Court Opinion

ID: 4106562
Source: CourtListenerOpinion
Date Created: 2016-12-12 21:01:30.391481+00
Date Added: 2024-06-11T14:33:33.560683
License: Public Domain

In the

       United States Court of Appeals
                     For the Seventh Circuit
                         ____________________
No. 16-1850
DAVID COHAN and SUSAN SCHARDT,
                                                    Plaintiffs-Appellants,

                                      v.

MEDLINE INDUSTRIES, INC., and
MEDCAL SALES LLC,
                                                   Defendants-Appellees.
                         ____________________

            Appeal from the United States District Court for the
              Northern District of Illinois, Eastern Division.
               No. 14 C 1835 — John Robert Blakey, Judge.
                         ____________________

  ARGUED NOVEMBER 4, 2016 — DECIDED DECEMBER 9, 2016
                         ____________________

   Before FLAUM and KANNE, Circuit Judges, and MAGNUS-
STINSON, District Judge. *
   FLAUM, Circuit Judge. Plaintiffs David Cohan and Susan
Schardt filed this putative class action suit against their for-
mer employers, Medline Industries, Inc., and MedCal Sales

   *   Of the Southern District of Indiana, sitting by designation.
2                                                 No. 16-1850

LLC (collectively, “Medline”), alleging violations of the Illi-
nois Wage Payment and Collection Act, 820 Ill. Comp. Stat.
§ 115/1 et seq. (“IWPCA”), and other state wage payment stat-
utes, including the New York Labor Law and California Labor
Code, on behalf of the class. Cohan and Schardt claimed that
Medline’s practice of accounting for year-to-year sales de-
clines in calculating and paying commissions was impermis-
sible under the terms of their employment agreements and
state wage laws. The district court granted Medline’s motion
for summary judgment, finding that plaintiffs had not per-
formed enough work in Illinois for the IWPCA to apply and
that Medline and the plaintiffs had agreed to Medline’s
method of calculating commissions, so there was no violation
of state wage laws. Cohan and Schardt appealed the dismissal
of their claims under New York and California law. We affirm.
                         I. Background
    Medline Industries, Inc., is a national manufacturer and
distributor of healthcare supplies, and MedCal Sales LLC is
its subsidiary. Both are headquartered in Mundelein, Illinois.
Medline employed Sales Representatives from around the
country in their Advanced Wound Care (“AWC”) division.
AWC salespeople were assigned their own geographic terri-
tory and were responsible for selling AWC products to new
or existing clients within that territory.
    Cohan, a New York resident, worked as a Sales Repre-
sentative in the AWC division from 2007 to 2013. (He previ-
ously worked in Medline’s General Line Division from 1992
to 2007.) As an AWC Sales Representative, he sold Medline’s
products in a territory primarily consisting of New York ac-
counts. Schardt, a California resident, was a Sales Representa-
tive in the AWC division from 2001 to 2014, and her territory
No. 16-1850                                                 3

largely consisted of California accounts. As AWC salespeople,
both Cohan and Schardt received a base salary as well as com-
missions on sales of AWC products to accounts within their
assigned territory.
    Both Cohan and Schardt entered into written employment
agreements with Medline. Cohan’s original Employment
Agreement was dated March 25, 1999 (the “1999 Agree-
ment”). When he transferred to the AWC division, Cohan also
entered into an Agreement Regarding Continued Employ-
ment dated November 26, 2007 (the “2007 Agreement”). The
2007 Agreement amended the 1999 Agreement, such that the
latter stayed in effect, as amended. The 1999 Agreement at ¶ 6
provides the following with respect to commissions:
      (a) Subject to the provisions hereafter set forth,
      Medline shall pay to Salesperson commissions
      with respect to the collections of all sales made
      by Medline to customers in the territory … pro-
      vided the collection date of any such sale is on
      or after the date Salesperson commences perfor-
      mance of his duties as a salesperson hereunder
      and is on or before the effective date of termina-
      tion of this Agreement under any circum-
      stances. Salesperson shall be entitled to a com-
      mission on any sale as set forth herein, irrespec-
      tive of whether Salesperson shall have been re-
      sponsible for such sale … .
      …
      (f) [C]ommissions on sales for which the collec-
      tions are received by Medline prior to the last
4                                                             No. 16-1850

        day of any fiscal month shall be paid to Sales-
        person on or about the 15th day of the next cal-
        endar month.
        …
        (h) Medline may at any time elect to compensate
        Salesperson on the basis of a monthly salary
        plus commissions or on the basis of a commis-
        sion program. After making such election, Med-
        line may periodically vary the amount of salary
        and/or the rate of commission pursuant to such
        election.
        …
        (k) During the term of the notice period, or any
        portion thereof, provided for by Paragraph
        10(a) of this Agreement, 1 commissions shall be
        deemed earned by Salesperson only if collected
        prior to the effective date of termination of this
        Agreement under any circumstances. All com-
        missions so earned during the term of such no-
        tice period shall be paid to Salesperson, pro-
        vided Medline receives actual payment from
        the customer prior to termination date.

    1  Paragraph 10 dealt with termination, and section (a) stated: “The
term of this Agreement shall continue indefinitely, provided however,
that either Salesperson or Medline may terminate this Agreement at any
time by giving written notice of such termination to the other party, not
less than fourteen (14) calendar days prior to the effective date of termina-
tion specified in such notice.”
No. 16-1850                                                            5

Cohan’s 2007 Agreement further specified that Cohan would
be compensated in part through a “[c]ommission plan based
on sales growth year over year for assigned territory.”
   Schardt worked for Medline pursuant to two Employment
Agreements: one dated February 19, 2001, between her and
Medline, and another dated February 10, 2006, between her
and MedCal. Schardt’s two Agreements are substantively
identical to one another, and to Cohan’s 1999 Agreement, and
contained the same provisions as those excerpted above. 2
    In addition, Medline’s AWC division released on an an-
nual basis Compensation Plans describing how commissions
would be calculated during that year for its Sales Representa-
tives. The Compensation Plans from 2004 to 2007 explain that
“[c]ommissions are based on monthly sales growth and prof-
itability,” and specify that growth commissions are to be cal-
culated as follows: (current year monthly sales - prior year
monthly sales) x WC Base Profit % 3 x 20% = Commission.
They each provide some version of the following example:

    2  For example, subsection 6(f) in Cohan’s 1999 Agreement and
Schardt’s 2006 Agreement is substantively identical to subsection 6(e) in
Schardt’s 2001 Agreement; and paragraph 6(k) in Cohan’s 1999 Agree-
ment and Schardt’s 2006 Agreement is substantively identical to subsec-
tion 6(i) in Schardt’s 2001 Agreement.
    3 WC presumably stands for Wound Care, and WC Base Profit % (also

referred to as WCBP%) is defined in the 2004 Compensation Plan as the
profitability over base cost for each item sold. The average WCBP% is
28.5%, but WCBP% varies by territory and month.
6                                                           No. 16-1850

        January 2004 Sales:               $165,000
        January 2003 Sales:              -$125,000
        Monthly Growth:                  = $40,000
        x WC Base Profit (28.5%):        = $11,400
        x 20%:                           = $2,280 (commission)
    The Compensation Plans for 2010 to 2014 stated that sales-
people were entitled to a commission paid on sales growth
but did not include any sample calculations. 4 The Compensa-
tion Plans were typically explained to AWC Sales Represent-
atives in December or January of each year at the annual AWC
kick-off “promo meeting.”
    Medline calculated commissions by starting with the
salesperson’s invoiced sales for the current month and sub-
tracting their sales from the same month in the prior year. De-
pending on whether the salesperson sold more or less than in
the year prior, that calculation could result in a positive or
negative sales growth number. To calculate commission based
on sales growth, Medline then multiplied the salesperson’s
growth (or decline) by a commission percentage. In some
years, commissions were calculated by multiplying the

    4 Neither party references the Compensation Plans for 2008 and 2009.
The 2008 Compensation Plan referred to a “Total Goal Achievement Bo-
nus” and explained that “Total Sales Goal = Individual Territory Growth
Goal + 2007 Base Sales” and “Bonus Payout = .2% of Territory Base Sales
plus 2% of the sales Growth.” The 2009 Compensation Plan noted with
respect to the “Total Goal Achievement Bonus” that “If you hit your sales
goal you get 7% on the Growth up to your goal amount,” “You will also
get paid ½% on your base sales,” and “finally you will get 10% on all sales
growth above goal.” Commissions were thus still tied to growth in these
Plans.
No. 16-1850                                                    7

growth figure for each product category by a specific commis-
sion percentage assigned to that category. In other years, the
commission percentage was applied to the salesperson’s over-
all territory sales growth. Regardless, the calculation always
included all of the salesperson’s business, including accounts
with positive and negative sales growth. If a salesperson had
negative net growth, this would result in a negative commis-
sion, which was then subtracted from any positive commis-
sions. Medline accounted for such negative commissions even
where the reason for the decline in year-over-year growth was
outside the Sales Representative’s control (e.g., if accounts re-
duced purchases due to natural disasters, or had already been
in decline before being assigned to a Sales Representative’s
territory).
Medline’s Practice:
              Jan.     Jan.      Year-over-     Commission
              2010     2011      year change    earned (5%)
              sales    sales
 Account 1    $500K    $1,500K   +$1,000K       $50K
 Account 2    $500K    $100K     -$400K        -$20K
 Account 3    $500K    $0K       -$500K        -$25K
                                        Total: $5K

    From 2007 to 2012, the commission calculation also in-
cluded a “carryover” component, such that an AWC salesper-
son with a negative overall territory sales growth in one
month was required to cover this loss with any positive sales
growth in subsequent months. In 2013 and 2014, this practice
changed, so that if any AWC Sales Representative had nega-
tive overall territory sales growth for the month, it was zeroed
out and was no longer carried over into subsequent months.
8                                                    No. 16-1850

   In addition to the annual Compensation Plans discussed
above, AWC Sales Representatives received at least two other
reports detailing their sales growth and commissions each
month: (1) the Wound Care Commission Summary and
Growth Report, and (2) the Commission Summary by Item
Detail Report (also referred to as the Detailed Commission
Report). AWC salespeople had access to these reports each
month through Medline’s intranet.
    The Wound Care Commission Summary and Growth Re-
port showed each Sales Representative’s sales for the month
compared to the same month in the prior year, broken down
by product groupings for the salesperson’s entire territory. It
also included a chart titled “Commissions Calculation,”
which reported commissions for each product category
(whether positive or negative) based on that month’s sales
growth. A line labeled “Total Commission” showed the sum
of all commissions for the month, adding the positives and
negatives together across all product categories.
    The Commission Summary by Item Detail Report showed
sales growth in additional detail, including by account and by
product. This report also included a column labeled “Com-
missions $,” which listed a positive or negative dollar figure
for each account and product. The report correlated the Sales
Representative’s (positive or negative) sales growth to (posi-
tive or negative) commissions by account and item.
    In 2014, after leaving Medline’s employment, Cohan filed
this lawsuit on behalf of a putative class of all current and for-
mer Medline salespeople nationwide, alleging, after several
amendments, that Medline unlawfully deducted wages with-
out written authorization in violation of the IWPCA and the
No. 16-1850                                                             9

wage laws of the residence states of all putative class mem-
bers. Cohan and Schardt contended that under the Employ-
ment Agreements and Compensation Plans, when they failed
to grow sales year over year, they simply should not have
earned commissions (i.e., negative growth should have been
zeroed out so that they were paid only on positive growth).
Cohan’s and Schardt’s Position:
               Jan.       Jan.        Year-over-      Commission
               2010       2011        year change     earned (5%)
               sales      sales
 Account 1     $500K      $1,500K     +$1,000K        $50K
 Account 2     $500K      $100K       -$400K          $0K
 Account 3     $500K      $0K         -$500K          $0K
                                             Total:   $50K

     As of 2015, Cohan and Schardt were the two named plain-
tiffs representing the class. 5 The parties filed cross-motions
for summary judgment, and the district court stayed proceed-
ings on class certification to resolve the parties’ cross-motions
for summary judgment on Cohan’s and Schardt’s individual
claims.
    The district court granted Medline’s motion for summary
judgment in full and denied Cohan’s and Schardt’s motion in
full. With respect to the IWPCA claims, it found that plaintiffs

    5 Also in 2015, Medline amended its written Compensation Plans to
be consistent with plaintiffs’ position in this lawsuit, such that where
“year over year comparison yields a total negative value within a particu-
lar category, [sales representatives] will receive no additional component
for sales growth in that category.” That is, failure to grow sales simply
resulted in zero commission, rather than a negative commission.
10                                                            No. 16-1850

had not performed enough work in Illinois for the Act to ap-
ply to them. It also found no indication that commissions
were earned by Cohan and Schardt before the calculation of
commissions (by subtracting negative growth) was complete.
Because there was no agreement by Medline to pay commis-
sions in the manner understood by Cohan and Schardt, and
because plaintiffs had provided no other evidence that they
were entitled to a commission calculation that ignored nega-
tive sales growth, the district court ruled that Medline’s com-
mission structure did not violate state wage laws. Cohan and
Schardt now appeal only the dismissal of their claims under
New York and California law.
                               II. Discussion
    We review de novo a district court’s grant of summary
judgment, construing all facts and drawing all reasonable in-
ferences in favor of the non-moving party—here, Cohan and
Schardt. See C.G. Schmidt, Inc. v. Permasteelisa N. Am., 825 F.3d
801, 805 (7th Cir. 2016) (citation omitted). Summary judgment
is appropriate if the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to
judgment as a matter of law. Fed. R. Civ. P. 56(a); C.G. Schmidt,
825 F.3d at 805.
    State wage laws generally protect employees’ earned
wages, including commissions, from an employer’s unlawful
deductions. See, e.g., N.Y. Labor Law §§ 190(1), 191(1)(c),
193(1); Cal. Labor Code § 221. 6 In both New York and Califor-
nia, whether and when a commission is earned is dependent

     6As the district court noted below, it is unclear whether there is a pri-
vate right of action under Cal. Labor Code § 221. Compare Mouchati v. Bon-
nie Plants, Inc., No. EDCV 14-00037-VAP, 2014 WL 1661245, at *8 (C.D. Cal.
No. 16-1850                                                                11

upon the terms of the agreement providing for such commis-
sion. See Gennes v. Yellow Book of N.Y., Inc., 23 A.D.3d 520, 521
(N.Y. App. Ct. 2005); Koehl v. Verio, Inc., 142 Cal. App. 4th 1313,
1330 (1st Dist. 2006) (“The right of a salesperson or any other
person to a commission depends on the terms of the contract
for compensation.”) (citations omitted).
    The district court found that under the employment agree-
ments and Compensation Plans, plaintiffs’ commissions were
not earned until the growth calculation was completed. Any
alleged deduction was thus not improper under state wage
law, but in accordance with the parties’ agreements.
   On appeal, Cohan and Schardt argue that a decline is not
part of the ordinary meaning of the term “growth,” and char-
acterize “negative growth” as an oxymoron inconsistent with
the plain language of the agreements. They contend that at
summary judgment, the district court should have inter-
preted “growth” in the light most favorable to them (i.e., as
encompassing only positive growth), such that their commis-
sions were earned as soon as their customers paid Medline,
and Medline’s accounting for negative growth constituted im-
proper deductions from earned commissions.
   Plaintiffs emphasize that the Employment Agreements
contain no reference to “net” growth or “negative commis-
sions,” and point to the below bolded language from para-
graph 6 of their employment agreements as evidence that

Mar. 6, 2014), with Villalpando v. Exel Direct Inc., No. 12-cv-04137 JCS, 2014
WL 1338297, at *18 (N.D. Cal. Mar. 28, 2014). The district court based its
decision on the merits of plaintiffs’ claims and thus reached no conclusion
regarding the existence of a private right of action under § 221. We do the
same.
12                                                 No. 16-1850

their commissions were fully “earned” upon payment by the
customers to Medline (and prior to any subtraction for “neg-
ative growth”):
      … Medline shall pay to Salesperson commis-
      sions with respect to the collections of all sales
      made by Medline to customers in the territory
      … provided the collection date of any such sale
      is on or after the date Salesperson commences
      performance of his duties as a salesperson … .
      [C]ommissions on sales for which the collec-
      tions are received by Medline prior to the last
      day of any fiscal month shall be paid to Sales-
      person on or about the 15th day of the next cal-
      endar month. …
      During the term of the notice period, or any por-
      tion thereof, provided for by Paragraph 10(a) of
      this Agreement, commissions shall be deemed
      earned by Salesperson only if collected prior
      to the effective date of termination of this Agree-
      ment under any circumstances. All commis-
      sions so earned during the term of such notice
      period shall be paid to Salesperson provided
      Medline receives actual payment from the cus-
      tomer prior to termination date.
   However, these provisions do not explain when commis-
sions are earned; rather, they partially define what commis-
sions are (by explaining what sales count for commissions)
and specify when commissions are to be paid (the fifteenth
No. 16-1850                                                         13

day of the following month). 7 Although the last section argu-
ably has more specific language about commissions “earned”
upon collection of payment, it is explicitly limited to termina-
tion notice periods.
    The employment agreements are silent on the relevant is-
sue, but Medline’s Compensation Plans filled that gap. The
parties agree that the Plans are controlling instruments with
respect to plaintiffs’ claims. The 2004 to 2007 Compensation
Plans clearly and unambiguously explained how commis-
sions were to be calculated: (current year monthly sales - prior
year monthly sales) x WC Base Profit % x 20% = Commission.
Although plaintiffs emphasize that the examples in the Com-
pensation Plans showed positive monthly growth year over
year, resulting in a positive number in commission compen-
sation, it is clear as a matter of basic math that where year-to-
year sales declined, the calculation would result in a negative
growth number and thus a negative commission. The other
Compensation Plans and Cohan’s 2007 agreement likewise tie
commissions to growth, which, as clearly established by the
2004 to 2007 Plans, included negative growth.
    Cohan and Schardt contend that regardless, “any disa-
greement between the parties regarding the scope of their
written agreements and policies should have precluded …
summary judgment.” However, “[i]f an agreement lends itself
to one reasonable interpretation only, it is not ambiguous and
can be construed as a matter of law.” Chi. Reg’l Council of Car-
penters Pension Fund v. Schal Bovis, Inc., 826 F.3d 397, 406 (7th

   7 The 2004, 2005, and 2006 Compensation Plans similarly provide that

“Commissions are based on monthly sales growth and profitability and
paid in the 15th check for previous month’s sales.”
14                                                    No. 16-1850

Cir. 2016) (citing Mazzei v. Rock N Around Trucking, Inc., 246
F.3d 956, 960 (7th Cir. 2001)). The district court’s finding was
not a matter of “constru[ing] the language of the agreements”
in a light unfavorable to the plaintiffs. Rather, it found that the
parties’ agreement (comprising the employment agreements
and Compensation Plans) clearly and unambiguously pro-
vided for negative growth being taken into account when cal-
culating commissions.
     Plaintiffs also take issue with the district court’s discussion
of their continued employment with Medline after becoming
aware of the alleged deductions through the Wound Care
Commission Summary and Growth Report, the Commission
Summary by Item Detail Report, and discussions with their
supervisors and Medline executives. They claim that the court
improperly considered this extrinsic evidence, and that their
continued employment with Medline is insufficient to show
assent to a “modification” of their compensation agreements.
The district court’s opinion does merge discussion of Cohan’s
and Schardt’s continued employment at Medline with its
analysis of when commissions are “earned,” both to under-
score plaintiffs’ failure to show any mutual assent to commis-
sions being paid as they propose, and, with respect to plain-
tiffs’ IWPCA claims, to note evidence of implied acceptance of
Medline’s payment terms under Illinois law. Ultimately, how-
ever, the district court could have reached its conclusion, as
we do, based on the plain language of the agreements.
    Because Medline’s accounting for negative growth was not
a deduction from earned commissions, but rather the con-
tracted-to means of calculating commissions in the first place,
Medline did not violate § 193(1) of New York Labor Law or
§ 221 of the California Labor Code. Pachter v. Bernard Hodes
No. 16-1850                                                  15

Grp., Inc., 10 N.Y.3d 609 (2008), and Koehl, 142 Cal. App. 4th
1313, are instructive:
    The plaintiff in Pachter sued her former employer for “sub-
tracting business expenses from her percentage of client
billings in arriving at her commission income.” 10 N.Y.3d at
614. The Court of Appeals of New York held that N.Y. Labor
Law § 193 does not bar employers from structuring payment
arrangements that include “downward adjustments” in cal-
culating commissions. Id. at 617–18. Because there was an im-
plied contract between the parties under which “the final
computation of the commissions earned … depended on first
making adjustments for nonpayments by customers and …
work-related expenses,” neither § 193 nor any other provision
of New York’s Labor Law prevented the employer’s structur-
ing and application of the commission formula. Id. at 618.
     The plaintiffs in Koehl sued their former employer, an In-
ternet service provider, for its use of a “chargeback process”
against commissions. 142 Cal. App. 4th at 1325–1326. When
an installation order was cancelled before a customer paid for
the first three months, the employer would “charge back” and
recover previously advanced sales commissions, essentially
undoing the transaction at issue. Id. The California Court of
Appeal held that these chargebacks did not violate § 221 of
the California Labor Code because the commission plans be-
tween the parties provided that although commissions would
be paid at booking or installation, they were not in fact earned
at that time. Id. at 1334 (“Appellants agreed to what they
agreed to, and that agreement will be enforced … .”); see also
id. at 1331 (“In sum, cases have long recognized, and enforced,
commission plans agreed to between employer and em-
16                                                  No. 16-1850

ployee, applying fundamental contract principles to deter-
mine whether a salesperson has, or has not, earned a commis-
sion.”). Like the business expenses in Pachter, and the charge-
backs in Koehl, Medline’s accounting for negative growth was
part of the calculation of what commission was to be
“earned,” per the agreement of the parties.
   Plaintiffs also contend that Medline’s practice from 2007 to
2012 of carrying over any balance owed for negative commis-
sion to offset future positive commissions constitutes an im-
permissible deduction from wages under both New York and
California law. They argue that this concept is not contem-
plated in the agreements, but cite to no case law in support of
their position. As this carryover practice was merely how
Medline implemented its calculation of earned commissions,
the same logic outlined above applies, and Medline acted in
accordance with its agreements. We can similarly dispose of
plaintiffs’ argument that prompt and full payment of wages
due to an employee is a fundamental public policy in both
New York in California. While that certainly is true, under the
parties’ agreements, commissions were not earned or “due”
until after negative growth was taken into account.
    Plaintiffs next argue that even if Medline’s commission
structure is consistent with the written agreements, it is nev-
ertheless a per se violation of New York and California labor
law because it impermissibly recoups Medline’s business
losses from its Sales Representatives, even when those losses
are outside Sales Representatives’ control. Plaintiffs contend
that this precise compensation practice was rejected by New
York courts in Gennes v. Yellow Book of N.Y., Inc., 776 N.Y.S.2d
758 (N.Y. S. Ct. 2004), aff’d, 23 A.D.3d 520, 521 (N.Y. App. Div.
2005). The employer in Gennes had a written policy providing
No. 16-1850                                                   17

for a deduction from account executives’ commissions for
every existing account that they were assigned but failed to
renew. The court held that the employer could not “deduct[]
from employees [sic] paychecks any wages already earned
unless so required by law or for the benefit of the employee,”
and noted that otherwise, “employees would suffer negative
economic consequences through no fault of their own if a
business did not renew its subscription,” since subscriptions
could lapse due to “economic downturn” or “advertising
with another publication.” Id. at 760. Cohan and Schardt high-
light that they similarly had negative growth factored into
their commissions even when it resulted from events outside
their control, such as natural disasters. However, Gennes ex-
plicitly dealt with chargebacks against “commissions already
earned on advertisements,” id. at 759 (emphasis added),
whereas in our case, the agreement between the parties spec-
ifies that commissions are earned in the first instance based
on sales growth, including negative growth. See Gennes, 23
A.D.3d at 521 (“Whether a commission is earned is dependent
upon the terms of the agreement providing for such commis-
sion.”).
    Plaintiffs’ argument under California case law for a per se
violation is somewhat more persuasive. In Hudgins v. Neiman
Marcus Grp., Inc., 34 Cal. App. 4th 1109 (1995), as modified (May
25, 1995), the California appellate court considered whether
Neiman Marcus violated California labor law by deducting a
pro rata share of commissions previously paid from all sales
18                                                          No. 16-1850

associates in the section of the store where there were “uni-
dentified returns.” 8 It held that this unidentified-returns pol-
icy caused forfeiture of commissions legitimately earned in
order to insure Neiman Marcus against its own business
losses, and explicitly ruled that “Neiman Marcus cannot
avoid a finding that its unidentified returns policy is unlawful
simply by asserting that the deduction is just a step in its cal-
culation of commission income.” Hudgins, 34 Cal. App. 4th at
1123–24. In so holding, the court cited to Quillian v. Lion Oil
Co., 96 Cal. App.3d 156 (1979), which held that paying gas sta-
tion managers an “incentive bonus” based on the amount of
gasoline sold, with a deduction for any cash or merchandise
shortages, similarly violated § 221 of the California Labor
Code. The California Court of Appeal rejected Lion Oil’s ar-
gument that § 221 did not apply because accounting for cash
and merchandise shortages were merely part of the calcula-
tion of the bonus, rather than a deduction from the bonus.
Quillian, 96 Cal. App.3d at 163.
    Hudgins and Quillian establish that employers cannot shift
general business losses onto their employees and avoid liabil-
ity by dressing up the deduction as part of the commission’s
“calculation.” Medline’s commission policy arguably does in-
sure itself against business declines to some extent. However,
in contrast to the Hudgins unidentified returns policy that
merely prorated unidentified returns across all sales associ-
ates in the department, and the Quillian bonus policy that ac-

     8These included returns of merchandise for which the original sales
associate could not be identified or where the original sales associate had
not been employed by Neiman Marcus for over six months. Hudgins, 34
Cal. App. 4th at 1114.
No. 16-1850                                                   19

counted for shortages “without regard to the individual sta-
tion employee or employees responsible therefor,” at Med-
line, each commission is specifically tied to the territory as-
signed exclusively to that Sales Representative. This tethering
of commissions to growth within each salesperson’s territory
thus lessens the concerns about unfairness underlying the
reasoning and holdings in Hudgins and Quillian. Medline’s
practice appears more akin to accounting for identified returns
in Hudgins (which was deemed lawful), or the chargeback sys-
tem deemed acceptable in Koehl. See Koehl, 142 Cal. App. 4th
at 1336 (“[In Hudgins,] we noted that the store’s practice of re-
covering commissions on identified returns was acceptable
because those chargebacks were specifically tied to the sales
in which the associate had been involved and for which the
associate had received a direct benefit in the form of a com-
mission. Here, of course, the chargebacks are sales associate
by sales associate, order by order.”) (citation omitted).
    Moreover, § 6(a) of the Employment Agreements provides
that Sales Representatives shall earn commission from sales
in their territory “irrespective of whether Salesperson shall
have been responsible for such sale.” Although plaintiffs con-
tended at oral argument that it would be “unusual” for sales
to occur in a salesperson’s territory without the salesperson’s
involvement, this language highlights that Cohan and
Schardt could have also benefitted from business gains in
their assigned territories for which they were not necessarily
responsible (e.g., a client’s growth resulting in additional pur-
chases from Medline).
   In sum, unlike the commission schemes in Hudgins and
Quillian, Medline’s inclusion of negative growth in its com-
20                                                         No. 16-1850

mission calculation was not an unlawful deduction in dis-
guise, but rather a valid means of incentivizing their salespeo-
ple to grow business year over year in their assigned territo-
ries. As the parties agreed that Medline could use both the
carrot and the stick in promoting growth, the district court
correctly granted summary judgment in Medline’s favor. 9
                             III. Conclusion
    For the foregoing reasons, we AFFIRM the judgment of the
district court.

     9  Because Medline paid commissions consistent with its agreements
with plaintiffs and applicable state wage laws, we need not address plain-
tiffs’ argument that Medline violated § 223 of the California Labor Code,
which provides that, “[w]here any statute or contract requires an em-
ployer to maintain the designated wage scale, it shall be unlawful to se-
cretly pay a lower wage while purporting to pay the wage designated by
statute or by contract.”