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.