Cohan v. Medline Indus., Inc.

Citation843 F.3d 660
Decision Date09 December 2016
Docket NumberNo. 16-1850,16-1850
Parties David Cohan and Susan Schardt, Plaintiffs–Appellants, v. Medline Industries, Inc., and MedCal Sales LLC, Defendants–Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)

Alejandro Caffarelli, Attorney, Caffarelli & Associates LTD, Chicago, IL, for PlaintiffsAppellants.

Amy S. Ramsey, Frederick L. Schwartz, Attorneys, Littler Mendelson P.C., Chicago, IL, for DefendantsAppellees.

Before Flaum and Kanne, Circuit Judges, and Magnus–Stinson, District Judge.*

Opinion

Flaum, Circuit Judge.

Plaintiffs David Cohan and Susan Schardt filed this putative class action suit against their former employers, Medline Industries, Inc., and MedCal Sales LLC (collectively, "Medline"), alleging violations of the Illinois Wage Payment and Collection Act, 820 Ill. Comp. Stat. § 115/1 et seq. ("IWPCA"), and other state wage payment statutes, 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 declines in calculating and paying commissions was impermissible 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 performed 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 territory and were responsible for selling AWC products to new or existing clients within that territory.

Cohan, a New York resident, worked as a Sales Representative in the AWC division from 2007 to 2013. (He previously 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 accounts. Schardt, a California resident, was a Sales Representative in the AWC division from 2001 to 2014, and her territory largely consisted of California accounts. As AWC salespeople, both Cohan and Schardt received a base salary as well as commissions 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 Agreement"). When he transferred to the AWC division, Cohan also entered into an Agreement Regarding Continued Employment 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 ... provided the collection date of any such sale is on or after the date Salesperson commences performance of his duties as a salesperson hereunder and is on or before the effective date of termination of this Agreement under any circumstances. Salesperson shall be entitled to a commission on any sale as set forth herein, irrespective of whether Salesperson shall have been responsible for such sale....
...
(f) [C]ommissions on sales for which the collections are received by Medline prior to the last day of any fiscal month shall be paid to Salesperson on or about the 15th day of the next calendar 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 commission program. After making such election, Medline 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 commissions so earned during the term of such notice period shall be paid to Salesperson, provided Medline receives actual payment from the customer prior to termination date.

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 annual basis Compensation Plans describing how commissions would be calculated during that year for its Sales Representatives. The Compensation Plans from 2004 to 2007 explain that "[c]ommissions are based on monthly sales growth and profitability," and specify that growth commissions are to be calculated 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:

January 2004 Sales:           $165,000
                January 2003 Sales:          -$125,000
                ______________________________________
                Monthly Growth:              = $40,000
                × WC Base Profit (28.5%):    = $11,400
                × 20%:                       = $2,280 (commission)
                

The Compensation Plans for 2010 to 2014 stated that salespeople were entitled to a commission paid on sales growth but did not include any sample calculations.4 The Compensation Plans were typically explained to AWC Sales Representatives 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 subtracting their sales from the same month in the prior year. Depending 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 growth figure for each product category by a specific commission percentage assigned to that category. In other years, the commission percentage was applied to the salesperson's overall 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 commission, which was then subtracted from any positive commissions. 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 reduced 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-year     Commission
                              2010      2011        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 included a "carryover" component, such that an AWC salesperson 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 negative overall territory sales growth for the month, it was zeroed out and was no longer carried over into subsequent months.

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 Report 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 "Commissions $," 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 (positive or negative) commissions by account and item.

In 2014, after leaving Medline's employment, Cohan filed this...

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