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.

 

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 apply retroactively while substantive changes don’t.  But the line separating procedure from substance can be blurry.

‘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 (i) impair rights a party possessed when he acted, (ii) increase a party’s liability for past conduct, or (iii) 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 of the defendant’s pre-existing rights, increase the defendant’s liability for past conduct or impose new obligations on it.  Again, a prevailing Wage Act plaintiff could recover attorneys’ fees under the prior, existing version of statute when plaintiff filed suit. (¶¶ 66-74)

The court reached the opposite conclusion on 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, it’s considered 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.

 

Apparent Agency Binds Roofing Company to Acts of Third-Party Marketing Firm; Liable Under Illinois Wage Act – IL Court

In Thomas v. Weatherguard Construction Company, 2015 IL App (1st) 142785, the First District provides a thorough analysis of Illinois agency law as it applies to breach of contract claims for unpaid commissions. The court also discusses the parameters of the Illinois Wage Payment and Collection Act (“Wage Act”) and the universe of damages available under it.

The Plaintiff sued to recover about $50K in commissions from a company that repairs weather-damaged homes for customers signed up by the plaintiff.

The arrangement involved plaintiff soliciting business for the defendant by targeting homeowners who suffered weather damage to their homes. Once the homeowner’s insurer approved the repair work, defendant would do the repairs and get paid by the homeowner’s insurer.  The defendant would then pay plaintiff a 20% commission based on the total repair contract price on all deals originated by the plaintiff.

At trial, the defendant argued that plaintiff wasn’t its employee.  It claimed the plaintiff was employed by a third-party marketing company whom defendant contracted with to solicit repair orders for the defendant.

The trial court entered a money judgment for the plaintiff for less than $10,000 and denied plaintiff’s claims for attorneys’ fees under the Wage Act.  Both sides appealed.

Affirming, the appeals court discussed agency law, the elements of an enforceable oral contract, and recoverable damages under the Wage Act.

Agency Law Analysis

Under the apparent agency rule, a principal (here, the defendant) is bound by the authority it appears to give an agent.   Once a principal creates an appearance of authority, he cannot later deny that authority to an innocent third party who relies on the appearance of authority.

The apparent agency claimant must show (1) the principal acted in a manner that would lead a reasonable person to believe the individual at fault was an employee or agent of the principal; (2) the principal had knowledge of or acquiesced in the agent’s acts; (3) the injured party (here, the plaintiff) acted in reliance on the principal’s conduct.  But, someone dealing with an agent has to exercise reasonable diligence and prudence in determining the reach of an agent’s authority.  (¶¶ 48-49, 51)

Here, there were multiple earmarks of authority flowing from the defendant to the marketing company who hired the plaintiff.  The marketing firm used the defendant’s uniforms, logo, business cards, and shared defendant’s office space and staff.  Viewing these factors holistically, the First District agreed with the trial court that it was reasonable for the plaintiff to assume the marketing firm was affiliated with defendant and was authorized to hire the plaintiff on defendant’s behalf.  (¶ 50)

Breach of Oral Contract

Rejecting the defendant’s claim that the plaintiff’s commission contract was too uncertain, the court found there was an enforceable oral contract even though certain price terms were unclear.  An oral contract’s existence and terms are questions of fact and a trial court’s determination that an oral contract does or doesn’t exist is entitled to deference by the appeals court.  In addition, damages are an essential element of a breach of contract claim the failure to prove damages spells defeat for the breach of contract plaintiff.

The Court agreed with the trial court that plaintiff sufficiently established an oral contract for defendant to pay plaintiff a 20% commission on the net proceeds (not gross) earned by the defendant on a given home repair job. (¶¶ 55-59)

The Wage Act

Part II of this post examines the court’s analysis of whether the Wage Act’s 2011 amendments that provide for attorneys’ fees and interest provisions apply retroactively (plaintiff filed suit in 2007).

Afterwords:

Agency law issues come up all the time in my practice.  In the breach of contract setting, the key question usually is whether an individual or entity has actual or apparent authority to act on behalf of a solvent or “deeper pocketed” defendant (usually a corporation or LLC).  Cases like Thomas show how risky it is for defendants to allow unrelated third parties to use a corporate defendant’s trade dress (logo, e.g.), facilities, staff or name on marketing materials.

A clear lesson from the case is that if a company does let an intermediary use the company’s brand and brand trappings, the company should at least have indemnification and hold-harmless agreements in place so the company has some recourse against the middleman if a plaintiff sues the company for the middleman’s conduct.