Olson et al v. LTF Club Management Company, Inc.

Filing 56

ORDER-WRITTEN Opinion entered by the Honorable Philip G. Reinhard on 10/13/2016: For the reasons stated below, defendant's motion 38 to dismiss is granted. The corrected first amended complaint 37 is dismissed without prejudice. Plaintiffs are given leave to file an amended complaint on or before November 14, 2016. [see STATEMENT-OPINION] Signed by the Honorable Philip G. Reinhard on 10/13/2016. Mailed notice (kms)

IN THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF ILLINOIS
WESTERN DIVISION
Sandra Olson, et al.,

)
)
Plaintiffs,
)
)
vs.
)
)
LTF Club Management Company, LLC, et al., )
)
Defendant.
)

Case No. 16 C 01179

Judge Philip G. Reinhard

ORDER
For the reasons stated below, defendant’s motion [38] to dismiss is granted. The
corrected first amended complaint [37] is dismissed without prejudice. Plaintiffs are given leave
to file an amended complaint on or before November 14, 2016.
STATEMENT-OPINION
Plaintiffs, Sandra Olson, Melissa Woodall, Lindsey Johnson, Jennifer Knop, Toni
Lemberg, Suzanne Treadwell, Randi Makaras, Beth Rogala, and Allison Seubert1 bring this
action against defendant, LTF Club Management, LLC. Defendant removed the case from the
Circuit Court for the 22nd Judicial Circuit, McHenry County, Illinois. Subject matter jurisdiction
is premised on federal question (28 U.S.C.§ 1331) and supplemental (28 U.S.C.§ 1367(a))
jurisdiction.2 The federal claim (Count III) is for violation of the Fair Labor Standards Act, 29

1

Each count of the corrected first amended complaint [37] names different groups of the
foregoing named plaintiffs as plaintiffs in that count. In this opinion, when the court uses the
word “plaintiffs” it refers to the plaintiffs named in the particular count being discussed at that
time.
2

It also appears the court may have diversity jurisdiction. 28 U.S.C. § 1332(a)(1). The
jurisdictional amount has been pled in the amended notice of removal [52]. Defendant is a
limited liability company. The amended notice of removal alleges defendant’s sole member is
LTF Operations Holdings, Inc., a Minnesota corporation with its principal place of business in
Minnesota. So, defendant is a citizen of Minnesota. The amended notice of removal does not
identify the citizenship of the plaintiffs but rather pleads that they all reside in Illinois except for
Treadwell who resides in Colorado. It is citizenship not residence that matters for diversity
purposes. Meyerson v. Harrah’s East Chicago Casino, 299 F.3d 616, 617 (7th Cir. 2002). If
defendant wants to be in a position to rely on diversity jurisdiction for plaintiffs’ state law
1

U.S.C. § 206 et seq. (“FLSA”). Plaintiffs claim defendant failed to pay them at least the
minimum wage for time spent in employer-mandated training. The remaining claims are state
law claims for breach of contract (Count I & Count IV) and violation of the Illinois Wage
Payment and Collection Act, 820 ILCS 115/9 (“IWPCA”) (Count II). Plaintiffs worked in
defendant’s salon as either stylists or estheticians. Defendant moves [38] to dismiss for failure
to state a claim. Fed. R. Civ. P. 12(b)(6).3
Looking first to the federal claim set forth in Count III, plaintiffs (other than Sandra
Olson) allege they were required to participate in training outside of their regular working hours,
that they were unpaid for this training, and that “[u]pon information and belief, between the
unpaid training hours and the hours worked which actually received compensation, Plaintiffs
would have received compensation at a rate below minimum wage.” Defendant argues these
allegations are insufficient to plausibly state a claim for a minimum wage violation because, at a
minimum, plaintiffs are required “to plead some facts showing they spent a sufficient amount of
time in unpaid training for it to result in a violation of the FLSA’s minimum wage
requirements.”
To survive a motion to dismiss, plaintiff must plead “enough facts to state a claim to
relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007).
The factual allegations must be sufficient to cross the line between possibility and plausibility.
Id., at 557. Fed. R. Civ. P. 8(a)(2) requires “a short and plain statement of the claim” and “that
‘plain statement’ must possess enough heft to show that the pleader is entitled to relief.” Id.
(internal quotation marks omitted).
The weight of authority holds that the “FLSA does not provide a remedy for workers who
have received at least the minimum wage for a pay period in which they have not worked
overtime.” Brown v. Lululemon Athletica, Inc., No. 10 C 5672, 2011 WL 741254 * 4 (N.D. Ill.
Feb. 24, 2011) (St. Eve, J.) (collecting cases). Plaintiffs allege they performed mandatory
training outside their regular working hours and that the training was done online when they
were not otherwise able to perform compensable work. They do not allege that this caused them
to work overtime. They only allege “on information and belief” that their unpaid training hours
and the hours they worked for which they were paid, when combined, resulted in them being
paid less than the minimum wage.
A plaintiff must provide “enough detail to give the defendant fair notice of what the
claim is and the grounds upon which it rests and, through his allegations, show that it is

claims, in the event the federal claim is disposed of by the court, it needs to file a statement
identifying the citizenship not the residence of each plaintiff. “Citizenship and residence are not
synonyms.” Id.
3

Also, plaintiffs move [47] to strike defendant’s notice of supplemental authority [45]
arguing it is a sur-reply filed without leave of court. Plaintiffs’ point is well taken. To the extent
the notice of supplemental authority contains argument and analysis of the proffered case, it is a
sur-reply filed without leave of court and will be disregarded. The case itself, however, like any
case the court might find in the course of its research, may be considered by the court in deciding
the pending motion.
2

plausible, rather than merely speculative, that he is entitled to relief.” Tamayo v. Blagojevich,
526 F.3d 1074, 1083 (7th Cir. 2008) (internal quotation marks and citation omitted). Plaintiffs
allege they performed mandatory online training outside their regular work hours and “on
information and belief” that the unpaid training hours when combined with their paid hours
resulted in them being paid less than minimum wage. This does not give defendant fair notice of
the grounds upon which the claim rests. The complaint does not identify any weeks in which
any of the plaintiffs were paid less than the minimum wage due to the mandatory training. It
does not identify any weeks in which any of the plaintiffs performed any of the mandatory
training. Plaintiffs were all paid on commission but the complaint contains no information as to
how much any of them was paid in any week at any time. As pled, defendant is left to guess as
to when plaintiffs claim they were underpaid and how much the underpayment is claimed to be.
While precision is not required, plaintiffs’ allegations do not provide any information about their
claims beyond saying, in effect, sometimes we did this training and we also worked regular
hours and we think that sometimes this must have resulted in us being paid less than the
minimum wage. Plaintiffs allege no more than a guess and such speculation is insufficient to
give defendant fair notice of what plaintiffs’ claims actually are. Count III is dismissed without
prejudice.
Count I asserts breach of contract on behalf of Sandra Olson, Melissa Woodall, Jennifer
Knop, Lindsey Johnson, and Suzanne Treadwell. Plaintiffs allege they had contracts to be paid
on commission without any deductions for shop charges. They allege that at some point
“between September 14, 2006, and July 28, 2009,” defendant implemented “shop charges”.
Shop charges are purportedly used to offset the costs of products used by plaintiffs in providing
salon services. Shop charges were deducted from the gross sales of plaintiffs prior to their
commission being calculated. Plaintiffs maintain that the established course of performance
prior to the institution of shop charges was that plaintiffs’ commissions were calculated on gross
sales without deduction and that defendant changing this course of performance was a breach of
plaintiffs’ contracts with defendant.
In moving to dismiss, defendant argues plaintiffs do not plead the existence of valid and
enforceable contracts with definite and certain terms. Plaintiffs allege they entered “binding and
enforceable written employment contracts” with defendant. Plaintiffs attach these alleged
contracts to the complaint as Group Exhibit A. The Group Exhibit A documents are various
forms. Sandra Olson’s form is titled “New Hire or Rehire Form”. It shows a position title of
Esthetician and a pay rate of “50% commission or $9.75/hr.” Melissa Woodall’s form is titled
“Employee Status & Change Notice”. It shows a position title of Esthetician. The pay rate line
is left blank. A box marked “Commissioned” is checked. Jennifer Knop’s form is titled “New
Hire or Rehire Form”. It shows a position title of Hair Stylist, the pay rate line is blank, and the
“Commissioned” box is checked. Lindsey Johnson’s4 form is titled “New Hire / Rehire Team
Member Information”. It shows a job title of Stylist. On the line labeled “Hourly Rate” the

4

The name on the form is “Lindsey Aron Larcom” but presumably this is the form of
plaintiff Lindsey Johnson.
3

word “Commission” is written. Suzanne Treadwell’s5 form is titled “Employee Status Change”.
It shows a position of Stylist. On the “Pay rate” line the “Commission” box is checked.
Only Olson’s form contains a specified pay rate of a 50% commission or $9.75 per hour.
The other plaintiffs’ forms only indicate “commission” or “commissioned”. Plaintiffs maintain
that the course of performance of these contracts showed that the commissions were to be paid
on gross independent retail sales not on gross independent retail sales less shop charges.
Defendant argues plaintiffs have not pled the existence of a valid and enforceable contract.
Under Illinois law, the “elements of a claim for breach of contract are (1) the existence of
a valid and enforceable contract; (2) substantial performance by the plaintiff; (3) breach of
contract by the defendant; and (4) resultant injury to the plaintiff.” Avila v. CitiMortgage, Inc.,
801 F.3d 777, 786 (7th Cir. 2015). An expanded statement of the elements, breaks down “the
existence of a valid and enforceable contract” into three constituent parts: “(1) offer and
acceptance, (2) consideration, [and] (3) definite and certain terms” to go along with the other
three elements of “(4) performance by the plaintiff of all required conditions, (5) breach, and (6)
damages.” Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547, 560 (7th Cir. 2012). Defendant
argues plaintiffs’ complaint shows the absence of “definite and certain terms” in the alleged
contracts.
Plaintiffs allege they entered binding and enforceable written contracts– the documents
attached as Group Exhibit A. While Olson’s form contains a pay term of a 50% commission or
$9.75 per hour, the other plaintiffs’ forms only indicate that pay is on commission. They do not
indicate a commission rate, on what the rate is based, or any other basis for discerning what the
plaintiffs, other than Olson, would be paid. Olson’s form likewise does not indicate on what the
commission is to be based. None of these forms contains any other terms of a contractual
relationship other than an indication whether the employee is full time or part time. The
documents do not contain any provision as to the duration of the alleged employment contract.
In sum, the documents attached to the complaint as Group Exhibit A, do not contain definite and
certain terms from which an obligation to pay plaintiffs a 50% commission on gross retail sales
without any deduction for shop charges can be deduced. The Group Exhibit A forms are not
written contracts.
But, plaintiffs did work for defendant so the terms of employment can be found
somewhere. “[A]n employer and an employee, by acting in a manner consistent with an
employment agreement, can set the material terms of the agreement, including the amount of
compensation.” Landers-Scelfo v. Corporate Office Systems, Inc., 827 N.E.2d 1051, 1059 (Ill.
App. 2005). So, the terms of an employment agreement can be found from the employer and
employees’ course of action. Plaintiffs’ allege they were paid a commission on gross
independent retail sales6 until the shop charges were instituted– somewhere between September
14, 2006, and July 28, 2009. Plaintiffs, therefore, have alleged facts consistent with them being

5

The name on the form is “Suzanne Stejskal” but presumably this is the form of plaintiff
Suzanne Treadwell.
6

They do not allege the commission rate for each plaintiff but do reference the 50%
commission rate for Olson appearing in her Group Exhibit A form.
4

paid on commission based on gross retail sales. Could defendant alter this method of
compensating plaintiffs?
“Employment contracts in Illinois are presumed to be at-will and are terminable by either
party; this rule, of course, is one of construction which may be overcome by showing that the
parties agreed otherwise.” McInerney v. Charter Golf, Inc., 680 N.E.2d 1347, 1349 (Ill. 1997).
Plaintiffs make no allegations in the complaint that the parties agreed otherwise. They do not
allege a term of employment was agreed to nor that any process was required for terminating the
employment relationship. The Group Exhibit A documents do not contain any provisions to take
the employment relationship outside at-will status. Based on the pleadings, plaintiffs were atwill employees.
“When an employment agreement is terminable at will, it may be modified by the
employer as a condition of its continuance.” Geary v. Telular Corp., 793 N.E.2d 128, 131 (Ill.
App. 2003). “This right to modify unilaterally at-will employment terms applies to modifying
compensation terms.” Id. “When an at-will employee continues to work after a change in
commission plan, he is deemed to have accepted the change.” Id.
Plaintiffs contend that even if they were at-will employees, the institution of shop
charges was still unlawful because defendant “failed to provide any reasonable notice of the
detrimental wage deductions.” The complaint alleges they did not “receive written notification
from Lifetime of what the ‘shop charges’ are, why they were implemented, when they would be
implemented, or how it would impact their compensation.” They argue that since “they were
unaware of the terms, the plaintiffs were unable to assent, even implicitly, to their commission
changes.”
Plaintiffs cite Baker v. Internap Network Servs. Corp., No. 09 C 875, 2010 WL 3834003
(N.D. Ill. Sept. 23, 2010) in support of their argument. However, Baker involved an employee’s
claim that she earned her commissions before her employer decided to reduce them. The court
in Baker distinguished the plaintiff’s situation there from the situation where the change is
prospective. “An employer can unilaterally modify the terms of an at-will employee’s
employment prospectively, and the employee ‘accepts’ that ‘offer’ when he continues to work
for the employer under the new terms.” Baker, 2010 WL 3834003 at * 4. But, “such changes to
compensation terms cannot be applied to commissions already earned.” Id.
The complaint alleges that shop charges began being deducted at some point between
September 14, 2006 and July 28, 2009. Plaintiffs commenced this action in state court on
December 28, 2015. Plaintiffs do not allege when in the six to nine year period between the
implementation of the shop charges and the commencement of this case that plaintiffs learned
the shop charges were being subtracted before their commissions were calculated. Once
plaintiffs became aware of the change, as at-will employees, they “accepted” the modified terms
by continuing to work thereafter. Kamboj v. Eli Lilly & Co., No. 05 C 4023, 2007 WL 178434,
* 9 (N.D. Ill. Jan. 18, 2007). However, they may have a claim for the period in which they were
unaware the shop charges were being subtracted before their commissions were calculated. Id. If
plaintiffs choose to file an amended complaint, they need to identify when, approximately, each
of them learned of the shop charge being applied. Count I is dismissed without prejudice.
Count II invokes the IWPCA. The complaint alleges the application of shop charges was
an unlawful deduction from plaintiffs’ wages in violation of 820 ILCS 115/9. Defendant argues
a change in how commissions are calculated is not a deduction under the IWPCA. However,
5

whether or not the application of shop charges was a deduction may not be relevant as the
allegations of the complaint suggest plaintiffs may be able to state a claim for failure to timely
pay all wages earned for certain time periods. 820 ILCS 115/3 & 4. As noted in the preceding
paragraph, even as at-will employees, plaintiffs may be able to plead that prior to learning of the
application of shop charges, they had an agreement with defendant which required them to be
paid a commission based on gross retail sales calculated without the application of shop charges.
While the present complaint does not contain any such allegations, plaintiffs may be able to
plead such facts in an amended complaint. Count II is dismissed without prejudice.
Count IV seeks (in the alternative if the Count III FLSA claim fails) to recover on a
breach of contract theory for defendant’s failure to pay plaintiffs (other than Olson) for
mandatory training time. Plaintiffs allege that the nature of the employment agreements between
them and defendant was that plaintiffs would be paid at least minimum wage for training time.
They allege, on information and belief, that various managers “informed and assured the
Plaintiffs that they would be paid for training time.” Defendant argues these allegations are
insufficient to show a contract requiring payment for mandatory training.
Plaintiffs’ Count IV does not allege “enough facts to state a claim to relief that is
plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). In order to be
plausible, plaintiffs need to provide facts to show that someone from defendant actually
promised them before they underwent the training that they would be paid for doing so. As
currently alleged, plaintiffs say only that some unidentified managers at some unspecified time
informed them they would be paid for the training. The complaint does not say if this occurred
before or after the training or after some of the training but before other training. There is no
allegation from which an offer of payment to undergo the training can be inferred. Without
allegations to support an offer and acceptance, no contract to pay for training has been pled. See
Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547, 560 (7th Cir. 2012). Count IV is dismissed
without prejudice.
For the foregoing reasons, defendant’s motion [38] to dismiss is granted. The corrected
first amended complaint [37] is dismissed without prejudice. Plaintiffs are given leave to file an
amended complaint on or before November 14, 2016.
Date: 10/13/2016

ENTER:

United States District Court Judge
Electronic Notices. (LC)

6