DARYL SUTULA-JOHNSON v. OFFICE DEPOT, INC.
No. 17-1855
United States Court of Appeals For the Seventh Circuit
ARGUED NOVEMBER 7, 2017 — DECIDED JUNE 25, 2018
Before EASTERBROOK, ROVNER, and HAMILTON, Circuit Judges.
Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 15-CV-2378 — Sharon Johnson Coleman, Judge.
I. Factual & Procedural Background
We start by summarizing the changes in Sutula-Johnson‘s compensation and then the procedural course of this lawsuit. Because we are reviewing a grant of summary judgment for the defendant-employer, we consider facts that are undisputed and give the plaintiff the benefit of conflicts in the evidence.
A. The OfficeMax Plan
Plaintiff Sutula-Johnson began selling office furniture more than a decade ago. She started with Boise Cascade, which then merged with OfficeMax. In 2010, OfficeMax adopted a written compensation plan that covered its furniture sales group, including Sutula-Johnson. Under that plan, OfficeMax paid furniture account executives, including plaintiff, entirely in commissions. OfficeMax paid commissions at a rate of either 27% or 20% of each sale, depending on the sale‘s profit. The general policy was that commissions were earned either when a customer paid or 90 days after the customer was invoiced, whichever came first. Sutula-Johnson, however, had negotiated better terms for herself. She earned commissions upon invoicing.
OfficeMax paid commissions on a monthly basis in the second or third paycheck of the month after the commission was earned. Sutula-Johnson received commissions according to these terms throughout her employment with OfficeMax.
B. The New Office Depot Plan
OfficeMax and Office Depot merged in November 2013 and continued business under the name Office Depot. At first, Office Depot continued to pay Sutula-Johnson and her OfficeMax colleagues under the terms of the old OfficeMax plan. Then on July 14, 2014, Office Depot announced that it was adopting a new compensation plan that would apply to all furniture account executives effective immediately.
Office Depot did not roll out the new plan smoothly. The July 14 announcement contained a PowerPoint presentation explaining the new compensation structure. Within a week, Sutula-Johnson received a copy of the PowerPoint presentation but not a copy of the plan itself. Sutula-Johnson—who kept notes of the roll-out and her talks with Office Depot managers—asserts that employees received an email a month and a half later saying that the new plan was available for viewing online. In reality, she testified, the plan was not available at that time. Sutula-Johnson did not receive a copy of the new plan until September 26, 2014, and her notes said that the plan was not yet accessible nationwide.
The new plan significantly changed how Sutula-Johnson was paid and reduced her total pay. For the first time, Sutula-Johnson received a combination of salary and what Office Depot called “incentive payments.” The incentive payments were paid quarterly and with lower rates than the OfficeMax commissions: 13.5% or 10% instead of 27% or 20%. Office Depot set a quarterly sales target for each employee and paid 13.5% or 10% of all sales as “incentive payments,” depending on whether the employee exceeded the quarterly sales target.
The new Office Depot plan also changed when and how Sutula-Johnson earned and received her commissions. Instead of earning commissions upon customer invoicing, the plan said that she “accrued” the incentive payments upon invoicing but did not “earn” them until the day Office Depot actually paid them to her. Under the new plan, an employee who left the company lost any claim on incentive payments not yet actually paid to her. According to Office Depot, any interest the employee had in the incentive pay was not “earned or vested until payment date.” According to Sutula-Johnson, Office Depot usually paid the quarterly incentive payments 45 days after the end of each calendar quarter.
C. Sutula-Johnson‘s Objections
Sutula-Johnson had earned substantial commissions under the OfficeMax plan. She quickly figured out that the new Office Depot plan would reduce her pay significantly. She immediately objected to the new plan. She initially refused to sign it and complained to management about what was, in her view, an unfair pay reduction, especially as applied to sales already in the works but not yet invoiced. Office Depot management said the new plan would still apply to her.
Despite her objections, Sutula-Johnson continued working for Office Depot for more than another year. In early 2015, Office Depot issued a new written version of the plan with the same key terms and insisted that Sutula-Johnson sign it. She signed a form acknowledging the plan in March 2015. Later that month she filed this suit while still working for Office Depot. She resigned in December 2015.
D. Procedural Background
Sutula-Johnson sued Office Depot in federal court, invoking diversity jurisdiction under
After resigning, Sutula-Johnson amended her complaint to add claims that Office Depot had breached her contract and violated the Illinois Wage Act when it refused to pay her incentive payments on all sales that were invoiced before she left. Both parties moved for summary judgment. The district court denied Sutula-Johnson‘s motion for summary judgment and granted Office Depot‘s on all counts. Sutula-Johnson v. Office Depot, Inc., 2017 WL 1333141 (N.D. Ill. April 11, 2017).
II. Analysis
We review de novo the district court‘s grant of summary judgment, while construing all facts and drawing all reasonable inferences in favor of Sutula-Johnson. Roberts v. Columbia College Chicago, 821 F.3d 855, 861 (7th Cir. 2016). Illinois law governs all claims. Under Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938), our role is to decide questions of state law as we predict the Illinois Supreme Court would decide them.
A. Breach of Contract
In her claim for breach of contract, Sutula-Johnson contends that Office Depot did not effectively amend its employment contract with her until she signed a written acknowledgment form on March 2, 2015. She makes two arguments to support her claim: (1) that before that date, any amendment to her contract was without consideration; and (2) that she did not accept the new terms until she signed them. In her view, a new contract was not formed until March 2, 2015, and Office Depot breached her previous contract by failing to comply with the old OfficeMax plan through that date. In the alternative, she argues that Office Depot breached her contract by retroactively reducing her commissions. We reject these arguments and affirm summary judgment for Office Depot on the claims for breach of contract.
1. Consideration
Sutula-Johnson is correct that in Illinois an employer‘s policy can create contractual rights that the employer cannot amend unilaterally without consideration. Doyle v. Holy Cross Hosp., 708 N.E.2d 1140, 1142 (Ill. 1999). If a binding policy exists, consideration “is not supplied simply by the employee‘s continued work.” Id. at 1145. The threshold question, though, is whether there was a binding contractual term to start with.
In Illinois, an employer‘s policy 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 em-
When an employer‘s policy states expressly that it does not create contractual rights, there simply is no promise that an employee can reasonably interpret as an offer to be bound. Hanna v. Marshall Field & Co., 665 N.E.2d 343, 348 (Ill. App. 1996); Hogge v. Champion Laboratories, Inc., 546 N.E.2d 1025, 1031 (Ill. App. 1989); Moore, 508 N.E.2d at 521. The OfficeMax plan said that it was “not and should not be thought of as a contract of employment other than at-will” and that OfficeMax “in its sole discretion” could “amend or terminate the plan at any time for any reason without notice.” Given this language, Sutula-Johnson could not reasonably have treated the OfficeMax plan as having created binding, prospective contractual rights that could not be changed without new consideration. See Moore, 508 N.E.2d at 521; see also Geary v. Telular Corp., 793 N.E.2d 128, 131, 133 (Ill. App. 2003) (employer could unilaterally change non-binding compensation plan for at-will employee).
2. Mutual Assent
Next, Sutula-Johnson argues that the new compensation plan could not apply to her until she agreed to its terms. Even employment at will is a contractual relationship, after all, and
The problem for Sutula-Johnson is that the law deems her to have accepted the Office Depot plan when she continued to work after Office Depot told her about the new plan and began paying her under its terms. An at-will employee can accept an offer from an employer by starting or continuing to work. Duldulao, 505 N.E.2d at 318. Sutula-Johnson points out that although she continued working after Office Depot adopted the plan, she objected orally and refused to sign the written policy until March 2015.1 In the face of her continued work for Office Depot, however, neither the oral objection nor
At summary judgment, Office Depot asserted the following as undisputed material facts: on July 14, 2014, Sutula-Johnson received a PowerPoint presentation explaining the new compensation policy; she knew that Office Depot planned to apply it to her starting that day; she received compensation according to the new plan starting that day; and, knowing all that, she continued working for Office Depot. Sutula-Johnson objected to these asserted facts on the ground that they were argumentative, inaccurate, or irrelevant. She did not, however, cite any contradictory evidence or explain how Office Depot‘s summary was inaccurate. Sutula-Johnson has not raised a genuine issue of material fact on these points. Also, in her Local Rule 56.1 statement supporting her own motion for summary judgment, Sutula-Johnson asserted as undisputed that Office Depot announced the new payment plan on July 14, 2014 and that from “that day onward,” Office Depot had “paid commissions to Plaintiff on the reduced commission basis it announced.”
Given these facts—at least in the absence of an earlier, contractually binding policy—Sutula-Johnson accepted Office Depot‘s new terms by continuing to work. See Geary, 793 N.E.2d at 130, 133 (at-will employee accepted change to his compensation plan by continuing to work after orally objecting to change). Office Depot did not breach any binding contractual obligations when it began paying Sutula-Johnson under the new plan.
Sutula-Johnson relies on Robinson v. Ada S. McKinley Community Services, Inc., 19 F.3d 359 (7th Cir. 1994). In that case under Illinois law, we concluded that the employer could not
3. Retroactive Application
Sutula-Johnson also argues that Office Depot breached her contract by retroactively reducing her commissions by applying the plan she signed in March 2015 to sales that occurred in 2014. The earlier OfficeMax plan had said that Sutula-Johnson earned commissions when invoices were sent to her customers. Sutula-Johnson testified that Office Depot paid her commissions at the OfficeMax rates on all sales invoiced through July 14, 2014, when Office Depot announced the new payment plan. To the extent Sutula-Johnson wanted the higher OfficeMax commission rates on all sales that were in the pipeline but not yet invoiced on July 14, neither plan entitled her to that result as a matter of contract law. Accordingly, Office Depot did not breach plaintiff‘s contract or retroactively reduce commissions that she had earned before July 14, 2014.
B. The Illinois Wage Act
The result is different under the Illinois Wage Act,
Under the Illinois Wage Act, the critical question turns out to be whether the incentive payments should be deemed “commissions” or “bonuses” for purposes of the Act. The Act imposes stricter requirements for payment of commissions than for bonuses, but the statute and the accompanying regulations do not draw a sharp line distinguishing the two types of payments. Also, the parties have not cited, and we have not found, controlling or even strongly persuasive guidance in Illinois case law. Doing our best to make an Erie Railroad prediction, and considering the ordinary meanings of the terms as applied by courts in Illinois and elsewhere, we predict that the Illinois Supreme Court would treat Office Depot‘s “incentive payments” as commissions under the Illinois Wage Act.
1. Commissions v. Bonuses
We begin with the statutory language. The Illinois Wage Act requires every employer, “at least semi-monthly, to pay every employee all wages earned during the semi-monthly pay period.”
The Act authorizes the Illinois Director of Labor to promulgate regulations to administer and enforce the act.
An employee has a right to an earned bonus when there is an unequivocal promise by the employer and the employee has performed the requirements set forth in the bonus agreement between the parties and all of the required conditions for receiving the bonus set forth in the bonus agreement have been met. Unless one of the conditions for the bonus is that the employee be on the payroll at the time of the bonus payout, the bonus is due and owing to the employee at the time of separation.
The incentive payments at issue in this case could arguably fit within both definitions. The payments are certainly “compensation for services performed“—selling office furniture—“pursuant to” the compensation plan and therefore could easily be deemed commissions. See
Neither party identifies an Illinois case that distinguishes between commissions and bonuses under the Wage Act. Office Depot‘s main argument is that the incentive payments are tied to an employee‘s individual performance and are therefore consistent with the descriptions of bonuses found in Birkholz v. Corptax, LLC, No. 1-11-0553, 2011 WL 10088322 (Ill. App. Nov., 8, 2011), and McLaughlin v. Sternberg Lanterns, Inc., 917 N.E.2d 1065 (Ill. App. 2009). In both cases, the plaintiffs were fired mid-year and sought a pro-rata share of their annual bonuses as “earned bonuses” under the act. See
Office Depot also relies on Perugini-Christen v. Homestead Mortgage Co., 287 F.3d 624, 627–28 (7th Cir. 2002), in which this court interpreted an ERISA employee benefit plan that distinguished among salary, commissions, and bonuses. Office Depot points out that Perugini-Christen found the payments in question were bonuses partly because the employment agree-
Sutula-Johnson relies on Harlan v. Sweet, 564 N.E.2d 1192 (Ill. 1990). That case dealt with the meaning of the word “salary” in a provision of the Illinois Constitution. Sutula-Johnson points to a passing statement: “‘commission’ is the term used to describe the payment that some salespeople receive.” Id. at 1194. That comment does not offer much insight for our purposes. She also relies on a case from this court interpreting an ERISA plan. We reasoned that “‘commissions’ are the paradigmatic form of incentive compensation for salespersons and, applying the plain and ordinary meaning of words, ‘commissions’ would necessarily be included in ‘incentive compensation.‘” Bock v. Computer Associates Int‘l, Inc., 257 F.3d 700, 706 (7th Cir. 2001) (emphasis omitted). That is certainly true, but bonuses can also be a form of incentive compensation. Bock does not help us distinguish between commissions and bonuses for purposes of the Illinois Wage Act.
In the absence of Illinois cases drawing a line between commissions and bonuses under the Wage Act or in any other context, our job under Erie Railroad remains to predict what the Illinois Supreme Court would do. E.g., Daniels v. FanDuel, Inc., 884 F.3d 672, 674 (7th Cir. 2018). We turn to the general rules of statutory interpretation in Illinois, where the “fundamental rule of statutory construction is to ascertain and give effect to the legislature‘s intent.” Andrews v. Kowa Printing Corp., 838 N.E.2d 894, 898 (Ill. 2005) (interpreting the Wage Act). “The best indication of legislative intent is the statutory language, given its plain and ordinary meaning.” Id.
Do the terms “commission” and “bonus” have ordinary meanings that might help us? We conclude that the incentive payments in this case are better understood within the ordinary meaning of “commissions” than of “bonuses.” Most important, the payments are compensation for making a sale and are paid out as a set percentage of each transaction‘s value. That is the essence of a commission. Commission, Webster‘s Third New International Dictionary (1993) (“a fee paid to an agent or employee for transacting a piece of business or performing a service . . . esp : a percentage of the money received in a sale or other transaction paid to the agent responsible for the business“); Commission, Black‘s Law Dictionary (10th ed. 2014) (“fee paid to an agent or employee for a particular transaction, usu. as a percentage of the money received“). Those meanings are at least consistent with the Illinois Supreme Court‘s comment in Harlan that “‘commission’ is the term used to describe the payment that some salespeople receive.” 564 N.E.2d at 1194; see also Suominen v. Goodman Industrial Equities Mgmt. Grp., LLC, 941 N.E.2d 694, 705 (Mass. App. 2011) (“The term ‘commission’ is commonly understood
Taken together, the key features of the Office Depot incentive payments persuade us that they are better understood as commissions than as bonuses. The Office Depot payments were mandatory rather than discretionary. They were paid according to a set formula. They were based on the value of the individual employee‘s sales rather than on company- or department-wide performance. The record also indicates that the incentive payments were a significant portion of the Office Depot‘s employees’ pay—more than two-thirds of Sutula-Johnson‘s compensation, according to her deposition testimony—which makes them seem more like “compensation for services performed” than “compensation given in addition to the required compensation for services performed.”
Office Depot argues further that the incentive payments were no longer intended to be the primary source of employee compensation, and that they were intended to be “behavior-
Office Depot also implies that the incentive payments cannot be commissions because they are tied to annual sales targets that Office Depot calculates on a quarterly basis. But the payments remain compensation for services performed under the plan, calculated as a set percentage of the value of sales that employees make on Office Depot‘s behalf. Those are commissions, and the Illinois legislature has chosen to require that commissions be paid monthly. We need to respect that choice, and we see no basis in Illinois case law for predicting that tying commissions to individual sales targets transforms them into bonuses.
Although we do not believe an employer‘s label can transform a commission into a bonus, Office Depot‘s own language undermines its efforts in this lawsuit to portray the incentive
Finally, we respectfully disagree with the district court‘s view that the compensation plan should be interpreted so as to deem it to comply with the law. This interpretive tool might be useful in other contexts, such as when a court must decide how an ambiguous contract should be applied, but the terms of the Office Depot have not been shown to be ambiguous as applied to Sutula-Johnson. The district court‘s interpretive rule is not useful in deciding whether undisputed facts did or did not violate the law. Office Depot should not benefit from the ambiguity that it, as drafter, created by using the term “incentive payment.” When the issue is whether an employment contract or policy violates employees’ statutory rights, we see no reason to predict that Illinois law would give the employer the benefit of the doubt.
2. Illinois Wage Act Violations
Given our prediction of Illinois law, Office Depot was not entitled to summary judgment on Sutula-Johnson‘s statutory claims. She alleges two types of violations: (1) failure to pay
Whether Office Depot complied with the Act depends on when the commissions were “earned.” The Office Depot plan said that commissions were not earned until the day they were paid, once every quarter. We agree with Sutula-Johnson that Office Depot‘s plan set an invalid condition for its employees to “earn” their commissions. The Illinois Wage Act requires employers “at least semi-monthly, to pay every employee all wages earned during the semi-monthly pay period.”
Can an employer satisfy this requirement by simply declaring that wages are not earned until the day they are paid? Of course not. Otherwise, an employer could say that employees accrue wages at a rate of $10 for every hour worked, but they do not earn the wages until they are paid on the last day of the month. This would nullify the Illinois Wage Act‘s requirement that employees be paid on a timely (usually semi-monthly) basis. See Watts v. ADDO Management, L.L.C., 97 N.E.3d 75, 79 (Ill. App. 2018) (“The purpose of the Wage Act is to provide Illinois employees with a cause of action for the timely and complete payment of earned wages or final compensation.“); Andrews v. Kowa Printing, 814 N.E.2d 198, 205 (Ill. App. 2004) (same). The regulations entitle a “separated
Office Depot insists that even if commissions were earned upon invoicing, it complied with the Illinois Wage Act‘s requirement for timely payment. It argues that even though it did not pay commissions in full until months later, it paid employees a semi-monthly salary and a $250 monthly draw against future commissions (or “incentive payments“). Neither fact satisfies Office Depot‘s obligation under the Illinois Wage Act to pay all commissions earned each month by the end of the next month. A small monthly draw does not meet
Thus, Office Depot was not entitled to summary judgment on Sutula-Johnson‘s claims under the Illinois Wage Act. She has offered evidence that Office Depot violated the Wage Act by failing to pay her commissions monthly, see
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In conclusion, AFFIRM summary judgment for Office Depot on the claims for breach of contract but REVERSE summary judgment for Office Depot on the claims under the Illinois Wage Act and REMAND for further proceedings consistent with this opinion.
