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Ergo v. International Merchant Services

September 13, 2007


The opinion of the court was delivered by: Hon. Harry D. Leinenweber


Before the Court are Cross-Motions for Partial Summary Judgment. Plaintiffs Giselle Ergo ("Ergo"), Cindee Saenger ("Saenger"), Erica Bartelmey ("Bartelmey"), Lisa Pratali ("Pratali"), and Rhonda Andres ("Andres") seek judgment on several of their claims under the Fair Labor Standards Act (the "FLSA"), 29 U.S.C. §§ 201 et seq., the Illinois Minimum Wage Law (the "IMWL"), 820 ILCS 105/1 et seq., and the Illinois Wage Payment and Collection Act (the "IWPCA"), 820 ILCS 115/1 et seq., as well as on Defendants' counterclaim. Defendants International Merchant Services, Inc. ("IMS"), and Chris Kazor ("Kazor"), seek judgment on Plaintiffs' retaliation claims under the FLSA and the IMWL, as well as on Plaintiffs' IWPCA claims related to accrued vacation time.

For the following reasons, Plaintiffs' Motion is GRANTED IN PART and DENIED IN PART, and Defendants' Motion is GRANTED IN PART and DENIED IN PART.


The following general factual summary is based on the pleadings and undisputed facts, unless otherwise indicated. More specific factual recitations will be provided during the relevant sections of this opinion.

This dispute arises from the Plaintiffs' employment with Defendant IMS. IMS is an Illinois-based electronic merchant bank card processor that also sells credit card processing equipment, supplies, and software. Defendant Kazor is IMS's president, CEO, and sole owner. Each of the plaintiffs worked in IMS's "Internal" department for between three and six years: Plaintiff Andres from November 15, 1999, to September 30, 2002; Plaintiff Bartelmey from March 29, 1999, to March 4, 2002, and then from November 4, 2002, until April 6, 2004; Plaintiff Ergo from February 23, 1999, until August 5, 2004; Plaintiff Pratali from September 14, 2001, until August 5, 2004; and Plaintiff Saenger from December 11, 1997, until August 5, 2004.

Plaintiffs' claims relate to their compensation at, and to the circumstances of their departure from, IMS. Plaintiffs claim that IMS violated overtime compensation laws by failing to pay them time-and-a-half pay for all hours worked over 40 per week.

Plaintiffs also claim that IMS violated wage laws by failing to pay Plaintiffs certain other agreed-upon wages and by withholding certain amounts from them after their departures from IMS. Finally, Plaintiffs claim that IMS fired, constructively discharged, or otherwise discriminated against them in retaliation for their complaints about the above alleged practices.

For their part, IMS and Kazor claim that Plaintiffs owe IMS money because, on a number of occasions, Plaintiffs cashed paychecks from IMS that they knew represented overpayment for hours actually worked. Plaintiffs contend that this claim by Defendants, along with a threatened-but-never-filed claim for defamation, are baseless and constitute further acts of retaliation.


A. Plaintiffs' Motion For Partial Summary Judgment

Plaintiffs claim summary judgment on their FLSA and IMWL claims, on part of their IWPCA claim, and on Defendants' counterclaim. Specifically, Plaintiffs seek summary judgment on Counts I and II of their complaint, which state affirmative FLSA and IMWL claims arising from Defendants' alleged failure to pay Plaintiffs overtime by first artificially capping the number of overtime hours for which they would pay employees, including Plaintiffs, and then by wrongly reclassifying employees, including Plaintiffs, as exempt from overtime pay requirements. Plaintiffs also seek summary judgment on Count IV, which states a claim under the IWPCA arising from (a) Defendants' alleged breach of an agreement to pay Plaintiffs additional wages for hours over 37.5 per week during the period when Plaintiffs were classified as exempt from overtime requirements and (b) Defendants' failure to pay Plaintiff Bartelmey her final paycheck. Plaintiffs additionally seek summary judgment on Defendants' counterclaim on the grounds that Defendants have failed to establish breach of contract, and that the "voluntary payment" doctrine precludes recovery.

1. Plaintiffs' Affirmative FLSA and IMWL Claims (Counts I & II)

As Plaintiffs' complaint presents two unpaid overtime claims that each arise from a distinct set of facts, the Court will address each claim separately.

a. Claim Related To Plaintiffs's Classification As Non-Exempt

IMS initially classified each Plaintiff as an hourly, nonexempt employee. It is undisputed that: Andres was nonexempt from November 15, 1999, to January 14, 2000; Ergo was nonexempt from February 23, 1999, to December 5, 2002; Saenger was nonexempt from December 11, 1997, until November 2002; Bartelmey was nonexempt from March 1999 through March 2002, as well as in November 2002; and Pratali was nonexempt from September 14, 2001, to February 11, 2004.

Plaintiffs' claims regarding the nonexempt periods of their employment relate to what they refer to as IMS's "44-hour cap." It is undisputed that in early 2002, IMS office manager Katie Anderson informed Ergo, Saenger, Bartelmey and Pratali that IMS was instituting a policy of limiting their work week to 44 hours. Plaintiffs claim that Anderson stated that the reason for the cap was that Plaintiffs were "milking the company for overtime." According to Plaintiffs, the cap meant that IMS would not pay them for hours worked beyond 44 per week, even though IMS expected them to work more than 44 hours if they had not completed their work. Plaintiffs support their testimony with payroll documents and summaries thereof. One particular unsigned handwritten note purportedly shows the hours of certain employees, including some of the Plaintiffs, with "44" marked next to each employee that had worked more than 44 hours.

According to Defendants, the cap was simply a limit on work, not a limit on payment. Defendants contend that although IMS instructed Plaintiffs not to work more than 44 hours, its policy and practice was to pay all employees for all overtime hours, including those over 44. According to Defendants, the primary consequence for an employer who worked more than 44 hours was that Anderson would speak to her about it and instruct her not to do so in the future. Defendants do acknowledge that IMS underpaid some of the Plaintiffs on a few of the occasions that they worked over 44 hours. But Defendants contend that these were inadvertent errors, and that IMS also inadvertently overpaid Plaintiffs on many occasions, which Defendants seek to prove by submitting their own payroll record summaries.

The Court concludes that genuine issues of material fact preclude summary judgment on the 44-hour cap issue. While it is undisputed that IMS instituted a policy of restricting overtime in excess of 44 hours, it is disputed whether this was a cap on the amount worked or the amount paid. At his deposition, Defendant Kazor flatly denied the existence of a payment cap. Meanwhile, Anderson's testimony was at most ambivalent. She testified that "the threat was there" that employees would not be paid for working more than 44 hours but that she never put this threat in place and that, to her knowledge, IMS always paid employees for working more than 44 hours.

The documents likewise do not resolve the issue. The question of whether IMS failed to pay Plaintiffs for hours worked beyond 44 per week depends on calculating during which weeks they actually worked more than 44 hours. But the parties dispute this sub-issue, each employing different source materials and methods of calculating hours worked. And while Plaintiffs' handwritten payroll document is probative of a payment cap, its weight is limited, given that its authorship is unknown and it relates to only one pay period. In sum, evidentiary conflict and ambiguity requires this issue to be weighed by the trier of fact.

b. Claim Related To Plaintiffs's Classification As Exempt

After initially classifying each Plaintiff as nonexempt, IMS reclassified each of them to exempt status, which they each held until their respective departures from the company. IMS reclassified Andres in January 2000, Saenger in November 2002, Ergo and Bartelmey in December 2002, and Pratali in February 2004.

Defendants claim that during this period, IMS properly reclassified Plaintiffs as exempt because they had become "bona fide executive, administrative, or professional" employees. See 29 U.S.C. § 213(a)(1). According to Plaintiffs, Defendants in actuality reclassified Plaintiffs despite there having been no significant change in any of their job duties for the sole purpose of avoiding paying them overtime. Plaintiffs advance several arguments in support of their misclassification claim, but the Court need only address one, as it is dispositive.

In order to meet its burden of establishing the overtime exemption, an employer must show, inter alia, that it paid the relevant employee on a "salary basis." 29 C.F.R. § 541.2(e). This in turn requires showing that the employee "regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of his compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed." 29 C.F.R. § 541.118(a). Courts have specifically interpreted the phrase, "subject to reduction," to mean that the exemption is unavailable if the employer deducts from the employee's pay for violations of non-safety-related rules or partial-day absences. Piscione v. Ernst & Young, L.L.P., 171 F.3d 527, 534 (7th Cir. 1999). Under this "no-docking" rule, the employer need not have actually deducted the employee's pay, so long as "there is either an actual practice of making such deductions or an employment policy that creates a 'significant likelihood' of such deductions." Auer v. Robbins, 519 U.S. 452, 461 (1997).

Here, summary judgment is appropriate because the undisputed facts show that IMS maintained a practice of subjecting Plaintiffs and other nominally exempt employees to improper deductions for discipline or partial-day absences. To begin with, IMS's employee handbook -- which applies to all IMS employees, making no distinction between exempt and nonexempt employees, sets forth a "progressive discipline" policy that provides for "suspension (with or without pay)" as one of five steps IMS may take in disciplining employees. (emphasis added). The handbook articulates at least three specific circumstances meriting suspension without pay, none of which involve violations of major safety rules: making personal use of IMS phones, serial tardiness, and failure to comply with IMS's dress code.

The undisputed facts further establish that IMS implemented its docking/suspension policy against Internal department employees, including at least two of the Plaintiffs. Specifically, IMS suspended Ergo without pay on April 10, 2004, for "failure to follow company procedures" arising from an "inappropriate" exchange Ergo had with another employee. IMS likewise suspended Bartelmey without pay for four days in April 2004 for violation of the company's internet usage policy. IMS further deducted Bartelmey's pay for partial-day absences on at least five occasions: July 2, 2003; August 1, 2003; the week of September 5, 2003; the week of January 9, 2004; and March 15, 2004. The record additionally shows that five other Internal department employees faced deductions despite having been classified as "exempt."

Defendants defend their classification of Plaintiffs by relying on the case of Auer v. Robbins, where the Supreme Court upheld an employer's use of the exemption even though its employee handbook contained a provision very similar to IMS's. Auer v. Robbins, 519 U.S. 452, 462 (1997). The Auer Court reasoned that since the handbook provision did not single out employees in the Plaintiffs' category, it created no particular likelihood that improper deductions would be applied to them. See id. The Court further concluded that a single incidence of a plaintiff's pay being docked "under unusual circumstances" was insufficient to establish such a likelihood. See id.

Auer is, however, easily distinguished from the instant case. While IMS' written policy was similar to that in Auer, IMS' actual practices of docking purportedly exempt employees easily eclipses the one "unusual circumstance" deduction in Auer. As noted above, the record shows at least twelve instances of IMS docking the pay of nominally exempt employees in Plaintiffs' department, including seven instances of actually docking two of the Plaintiffs' pay. These occurred over a period of at least a year, from mid-2003 to mid-2004. And while the precise number of employees in Plaintiffs' department is unclear, Defendants have previously provided a good faith estimate in the range of approximately 50 employees. (Transcr. Sept. 15, 2005, Hearing, at 6.) Thus, for a substantial amount of the time that IMS classified Plaintiffs as exempt, IMS improperly docked the pay of a substantial proportion of the employees in Plaintiffs' department, including two of the Plaintiffs themselves. Obviously, for those two Plaintiffs, they were subject to an "actual practice" of pay deductions. For the other three Plaintiffs, the Court finds that IMS's written policy, combined with its substantial history of docking employees in the Internal department, is more than sufficient to create a "significant likelihood" that each of the Plaintiffs would incur improper deductions.

Additionally, although it is not central to the Court's holding, the Court is also mindful that the above-noted practices comprised only a portion of IMS's improper docking of purportedly exempt employees' pay. In the Sales department, IMS prolifically disciplined such employees through pay deductions or threats thereof. By the Court's count, IMS disciplined in this manner approximately 24 Sales employees for a wide array of reasons, including dress code violations, attendance issues, productivity problems, poor work product quality, failure to meet sales quotas, tardiness, and general violations of company policy. Although Defendants challenge the relevancy of the Sales employees, as noted above, IMS's written discipline policy applies to all employees, including all exempt employees in all departments. Thus, the fact that IMS regularly uses pay deduction as a means of disciplining exempt employees in the Sales department provides additional support for the Court's finding that those Plaintiffs whose pay was not actually docked nevertheless faced a "significant likelihood" of docking. The Court reemphasizes, however, that it finds an improper pay-docking policy and practice based solely on the evidence of IMS's treatment of employees in the Internal department, including the Plaintiffs.

2. Plaintiffs' IWPCA Claims (Count IV)

Plaintiffs seek summary judgment on two of their IWPCA claims. One arises from Defendants' failure to pay Plaintiffs consistent with an alleged agreement that their salaries would be based on a 37.5-hour work week during the period when IMS classified Plaintiffs as exempt from overtime requirements. The other arises from Defendants' alleged failure to pay Plaintiff Bartelmey her final paycheck following her termination.

a. Compensation Based On A 37.5 Hour Work Week

The IWPCA requires payment of "any compensation owed an employee by an employer pursuant to an employment contract between the two parties, whether the amount is determined on a time, task, piece, or any other basis of calculation." 820 ILCS 115/2. Plaintiffs contend that when IMS switched them to salaried pay, they were told that their pay was based on a 37.5 hour work week, and that this statement formed an employment contract.

The Court denies summary judgment on this claim because there is significant factual dispute whether there was ever a meeting of the minds between Plaintiffs and IMS that Plaintiffs would be paid above and beyond their salary amounts for hours worked beyond 37.5 hours per week. Plaintiffs testified that IMS represented to them that their salaries assumed a 37.5 hour work week. But Kazor and other IMS personnel deny making any such representation, and affirmatively state that IMS did not tie salaries to any specific number of hours. Plaintiffs seek summary judgment nevertheless based on Defendants' judicial admission that IMS "calculated Plaintiffs' salaries based on the assumption that they worked 37.5 hours per week." But the fact that an employer makes assumptions about hours worked in order to calculate salary amounts does not in itself, without specific communication to employees (about which there is manifest factual dispute), contractually obligate the employer to pay employees additional amounts for every hour worked above the baseline assumption.

b. Bartelmey's Final Paycheck

Plaintiffs seek summary judgment that Defendants must pay Bartelmey her final paycheck from her first stint with IMS. During the week before she resigned in March of 2002, Bartelmey worked 11.75 hours but did not receive full compensation for these hours after the termination of her employment. Defendants do not deny that Bartelmey worked these hours, nor that IMS did not pay her for all of them. Instead, Defendants assert that she failed to notify them of the problem within five days, and that IMS actually overpaid her on the whole during this time period.

Summary judgment is appropriate here because the IWPCA expressly entitles Bartelmey to full payment of her final compensation. The relevant provision of the IWPCA, 820 ILCS 115/5, provides that "[e]very employer shall pay the final compensation of separated employees in full, at the time of separation, if possible, but in no case later than the next regularly scheduled payday for such employee." Contrary to Defendants' suggestion, there is no five-day notice requirement or any other limitation. Whether or ...

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