Integration clauses – also called “merger” clauses – are staples of commercial contracts in diffuse business settings. The Northern District of Illinois recently found that an integration clause in a compensation agreement defeated a futures trader’s claims for unpaid commissions in Colagrossi v. UBS Securities, LLC, 2014 WL 2515131 (N.D.Ill. 2014).
The plaintiff alleged that in 2005, he and his then employer entered into an oral agreement for commission payments earned on foreign futures transactions. When that employer was absorbed by another entity in 2006, the plaintiff signed a written employment agreement with the new company – one that contained an integration clause. The agreement was silent on the oral futures deal that plaintiff cut with his ex-employer. Plaintiff’s successor employer then folded into a third entity. Plaintiff signed a second employment agreement in 2007 with the new (“third”) employer. That agreement also contained an integration clause and made no mention of the 2005 oral commission arrangement.
After he was fired, the plaintiff sued his new employer for unpaid commissions and bonuses totaling about $2M in total. He filed counts for breach of oral contract and a claim under the Illinois Wage Payment and Collection Act. The defendant moved for summary judgment on plaintiff’s claims.
Ruling: Motion granted. Summary judgment for defendant. Plaintiff’s claims dismissed.
Q: Why?
A: Both written employment agreements (the one he signed in 2005 with defendant’s predecessor and the one he signed with defendant in 2006) contained integration clauses that provided that the agreement stated the entire terms of the parties’ agreement and superseded all prior verbal agreements or representations touching on the plaintiff’s employment.
In Illinois, where contracting parties include a contractual integration clause (i.e., a clause stating that the written agreement is complete and final and reflects the entire understanding of the parties), they are manifesting their intent to protect themselves against after-the-fact changes to the contract. The purpose of an integration clause is to establish that negotiations leading up to a written contract are not the agreement and to also guard against a party to the agreement trying to alter the contract’s meaning by trying to explain his state of mind when the contract was signed.
Here, both written employment agreements contained an integration clause that stated the parties’ entire agreement was reduced to writing and that also precluded plaintiff’s attempt to rely on oral promises that pre-dated the contracts’ execution. The clauses broadly applied to bar reliance on oral agreements relating to the “subject matter” of the contracts. Since plaintiff’s oral contract claim for commissions went to the heart of the employment agreements’ purpose, the oral agreement was defeated by each contract’s integration clause. (*4-5).
The Court also rejected the plaintiff’s claim for bonus payments that was premised on the Illinois Wage Payment and Collection Act, 820 ILCS 115/1 (the Wage Act). The Wage Act applies broadly to wages, salaries, commissions and bonuses; so long as they are based on an employment agreement (written or oral). 820 ILCS 115/2 (http://paulporvaznik.com/the-illinois-wage-payment-and-collection-act-some-basics/697). Here, the plaintiff’s Wage Act claim was not only defeated by the two integration clauses (one in each employment contract) but also because an employer’s past practice of paying bonuses isn’t enough to make out a viable Wage Act count. (*6-7); Carroll v. Merrill Lynch, 2011 WL 1838563 *17 (N.D.Ill. May 13, 2011) (granting summary judgment to employer on employee’s Wage Act claim because “past practice itself is not enough to support a wage claim”); Stark v. PPM America, Inc., 354 F.3d 666, 672 (7th Cir.2004)(same).
Take-aways: Integration clauses will be enforced as written. If they are broad and clearly-worded, the clauses will defeat a party’s attempt to modify the plain text of a contract. The case is also noteworthy for its discussion of the Wage Act. While the Wage Act’s scope is broad, this case clearly illustrates that a claim based on the Act must allege more than an employer’s past practice or course of conduct in making bonus payments. Instead, there must be an express agreement – written or oral – to support an employee’s claim under the Act.