Court Opinion

ID: 4440668
Source: CourtListenerOpinion
Date Created: 2019-09-23 17:02:25.885373+00
Date Added: 2024-06-11T14:45:16.299937
License: Public Domain

In the

    United States Court of Appeals
                 For the Seventh Circuit
                     ____________________
No. 18-2609
ADRIEL OSORIO,
                                                    Plaintiff-Appellant,
                                  v.

THE TILE SHOP, LLC,
                                                   Defendant-Appellee.
                     ____________________

             Appeal from the United States District Court
        for the Northern District of Illinois, Eastern Division.
             No. 15 C 15 — Matthew F. Kennelly, Judge.
                     ____________________

 ARGUED DECEMBER 3, 2018 — DECIDED SEPTEMBER 23, 2019
               ____________________

   Before SYKES, BARRETT, and ST. EVE, Circuit Judges.
    SYKES, Circuit Judge. Anyone who has worked in a com-
missioned sales position knows that earnings are unpredict-
able. Commissions often fluctuate from one pay period to
the next. The Tile Shop, LLC, a specialty retailer of ceramic
and stone tile, uses a compensation system designed to
smooth the earnings of its commissioned sales staff. The Tile
Shop pays a semimonthly “draw” of $1,000 ($24,000 annual-
ly) even if a sales associate earns less than that amount in
2                                                 No. 18-2609

commissions during the pay period. The Tile Shop reconciles
and recovers any shortfall between actual earned commis-
sions and the $1,000 draw in subsequent pay periods, but
only from commissions in excess of $1,000.
    For ten months Adriel Osorio sold tile and related prod-
ucts for The Tile Shop, first in Illinois and then in New
Mexico. His earnings reflected the ebb and flow of sales.
When business was slow and his commissions totaled less
than $1,000 in a pay period, The Tile Shop paid him the
guaranteed $1,000 and reconciled the difference in later pay
periods when his commissions exceeded $1,000. He quit in
July 2014.
     Months later Osorio filed this class action alleging that
The Tile Shop’s “recoverable draw” system violates the
Illinois Wage Payment and Collection Act (“IWPCA” or “the
Act”) and its implementing regulations. As relevant here, the
regulatory scheme prohibits employers from deducting
more than 15% from an employee’s wages per paycheck as
repayment for previous cash advances. Osorio’s suit claimed
that The Tile Shop’s compensation system functions as a
series of cash advances and his former employer deducted
more than 15% of his wages at various points to recoup
previous draw payments.
    Ruling on cross-motions for summary judgment, the dis-
trict judge held that The Tile Shop’s compensation system
does not involve “cash advances,” so no violation of Illinois
law occurred. We affirm, though on a different rationale. The
Act prohibits “deductions by employers from wages or final
compensation” unless specified conditions are met. 820 ILL.
COMP. STAT. 115/9 (2018). The rules for repayment of cash
advances are found in the regulations, but the threshold
No. 18-2609                                                    3

question is whether The Tile Shop’s draw reconciliations are
“deductions” from wages or final compensation. They are
not. The reconciliations determine the employee’s gross
wages before tax withholding and other deductions are
made.
                        I. Background
   The Tile Shop, LLC, sells tile and related materials and
accessories. It operates 128 retail stores across 31 states. Each
store employs a manager, one or two assistant managers,
and a staff of sales associates. Sales associates and assistant
managers are primarily responsible for sales.
    The Tile Shop pays its sales associates and assistant man-
agers pursuant to a “Sales Associate Pay Plan.” The compa-
ny gives prospective employees a copy of the plan with its
offer letter. Portions of the plan have been revised over the
years, but the material terms have not changed. The plan
explains how the company compensates its sales staff,
primarily through commissions but also with bonuses on
sales of certain products and periodic incentives. The Tile
Shop pays employees on a semimonthly basis.
   Commission income naturally varies from pay period to
pay period depending on sales volume, the profitability of
products sold, and the specific circumstances at the store in
question. To provide a stable and reliable income, The Tile
Shop guarantees its sales staff a minimum of $1,000 for each
semimonthly pay period, for an annual salary of at least
$24,000. If an employee earns less than $1,000 in commis-
sions in a pay period, The Tile Shop reconciles and recovers
the difference in subsequent pay periods, but only against
commission earnings in excess of the guaranteed minimum.
4                                                  No. 18-2609

    The $1,000 “draw” counts toward gross wages for pur-
poses of payroll and income taxes, and it is prorated if the
employee does not work the full pay period. An employee’s
first three pay periods are essentially a grace period. The Tile
Shop pays the guaranteed $1,000 and does not seek to
recover any shortfall in actual commissions. Beginning with
the fourth pay period, The Tile Shop reconciles any commis-
sion shortfalls below $1,000 against future commissions
exceeding $1,000 in subsequent pay periods until recovered
in full. Notably, this reconciliation formula determines gross
wages for purposes of payroll and income taxes and any
other applicable deductions. An employee who leaves the
company receives a draw payment during his final pay
period of employment even though he will not make addi-
tional sales. The Tile Shop does not require reimbursement
of an outstanding draw balance at the end of employment.
     The Tile Shop employed Osorio as a sales associate in an
Illinois store from September 2013 until February 2014 and
as an assistant manager in a New Mexico store from
February to July 2014. His pay schedule reflects The Tile
Shop’s system of draws and reconciliations. For example,
Osorio’s total compensation for the second pay period in
December and first pay period of January included draw
payments. The Tile Shop recovered the difference after
Osorio’s strong performance to end January. In total, Osorio
received $2,038.47 in recoverable draw compensation during
his employment, and $1,141.46 was reconciled against
subsequent commissions and incentive payments. When he
left the company, he did not have to repay the balance.
   In January 2015 Osorio filed this class-action lawsuit
against The Tile Shop alleging violations of the federal Fair
No. 18-2609                                                  5

Labor Standards Act, the IWPCA, and the Illinois Minimum
Wage Law. The district judge granted The Tile Shop’s motion
for partial judgment on the pleadings with respect to
Osorio’s IWPCA claim. His original complaint alleged that
the company did not have his written authorization to
recoup the draw payments. The judge ruled that he had
authorized the recoupment by signing the pay plan attached
to his offer of employment.
   Osorio sought reconsideration, but the judge declined to
revisit his decision. Osorio later moved to amend his com-
plaint to recharacterize the IWPCA claim as a challenge to
impermissible recoupments of “cash advances.” The judge
granted the motion. Osorio then moved for class certification
on the reformulated IWPCA claim, proposing the following
definition of the class:
      All persons employed in a Tile Shop retail store
      in the State of Illinois, except store managers,
      who had a deduction made to a paycheck re-
      ceived at any time from January 2, 2005[,] up to
      and including the date of trial, in order to re-
      coup a cash advance where the deduction was
      in excess of 15% of the gross pay received in
      that paycheck.
This definition correlated to Osorio’s new legal theory,
which rested on the Act’s implementing regulations—more
specifically, an administrative rule providing that “[n]o cash
advance repayment agreement shall provide for a repay-
ment schedule of more than 15% of an employee’s gross
wages or final compensation per paycheck.” ILL. ADMIN.
CODE tit. 56, § 300.800 (2018). The judge granted the class-
certification motion.
6                                                     No. 18-2609

    The parties then filed cross-motions for summary judg-
ment on the IWPCA claim. The judge granted The Tile
Shop’s motion and denied Osorio’s. He determined that the
claim “hinge[d] on the question … whether [The] Tile
Shop’s ‘recoverable draw’ system is a cash advance repay-
ment agreement.” He then examined the pay plan in detail
and found one aspect particularly compelling: a departing
employee receives a draw in his final paycheck even if he
makes less than $1,000 in commissions, and he is not re-
quired to pay it back. “Because the undisputed facts estab-
lish that [The] Tile Shop does not always require repayment
of draws,” he concluded, “they do not constitute cash
advances.”
  The parties settled the FLSA and Illinois Minimum Wage
Law claims, and the judge entered final judgment on the
IWPCA claim. Osorio appealed.
                         II. Discussion
   We review a summary judgment de novo, construing ev-
idence and drawing inferences in favor of the nonmoving
party. Barefield v. Village of Winnetka, 81 F.3d 704, 708 (7th Cir.
1996).
   The IWPCA prohibits “deductions by employers from
wages or final compensation” unless certain conditions are
met. § 115/9. As we’ve explained, the Act’s implementing
regulations establish requirements for deductions from
wages pursuant to a “cash advance repayment agreement,”
one of which is the 15%-per-paycheck limitation. ILL. ADMIN.
CODE tit. 56, § 300.800. In the district court, The Tile Shop
made two arguments in opposition to Osorio’s reformulated
IWPCA claim. The first was that the draw reconciliations are
No. 18-2609                                                   7

not “deductions from wages or compensation” within the
meaning of the Act. The second was that the draw system
does not involve “cash advances” within the meaning of the
regulations. The judge agreed with The Tile Shop’s second
argument, holding that the draws are not cash advances.
   On appeal The Tile Shop reiterates both arguments. We
find the first inquiry dispositive. The IWPCA is triggered
only if the draw reconciliations constitute “deductions …
from wages or final compensation.” The Act broadly defines
“wages” as “any compensation owed an employee by an
employer pursuant to an employment contract or agreement
between the 2 parties.” 820 ILL. COMP. STAT. 115/2 (2018). But
neither the statute nor the implementing regulations define
the term “deductions,” nor has any court defined the term as
used in the Act.
    The Tile Shop relies on Cohan v. Medline Industries, Inc.,
843 F.3d 660 (7th Cir. 2016), but that case does not inform the
analysis here. In Cohan two employees claimed that their
employer, Medline, violated the IWPCA by making illegal
deductions from their commissions without written authori-
zation. Id. at 661. The plaintiffs challenged two aspects of the
company’s pay structure. First, Medline calculated a sales-
person’s net growth in sales on a month-over-month basis,
and if a salesperson had negative net growth for an account,
that resulted in a negative commission. Second, the commis-
sion calculation included a “carryover” component such that
a salesperson with a negative overall territory sales growth
in one month was required to cover that loss with any
positive sales growth in subsequent months. Id. at 663–64.
   We rejected the plaintiffs’ claim because Medline’s com-
pensation plan “clearly and unambiguously provided for
8                                                  No. 18-2609

negative growth being taken into account when calculating
commissions.” Id. at 667 (emphasis added). That final word is
key—the challenged aspects of the Medline plan dealt with
calculating the underlying commissions. This case, in contrast,
does not challenge how The Tile Shop calculates commis-
sions.
    We return, then, to the question whether the draw recon-
ciliations are “deductions … from wages or final compensa-
tion.” Although the Act does not define “deduction,” if a
statutory term has “a settled legal meaning, [Illinois] courts
will normally infer that the legislature intended to incorpo-
rate the established meaning.” People v. Johnson, 995 N.E.2d
986, 988 (Ill. 2013). In the payroll context, a deduction refers
to “an amount of money that is taken by an employer from
an employee’s pay, for income tax, insurance, etc.” See Payroll
Deduction, CAMBRIDGE BUSINESS ENGLISH DICTIONARY,
https://dictionary.cambridge.org/us/dictionary/english/
payroll-deduction (last visited September 18, 2019). Another
dictionary similarly defines the term: “[The] amount with-
held by an employer from [an] employee’s earnings. It
typically includes income tax, national insurance or social
security contributions, and may also include group insur-
ance or pension fund contributions … .” See Payroll
Deduction, BusinessDictionary.com, http://www.business
dictionary.com/definition/payroll-deduction.html            last
visited September 18, 2019). In other words, as used in this
particular context, the term “deduction” refers to withhold-
ings from an employee’s earnings, not the employer’s meth-
od of determining an employee’s earnings.
    Related statutory provisions confirm this understanding.
In Illinois, as elsewhere, a word appearing “more than once
No. 18-2609                                                  9

in a statute is presumed to have been used by the legislature
with the same meaning each time, absent an indication that a
different meaning was intended.” Baker v. Salomon,
334 N.E.2d 313, 316 (Ill. App. Ct. 1975); see also ANTONIN
SCALIA & BRIAN A. GARNER, READING LAW: THE
INTERPRETATION OF LEGAL TEXTS 170–73 (2012). In section
115/10 of the Act, Illinois requires employers to “furnish
each employee with an itemized statement of deductions
made from his wages for each pay period.” 820 ILL. COMP.
STAT. 115/10 (2019) (emphasis added). And the implementing
regulations prohibit deductions for certain expenses, such as
for training or educational courses, ILL. ADMIN. CODE tit. 56,
§ 300.780 (2019); damaged property, id. § 300.820; and uni-
forms required by the employer, id. § 300.840, “unless the
employee’s express written consent is given freely at the time
the deduction is made.” Under section 115/10 and the regu-
lations, the term “deduction” is used as a term of art to refer
to expressly stated categories of expenses withheld from an
employee’s pay.
    Considered in context, the term “deductions” as used in
the Act refers to withholdings from an employee’s gross
wages, not the formula used to calculate an employee’s gross
wages. This poses an insurmountable obstacle for Osorio.
The draw-reconciliation system is part of The Tile Shop’s
formula for calculating a sales associate’s semimonthly
commission earnings. It is not a deduction from the sales
associate’s wages or final compensation. Osorio’s paystub
confirms this understanding: the draw payments and recon-
ciliations appear as line items under “Earnings,” not under
“Deductions.” To borrow an accounting phrase, the draw
reconciliation is made “above the line” to calculate the
10                                             No. 18-2609

employee’s gross wages before withholding for taxes and
other applicable deductions are made.
   Because the draw reconciliations are not “deductions …
from wages or final compensation” within the meaning of
section 115/9, The Tile Shop’s compensation system does not
violate the IWPCA.
                                                 AFFIRMED