implied contract – Paul Porvaznik

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 (7^th 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.

Sub-subcontractor Recovers From General Contractor Under Implied Contract/Unjust Enrichment Theory

C. Szabo Contracting v. Lorig Construction, 2014 IL App (2d) 131328’s plaintiff sub-subcontractor (it contracted with a subcontractor, tried to use unjust enrichment to recover against a twice-removed general contractor on a highway construction job.

The plaintiff installed underground pipes under a subcontract. When the subcontractor didn’t pay, the Plaintiff sued the general contractor to recover over $200K worth of work under a breach of an implied contract theory.

The general contractor defended on the basis that there was no contractual relationship between it and plaintiff and that plaintiff’s sole remedy was against the subcontractor.

After a bench trial, the trial court entered judgment for the plaintiff for over $200,000 and the general contractor appealed.

Held: Affirmed

Reasons: Siding with the plaintiff, the Court discussed the rules that govern whether and when a party can sue another for damages where there is no express contract between them:

– Unjust enrichment is not a standalone cause of action but a remedy based on quasi-contract or contract implied-in-law

– A contract implied-in-law is one in which there is no express contract but the court imposes a duty to prevent unjustness;

– A plaintiff must show he furnished valuable services or materials and the defendant received them under circumstances making it unfair for the defendant to retain the benefits;

– Normally an express contract will preclude quasi-contractual recovery. So, if A has a contract with B, and B breaches, A can’t then sue C. A can only look to B for recovery – even if C benefits from A’s services;

– Simply because a third party benefits from a plaintiff’s work isn’t enough to make that third party responsible to the plaintiff;

– In the construction context, where a contract is placed by an owner under a general contractor who has power to employ whom it wishes, the owner is justified in presuming that the work is being done for the contractor and not the owner;

– The policy reasons that underlie the rule that only a party to a contract can sue and be sued for its breach is to avoid double-recovery for a plaintiff or forcing a non-party into a “forced exchange” (i.e. where a third party is paying for something it never received)

– A plaintiff can sue a non-party to a contract in situations where the non-party entices or encourages a plaintiff to perform;

(¶¶ 25-41).

Finding for the plaintiff, the Second District ruled that principles of fairness weighed in favor of allowing recovery from the general contractor even though there was no contractual relationship between it and plaintiff.

The record showed that plaintiff and defendant had multiple oral and written conversations before, during and after completion of the job. The plaintiff sent correspondence to the defendant concerning the scope of the project and invoices after the piping work was finished. This evidence supported plaintiff’s theory that the defendant actively encouraged the plaintiff’s work.

The Court also noted that the general contractor received over $200K worth of plaintiff’s piping work for which it didn’t pay and was fully paid over $40M by the project owner. (¶¶ 16, 42).

In addition, the Court found that there was no risk of double-recovery for the plaintiff since it was proceeding against the general contractor alone (not the subcontractor) and there was no risk of double liability for the defendant since it wasn’t being sued by the subcontractor who hired the plaintiff. Combined, these factors created a climate that justified the defendant general contractor paying the plaintiff for its project pipe-installation work.

Afterwords:

The case presents a good example of a court refusing to rigidly follow strict rules of privity of contract and quasi-contract recovery in favor of a more relaxed, fact-specific standard. The fact that the defendant was paid $40M and was refusing to pay $200K worth of piping work figured prominently in the Court’s decision.

Going forward, if an owner or contractor receives the benefit of what it contracted for, is fully paid and there’s evidence that the owner (or general contractor) communicated directly with the performing subcontractor (or sub-subcontractor) during the course of the subcontractor’s work, a strong argument can be made that a sub or sub-subcontractor can recover under an implied contract theory.

Account Stated and Course of Dealing: Illinois Law

STOPS Enterprises, LLC v. United Medical Equipment Co., 2014 WL 2699723 (N.D. IL 2014), examines how the parties’ course of dealing defines an oral contract and analyzes the account stated remedy in a case involving unpaid invoices for medical transportation services.

Under a series of oral agreements, plaintiff would pick up and give rides to the defendant’s clients in exchange for the defendant paying the plaintiff its transportation and wait time rates.

Over a three-year period, defendant fell behind in its payments and plaintiff sued to recover about $185,000 in unpaid invoices. The court granted the plaintiff summary judgment on its breach of contract and account stated counts.

Result: Affirmed.

Reasoning:

There was no factual dispute that the plaintiff established defendant’s breach of an oral contract. In the oral contract setting, the parties course of dealing or course of performance gives content to the specifics of an agreement.

The defendant argued that the plaintiff’s damage claim for “wait time charges” (about $30,000 of the claimed damages) should be stricken since there was no meeting of the minds on this point. The court quickly rejected this argument; noting that the parties course of performance – shown by three years of plaintiff charging and defendant paying wait time charges – clearly established that these charges were a material and agreed term of the parties’ oral contract. (*5-6).

The Court also held that even if there was no express contract, the plaintiff established an account stated. In Illinois, an account stated is a determination of the amount of an existing debt combined with a tacit promise to pay that debt.

When a plaintiff issues a statement of account to a defendant and the defendant retains the statement without objection within a reasonable amount of time, the law deems this as the defendant’s acknowledgement of the validity of the statement’s accuracy.

The court will infer a meeting of the minds (as to the amounts owed) from the defendant’s failure to object to a statement of account within a reasonable time. (*7).

Here, the plaintiff sent multiple e-mails requesting payment from defendant and the defendant sent numerous return e-mails acknowledging and promising to pay the debt.

The defendant also never objected to the plaintiff’s invoices and made partial payments to them over a several-month period. The court found that by its actions, the defendant conceded the validity of plaintiff’s invoices.

The court further observed that for almost three years before its default, the defendant regularly paid plaintiff’s invoices without incident. (*8).

The Court granted plaintiff’s claim for nearly $14,000 in prejudgment interest. Section 2 of the Illinois Interest Act (815 ILCS 205/2) allows a creditor to recover prejudgment interest at the rate of 5% on “instruments of writing.” The party claiming interest must show that the money amount owed is an easily calculable (“liquidated”) amount or easy computable.

Illinois case law specifically includes unpaid invoices within the instruments of writing definition. Because of this, the Court allowed the plaintiff to recover interest on the unpaid invoices measured from 30 days after the plaintiff stopped providing ride services to the defendant. (*10).

Take-aways:

(1) the parties’ course of performance provides evidence of oral contract terms; (2) a failure to dispute invoices can lead to an account stated; (3) FRE 408 will not bar statements or admissions if they were made before an actual dispute formed; (4) pre-judgment interest will apply to an oral contract.

As long as there are unpaid invoices or other documents to show a readily computable sum, a plaintiff can tack on annual interest of 5% to the judgment amount and to his damage claim.

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