Miller v. Zimmer Inc
Filing
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OPINION AND ORDER granting defendant's 33 Partial Motion to Dismiss and Count II of Plaintiff's Complaint is DISMISSED WITH PREJUDICE. Signed by Chief Judge Philip P Simon on 8/14/2012. (rmn)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
HAMMOND DIVISION
MATTHEW MILLER,
Plaintiff,
v.
ZIMMER, INC.,
Defendant.
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3:12-cv-223
OPINION AND ORDER
This is a relatively straightforward breach-of-contract case that raises a less-thanstraightforward question of law. Matthew Miller is a former employee of Zimmer, Inc. While
he was still an employee, the parties entered into a non-competition agreement by which Miller
agreed he would be restricted from working for some of Zimmer’s competitors for a period of
twelve months after he left Zimmer. In return, Miller would continue to be paid compensation
during those twelve months, provided that certain necessary conditions were met. This
agreement was tested when Miller resigned from Zimmer last year. Miller petitioned Zimmer
for compensation pursuant to the agreement. Zimmer provided Miller one payment but then
abruptly stopped. Miller argues this was a breach of contract, and Zimmer responds that Miller
was not meeting the necessary conditions. So a classic breach-of-contract case is now teed up
for discovery. So far, so good.
But this case gets more complicated when Miller’s second cause of action is considered.
Miller argues that Zimmer’s failure to make payments to him violated the Indiana Wage
Payment Statute. Zimmer has moved to dismiss that count, arguing that any post-employment
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payments made under the non-compete agreement could never be considered “wages” under the
Wage Payment Statute. As explained in detail below, I agree with Zimmer that these payments
do not constitute wages under the Wage Payment Statute and will therefore grant its partial
motion to dismiss.
BACKGROUND
All of the following factual background comes from the Amended Complaint [DE 25-1],
which I must accept as true in the context of a motion to dismiss. Miller started as a Sales
Representative with Zimmer around May of 2010 and then approximately a year later he
voluntarily resigned. Prior to his resignation, the parties had entered into an Agreement entitled
“Zimmer Spine-Confidentiality, Non-Competition and Non-Solicitation Agreement for Sales
Managers and Representatives” (the “Agreement”). This was a non-compete agreement with a
twist: if Miller was denied specific employment due to the non-compete clause, and if Miller
satisfied other conditions specified in the agreement, then Zimmer would provide Miller with
monthly payments equal to his monthly base pay plus commission for up to twelve months. All
of this was detailed in Section 9 of the Agreement. Here is what it says:
To the extent Employee is denied a specific employment position that would
otherwise be offered to Employee by a Competing Organization solely because of
the restrictive covenant provisions of Section 7 of this Agreement, and provided
Employee satisfies all conditions stated herein, then upon expiration of the period
of time represented by any severance benefits Employee was offered, Company
will make payments to Employee equal to Employee’s monthly base pay and
commission at the time of Employee’s separation from Company employment
(exclusive of any other extra compensation and any other employee benefits) for
each month of such unemployment through the end of the Restricted Period, with
commission based on a twelve (12) month average for the most recent twelve (12)
full months immediately preceding Employee’s separation from Company
employment. Employee is obligated to diligently seek and pursue replacement
employment . . .
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After eligibility for non-competition period payments is established, Employee
will, on or before the 15th day of each month of eligibility for continued
payments, submit to Company a written statement (I) identifying by name and
address all prospective employers with whom Employee has applied or inquired
about employment; (ii) identifying employment positions sought or applied for
with each listed employer and specific actions taken in seeking each position; (iii)
describing all other efforts made to obtain replacement employment; and (iv)
describing any offers of employment received . . . .
[DE 25-1 at 2-4.]
In mid-May of 2011, before he resigned, Miller got an offer to work from one of
Zimmer’s competitors. He communicated that offer to Zimmer and asked if it intended to
enforce the Agreement. The response from Zimmer was apparently unclear. Regardless, at the
end of May he resigned and invoked Section 9 of the Agreement so that he could receive
monthly payments in the event Zimmer chose to enforce the Agreement. A few days later,
Zimmer sent a letter to Miller stating: “Zimmer declines to waive any restrictions under your
Agreement and, accordingly, you may not accept this proposed employment without violating
your ongoing contractual obligations to Zimmer.” [DE 25-1 at 3.] The letter further stated that
“upon receipt of your written confirmation that you have declined this offer of employment by
Archer, we will issue an initial non-competition period payment to you in accordance with
Section 9 of the Agreement, for the period commencing May 27, 2011 through June 15, 2011.”
[Id.]
Miller submitted the necessary written confirmation, and Zimmer paid him for that initial
period. Things went sour after that, however. Miller submitted another written confirmation on
July 15, 2011, which he believes met the requirements of Section 9 of the Agreement, but
Zimmer refused to make any further payments to him. Miller thus initiated this action, arguing
that Zimmer owes him payments from June 15, 2011 “through the end of the Restricted Period,”
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as stated in the Agreement.
The issue before me now is whether this set of facts establishes a claim for relief under
the Indiana Wage Payment Statute. In other words: Do payments made under a non-compete
agreement constitute “wages” under that statute?
DISCUSSION
When considering whether to dismiss a complaint for failure to state a claim upon which
relief can be granted, I assume all factual allegations in the complaint to be true, viewing all facts
– as well as any inferences reasonably drawn therefrom – in the light most favorable to Plaintiff.
Parish v. City of Elkhart, 614 F.3d 677, 679 (7th Cir. 2010). The analysis in this case is
simplified because the sufficiency of the factual allegations themselves are not really in dispute.
Rather, the dispute is whether those facts state any viable legal theory. Such cases, where there
is a pure question of law challenging the legal as opposed to the factual sufficiency of a
complaint, are particularly prime candidates for disposition at the motion to dismiss level.
Chudasama v. Mazda Motor Corp., 123 F.3d 1353, 1367 (11th Cir. 1997).
In considering questions of state law that arise in diversity cases, the Court must decide
the questions as it predicts the Indiana Supreme Court would decide them if the case were before
it. Woidtke v. St. Clair County, Illinois, 335 F.3d 558, 561-62 (7th Cir. 2003); Research Sys.
Corp. v. IPSOS Publicite, 276 F.3d 914, 925 (7th Cir. 2002). If the state’s highest court has not
directly ruled on an issue – as is the case here – intermediate appellate decisions ordinarily
provide a strong indication of how the highest court would rule unless there is a persuasive
reason to believe otherwise. IPSOS Publicite, 276 F.3d at 925; General Accident Ins. Co. of
America v. Gonzales, 86 F.3d 673, 675 (7th Cir. 1996).
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As noted, the question is whether the payments Miller alleges he is due constitute
“wages” under the Indiana Wage Payment Statute which reads in relevant part as follows:
(a) Every person, firm, corporation, limited liability company, or association,
their trustees, lessees, or receivers appointed by any court, doing business in
Indiana, shall pay each employee at least semimonthly or biweekly, if requested,
the amount due the employee. The payment shall be made in lawful money of the
United States, by negotiable check, draft, or money order, or by electronic
transfer to the financial institution designated by the employee.
(b) Payment shall be made for all wages earned to a date not more than ten (10)
business days prior to the date of payment. . . .
Ind. Code § 22-2-5-1.
The Wage Payment Statute was first passed during the Great Depression and is “designed
to insure the regularity and frequency of wage payments.” Wilson v. Montgomery Ward & Co.,
Inc., 610 F. Supp. 1035, 1038 (N.D. Ind. 1985). Looking at the statute pragmatically, it’s
obvious that the Indiana General Assembly was thinking about garden-variety wages paid to
employees in the normal course of business and almost certainly wasn’t contemplating the more
esoteric situation this case presents. This intuition about the legislature’s likely intent can hardly
be dispositive of this case. All sorts of difficult issues have arisen with respect to whether
various types of payments fall under the statute – e.g., severance packages, bonuses,
commissions, vacation pay – and we still need to fully analyze whether the non-compete
payments here could be considered wages. Nevertheless, the obvious intent of the statute does
present a fairly high initial hurdle for Miller to overcome.
The first issue is whether the non-compete payments even constitute wages. To begin
with, the Wage Payment Statute doesn’t define the term “wages.” Miller argues that, in light of
this omission, “the courts look to the definition of ‘wages’ within Indiana’s Wage Claims Act . . .
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Ind. Code § 22- 2-9-1(b) [where] wages are defined as ‘all amounts at which the labor or service
rendered is recompensed, whether the amount is fixed or ascertained on a time, task, piece, or
commission basis, or in any other method of calculating such amount.” [DE 38 at 6.] Zimmer
disputes that the Wage Claims Act is relevant here, and there is good reason to be skeptical about
the merits of applying it to the Wage Payment Statute, as Judge Lee of this Court explained in
detail:
Wilson has argued repeatedly that the amount promised is a wage because it falls
within the broad definition of “wages” set out in I.C. 22-2-9-1, which defines the
term as “all amounts at which the labor or service rendered is recompensed,
whether the amount is fixed or ascertained on a time, task, piece or commission
basis, or in any other method of calculating such amount.” However, I.C.
22-2-9-1 does not purport to define the term for all Indiana wage statutes; in fact,
it is part of an Act dealing with wage claims that was passed in 1939, while the
Act which created I.C. 22-2-5-1 was passed in 1933. Wilson’s counsel mistakenly
believes that these two statutes are somehow related simply because they appear
together in the statute book. In fact, I.C. 22-2-9-1 specifically limits the
definitions to the 1939 Act.
Wilson, 610 F. Supp. at 1038.
Notwithstanding Judge Lee’s persuasive take on the matter, both the Indiana Supreme
Court and the Seventh Circuit have applied the Wage Claims Act to the Wage Payment Statute,
so I will follow their lead. See Thomas v. H & R Block E. Enters., Inc., 630 F.3d 659, 664 (7th
Cir. 2011); Highhouse v. Midwest Orthopedic Inst., P.C., 807 N.E.2d 737, 739 (Ind. 2004). It is,
moreover, a bit of an academic point, since the definition of wages contained in the Wage
Claims Act is hardly crystal clear itself. So even when courts do reference it in the context of the
Wage Payment Statute, it is then generally quickly brushed aside in favor of the extensive
Indiana caselaw interpreting the statute. For example, in Thomas, the Seventh Circuit cursorily
referenced the definition of wages in the Wage Claims Act, but then essentially ignored it in
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favor of the various factors used by Indiana courts to figure out what “wages” means under the
Wage Payment Statute. See Thomas, 630 F.3d at 664 (“Indiana courts consider a variety of
factors to guide their determination of whether compensation . . . constitutes a wage.”).
I will thus focus my attention to the Wage Payment Statute caselaw as well. The Indiana
courts have been clear that for a payment to be a wage under the statute it must have “accrued
during an employee’s tenure” and “be connected to the work performed by the employee.”
Wank v. St. Francis College, 740 N.E.2d 908, 912 (Ind. Ct. App. 2000). As the Indiana Supreme
Court put it, a wage “is compensation for time worked and is not linked to a contingency such as
the financial success of the company.” Highhouse, 807 N.E.2d at 740. This legalistic definition
comports well with the commonsense notion of wages: a wage is “[a] payment to a person for
service rendered. . . . The amount paid periodically, esp. by the day or week or month, for the
labour or service of an employee, worker, or servant.” Oxford English Dictionary (2d ed. 1989),
available at http://www.oed.com.
Indiana courts have thus been more likely to find that payments are “wages” when they
1) are not linked to a contingency, 2) directly relate to the time that an employee works, 3) are
paid on a regular periodic basis for regular work done by the employee, and 4) are not paid in
addition to other, regular wages. Thomas, 630 F.3d at 664-65. Under this structure, courts have
found that, for instance, vacation pay earned each week by an employee but deferred until a later
time and contributions to a retirement savings plan can both constitute wages. See Jeurissen v.
Amisub, Inc., 554 N.E.2d 12, 13 (Ind. Ct. App. 1990); Johnson v. Wiley, 613 N.E.2d 446, 450
(Ind. Ct. App. 1993).
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Bonuses and severance payments present an interesting and instructive middle ground.
When a bonus or severance payment is directly tied to services the employee performed for the
employer, it is a wage. See, e.g., Jackson v. Arvinmeritor, Inc., 2008 WL 64528 at *6 (S.D. Ind.
2008) (severance payments constituted wages because they were “not contingent on anything
other than the length of the employee’s service” and thus were “explicitly tie[d] ... to the
performance of services”); Gurnik v. Lee, 587 N.E.2d 706, 710 (Ind. Ct. App. 1992) (bonus
constituted a wage).
On the other hand, when a bonus or severance payment is not directly tied to services the
employee performed for the employer, it is not a wage. See, e.g., Firestone v. Standard
Management Corp., 2005 WL 1799442 at *3 (S.D. Ind. 2005) (severance payment is not a wage
because it could not be paid “during the period of employment”); Design Industries, Inc. v.
Cassano, 776 N.E.2d 398, 403-04 (Ind. Ct. App. 2002) (severance payment does not constitute a
wage under Indiana’s wage statute if the payment is not tied to regular work performed by the
plaintiff and the severance is not deferred compensation in the same manner as vacation pay);
Pyle v. National Wine & Spirits Corp., 637 N.E.2d 1298, 1300 (Ind. Ct. App. 1994)
(compensation that was not linked to the amount of work done by the employee was a bonus, not
a wage); Jeurissen, 554 N.E.2d at 13 (concluding that bonus based on the financial success of
the employer and not linked to regular work done on a periodic basis by employee was not a
wage).
Given all of this caselaw, its clear to me that the non-compete payments at issue in this
case do not constitute wages under the Wage Payment Statute. The non-compete payments
neither “accrued during [Miller’s] tenure” nor were they “connected to the work performed by”
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Miller. Wank, 740 N.E.2d at 912. In fact, it is exactly the opposite: they payments accrued
after Miller’s tenure and were connected to the fact that he was no longer performing work. The
whole point of the payments is that he was no longer employed by Zimmer or anyone else for
twelve months.
Miller argues that payments still depended on his labor – he still had to actively seek
employment not in violation of the non-compete and had to submit a monthly written report
outlining his efforts – and that therefore he was essentially still working. As Miller puts it, he
had to “engage in labor and services in order to continue to receive the non-compete payments.”
[DE 38 at 10.] But this turns things upside down. If one accepts Miller’s view of things, the
process of demonstrating that one is not working amounts to proof that one is working. This
strikes me as an exceedingly odd way to view the concept of work.
But even if I were to accept it, Miller still cannot prevail. This is because one of the keys
for the Wage Payment Statute is that an employee engages in labor and services as an employee
– and the non-compete payments only started when he was no longer an employee. Under these
circumstances, it is a stretch to view Miller’s time spent looking for work with Zimmer’s
competitor to be “time worked” for Zimmer. Highhouse, 807 N.E.2d at 740. Miller also cites to
cases interpreting wages in the context of military retirement pay (In re Haynes, 679 F.2d 718
(7th Cir. 1982)) and in the context of wage payment statutes from other states (Raffaelli v. Advo,
Inc., 218 F. Supp. 2d 1022 (E.D. Wis. 2002) and Goodyear v. Pennsylvania Steel Foundry &
Mach. Co., 1999 WL 1540562 (Pa. Com. Pl.)). But even if I found the analysis of wages in
those cases persuasive, it’s hard to see how or why I would credit it over the already discussed
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wealth of caselaw specific to Indiana’s Wage Payment Statute, which includes decisions both
from the Indiana Supreme Court and the Seventh Circuit.
Therefore, the non-compete payments Miller claims he was due under the Agreement
with Zimmer do not constitute wages under the Indiana Wage Payment Statute.
CONCLUSION
For the foregoing reasons, Defendant’s Partial Motion to Dismiss [DE 33] is GRANTED
and Count II of Plaintiff’s Complaint is DISMISSED WITH PREJUDICE.
SO ORDERED.
ENTERED: August 14, 2012
s/ Philip P. Simon
PHILIP P. SIMON, CHIEF JUDGE
UNITED STATES DISTRICT COURT
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