against the LLC security firm and its member (the “LLC Member”);

January 2015: the DOL sends a notice of hearing by regular mail to both defendants to the LLC Member’s personal p.o. box;

March 2015: Defendants fail to appear at the hearing (the “2015 Hearing”) and DOC defaults the defendants;

June 2015: Defendants fail to pay the default amount and DOL enters judgment that tacks on additional fees and penalties;

February 2016: DOL files suit in Illinois Chancery Court to enforce the June 2015 administrative judgment;

March 2016, May 2016: Defendants respectively appear through counsel and move to dismiss the case for improper service of the 2015 Hearing notice;

June – July 2016: DOL concedes that service was deficient on the LLC defendant (the security company) and voluntarily dismisses the LLC as party defendant;

May 2017: DOL’s motion for summary judgment granted;

June 2017: LLC Member appeals.

The Analysis

The main issue on appeal was whether the DOL gave proper notice of the 2015 Hearing. It did not.

Under the law, lack of jurisdiction may be raised at any time; even past the 35-day window to challenge an agency’s decision under the Illinois Administrative Review Law, 735 ILCS 5/3-103.

Section 50 of the LLC Act provides that an LLC must be served (1) via its registered agent or (2) the Secretary of State under limited circumstances.

Secretary of State service on an LLC is proper where (1) the LLC fails to appoint or maintain a registered agent in Illinois; (2) the LLC’s registered agent cannot be found with reasonable diligence at either the LLC’s registered office or its principal place of business; OR (3) when the LLC has been dissolved, the conditions of (1) and (2) above exist, and suit is brought within 5 years after issuance of a certificate of dissolution or filing of a judgment of dissolution. 805 ILCS 180/1-50(a), (b)(1-3).

Here, the DOL mailed notice of the 2015 Hearing to the wrong party: it only notified the LLC Member. It did not serve the notice on the LLC’s registered agent or through the Secretary of State. As a result, the LLC was not properly served in the underlying wage proceeding.

The DOL argued that since the LLC Member was also sued as an individual “employer” under Sections 2 and 13 of the Act, service of the 2015 Hearing on the LLC Member was valid.

The Court disagreed. Under Sections 2 and 13 of the Act, an employer can be liable for its own violations and acts committed by its agents and corporate officers or agents can be liable where they “knowingly permit” an employer to violate the Act.

Corporate officers who have “operational control” of a business are deemed employers under the Act. However, an individual’s status as a lone member of an entity – like the LLC Member – is not enough to subject the member to personal liability.

Instead, there must be evidence the member permitted the corporate employer to violate the Act by not paying the compensation due the employee. Otherwise, the Court held, every company decision-maker would be liable for a company’s failure to pay an employee’s wages. [⁋⁋ 49-50]

And since the DOL hearing officer never made any specific findings that the LLC Member knowingly permitted the security company to violate the Act, there wasn’t enough evidence to sustain the trial court’s summary judgment for the DOL. [⁋ 51]

Afterwords:

Wilson starkly illustrates that the LLC Act’s service of process strictures have teeth. If a litigant fails to serve an LLC’s registered agent or the Secretary of State, any judgment stemming from the invalid service is a nullity.

In hindsight, the DOL probably should have produced evidence at the 2015 Hearing that the LLC Member (a) had operational control over the security firm; and (b) personally participated in the firm’s decision not to pay the underlying claimant’s wages. Had it done so, it may have been able to salvage its case and show that p.o. box service on the LLC Member was sufficient to subject her to the DOL’s jurisdiction.

Cab Passenger Fares Aren’t “Wages” Under IL Wage Payment and Collection Act – 7th Circuit

The salient question considered by the Seventh Circuit in Enger v. Chicago Carriage Cab Corp., 2016 WL 106878 (7th Cir. 2016) was whether “wages” under the Illinois Wage Payment and Collection Act, 820 ILCS 115/1 et seq. (the “Act”) encompasses “indirect wages” – monies paid an employee by third parties (i.e. as opposed to money paid directly from an employer).

The answer: No, it does not.

The plaintiffs, current and former Chicago cab drivers over a ten-year time frame sued various cab companies alleging Wage Act violations and unjust enrichment.

The plaintiffs alleged the companies violated the Act by misclassifying them as independent contractors instead of employees. The plaintiffs argued that the cab companies requirement that the driver plaintiffs pay daily or weekly shift fees (basically, a lease payment giving the drivers the right to operate the cabs) and other operating expenses, the companies violated the Act.

Affirming the district court’s motion to dismiss, the Seventh Circuit gave a cramped construction to the term wages under the Act examined the content and reach of the Act as applied to claims that

The Act gives employees a cause of action for payment of earned wages. “Wages” is defined by the Act as compensation owed an employee by an employer pursuant to an employment contract.

While the Seventh Circuit agreed with the drivers that there was at least an implied contract between them and the cab companies, those companies did not pay wages to the drivers as the term is defined by the Act.

This was because there was no obligation for the cab company to pay anything to the driver. The cab driver-cab company relationship was a reciprocal one: the driver paid a license fee to the company and then collected fares and tips from passengers.  No money was paid directly from the company to the driver.

The Court found that for the Act to apply to the drivers claims, it would have to expand the statutory definition of wages to include “indirect compensation:” compensation from someone other than the employer. Since there was no published case law on this issue, the Seventh Circuit refused to expand the Act’s definition of wages to include non-employer payments.

For support, the Court noted that Illinois’ Minimum Wage Law specifically defines wages to include gratuities in addition to compensation owed a plaintiff by reason of his employment. Since the legislature could have broadened the Act’s wages definition to include indirect compensation (like tips, etc.) but chose not to, the Court limited wages under the Act to payments directly from an employer to employee.

The Court also rejected the drivers’ argument that they received wages under the Act since drivers are often paid by the cab company when a passenger pays a fare via credit card. In this credit card scenario, the court found that the cab company simply acted as an intermediary that facilitated the credit card transaction. The company did not assume role of wage paying employer just because its credit card processor was used to handle some passenger credit card payments.

The driver’s unjust enrichment claim – that the cab companies were unjustly enriched by the drivers’ shift fees – also fell short.  Since there was an implied contract between the drivers and cab companies, unjust enrichment didn’t apply since an express or implied contract negates an unjust enrichment claim.

Afterwords:

This case clarifies that recoverable wages under Illinois’ Wage Act must flow directly from an employer to an employee.  Payments from third-party sources (like cab passengers) aren’t covered by the Wage Act.

Enger also serves as latest in a long line of cases that emphasize that an unjust enrichment can’t co-exist with an express or implied (as was the case here) contract governs the parties’ relationship.

 

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.