On June 25, 2018, the 7th Circuit affirmed the district court’s grant of summary judgment on a claim for breach of an employment compensation plan, but reversed the district court’s grant of summary judgment on the plaintiff’s wage claim under the Illinois Wage Payment and Collection Act. Sutula-Johnson v. Office Depot, Inc., No. 17-1855 (7th Cir. 6/25/2018). The plaintiff sued her former employer alleging that its changes to her employee compensation plan for selling office furniture breached its employment contract with her and violated the Illinois Wage Payment and Collection Act (the “Act”). In her claim for breach of employment contract, the plaintiff contended that the defendant did not effectively amend its employment contract with her until she signed a written acknowledgement form on a certain date. She argued that prior thereto, any amendment to her employment contract was without consideration; and that she did not accept the new terms until she signed them. Thus, it was the plaintiff’s position that a new contract was not formed until she signed the acknowledgment, and that the defendant breached her previous contract by failing to comply with the old compensation plan through the date she signed the acknowledgement. She also argued that the defendant breached her employment contract by retroactively reducing her commissions.
Under Illinois law, an employer’s policy or employee handbook can create contractual rights that the employer cannot amend unilaterally without consideration. If a binding employment policy exists, consideration is not supplied simply by the employee’s continued employment. The question, though, is whether there was a binding contractual term to start with. In Illinois, under the 1987 Illinois Supreme Court decision in Duldulao v. St. Mary of Nazareth Hospital Ctr., 505 N.E.2d 314, 318 (Ill. 1987), an employer’s policy set forth in an employee handbook creates contractual rights only when: (1) it contains a promise clear enough that an employee would reasonably believe that an offer has been made; (2) the employer disseminates the policy to the employee in such a manner that the employee is aware of its contents and reasonably believes it to be an offer; and (3) the employee accepts the offer by commencing or continuing to work after learning of the policy. However, the defendant’s employee compensation plan expressly stated that it was not a contract and, therefore, the plaintiff could not meet the first requirement. When an employer’s policy expressly states that it does not create contractual rights, no promise exists that an employee can reasonably interpret as an offer to be bound. The defendant’s plan stated that it was not and should not be thought of as a contract of employment other than at-will, and that the defendant could, in its sole discretion, amend or terminate the plan at any time for any reason without notice. In view of this disclaimer language, the plaintiff could not reasonably have treated the plan as having created binding, prospective contractual rights that could not be changed without new consideration. Thus, the plaintiff accepted the defendant’s new compensation terms by continuing her employment; and the defendant did not breach any binding contractual obligations when it began paying her less under the new plan.
However, the result was entirely different under the Act. The plaintiff asserted two types of statutory violations: (1) that the incentive payments were commissions, for which the Act required monthly, not quarterly, payment; and (2) that the Act entitled her to commissions on sales that were invoiced before she resigned, which the defendant refused to pay. The key question was whether the incentive payments were commissions or bonuses, because the Act imposes stricter requirements for payment of commissions than for bonuses. The Act requires every employer, at least semi-monthly, to pay every employee all wages earned during the semi-monthly pay period. Wages are defined as any compensation owed an employee by an employer pursuant to an employment contract or agreement. Commissions fall within the broad definition of wages, but the Act provides that they may be paid once a month. The Act does not address how frequently bonuses must be paid. The 7th Circuit ruled that the incentive payments are commissions for purposes of the Act. Consequently, the defendant was not entitled to summary judgment on the plaintiff’s wage violation claims for failure to pay her commissions on a monthly basis and failure to pay her commissions on sales invoiced before her resignation. Whether the defendant complied with the Act depends upon when the commissions were earned. The plan set an invalid condition for the defendant’s employees to earn their commissions. The Act requires employers, at least semi-monthly, to pay every employee all wages earned during the semi-monthly pay period. Commissions must be paid at least monthly. An employer cannot satisfy this requirement by simply declaring that wages are not earned until the day they are paid. This would nullify the Act’s requirement that employees be paid on a timely basis. Moreover, the regulations entitle a separated employee to an earned commission when the conditions regarding entitlement to the commission have been satisfied, notwithstanding the fact that, due to the employee’s separation from employment, the sale or other transaction was consummated by another agent or the principal. An employer can set the requirements for earning a wage or commission, but it cannot undermine the monthly payment requirement by imposing an arbitrary date on which wages are earned, completely unrelated to the employee’s duties. Under the defendant’s quarterly payment scheme, employees might not earn a commission on a sale until over three months after they completed all work on it. This delay, and the effective forfeiture of earned commissions upon resignation of employment, violated the Act. Therefore, the defendant violated the Act by failing to pay the plaintiff her commissions monthly, and by failing to pay her all commissions earned before she resigned.