Retailer Did Not Violate IWPCA With its Sales Commission Plan

A retailer’s plan for calculating commissions for its sales associates did not violate the Illinois Wage Payment and Collection Act because the relevant portion of the statute concerned only deductions from an employee’s wages, and not the method used to calculate the employee’s gross pay prior to deductions.

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 managers pursuant to a “Sales Associate Pay Plan.” The company gives prospective employees a copy of the plan with its offer letter. 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 Shop pays employees on a semimonthly basis.

As commission income naturally varies from pay period to pay period, the Tile Shop guarantees its sales staff a minimum of $1,000 for each semimonthly pay period. If an employee earns less than $1,000 in commissions in a pay period, the Tile Shop reconciles and recovers the difference in subsequent pay periods against commission earnings in excess of the guaranteed minimum. This draw counts toward gross wages for purposes of payroll and income taxes, and it is prorated if the employee does not work the full pay period.

The Tile Shop employed Adriel 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. In January 2015, Osorio filed a class-action lawsuit against The Tile Shop alleging violations of the federal Fair Labor Standards Act, the Illinois Wage Payment and Collection Act, and the Illinois Minimum Wage Law. The district judge granted The Tile Shop’s motion for partial judgment on the pleadings with respect to the IWPCA claim. Osorio then recharacterized his IWPCA claim as one regarding cash advance repayment limitations. The parties moved for summary judgment, and the district court granted summary judgment to The Tile Shop. The parties later settled the FLSA and Illinois Minimum Wage Law claims, and Osorio appealed the decision on the IWPCA claim.

The appellate panel began by stated that the IWPCA prohibits deductions by employers from wagers or final compensation unless certain conditions are met. The panel noted that the Act’s implementing regulations establish requirements for deductions from pursuant to a cash advance repayment agreement, one of which is a 15%-per-paycheck limitation. The panel stated that under the statute, the term “deduction” is used as a term of art to refer to expressly stated categories of expenses withheld from an employee’s pay. The panel found that considered in context, the term 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. The panel found that the draw-reconciliation system was part of The Tile Shop’s formula for calculating a sales associate’s semimonthly commission earnings, and it was therefore not a deduction from the sales associate’s wages or final compensation. Because the draw reconciliations are not deductions from wages or final compensation, the panel concluded, The Tile Shop’s compensation system did not violate the IWPCA. The panel, therefore, affirmed the decision of the district court.

You can read the Court’s decision here.

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