Employer's Incentive Plan Violates South Carolina Wage Act

A state appellate court recently ruled that an employer which made incentive plan payouts to employees on dates different than the general target payout dates set forth in the plan violated the South Carolina Payment of Wages Act’s requirement that employers specify the “time and place of payment” of wages.  According to the South Carolina Court of Appeals, providing estimated “target dates” of payment, which the employer later admitted served “no purpose whatsoever” and were used only as a general guide, does not give employees sufficient notice.  Ross v. Ligand Pharmaceuticals, Inc., No. 4190, South Carolina Court of Appeals (December 21, 2006).

Factual Background

Richard Ross was employed by Ligand Pharmaceuticals, Inc.  After Ross was promoted to Regional Business Manager, he participated in the Oncology Regional Business Managers Plan (RBM Plan), which provided incentive compensation based on trimester sales.  The plan required, however, that employees be employed at the time the trimester payouts were distributed in order to be eligible for a payout.  According to the RBM Plan, payouts would be distributed after the end of each trimester according to an “estimated schedule.”  This schedule provided for the first payout on the “target date” of June 30, 2003, the second on October 31, 2003, and the third on February 28, 2004.

Ross worked during the second trimester (which ended on August 31, 2003) and satisfied all requirements for a $12,000 incentive for third trimester work except one: he was not employed, in good standing, at the time the incentive payout was distributed.  Despite the RBM Plan’s “target date” of October 31 for second trimester payouts, Ligand Pharmaceuticals did not distribute payouts until after November 15.  Since Ross was no longer employed by Ligand Pharmaceuticals in November at the time of payout, the company declined to pay him the $12,000.

Ross filed suit arguing that Ligand Pharmaceuticals’ refusal to pay his incentive payout breached an employment agreement created by the RBM Plan and violated the South Carolina Payment of Wages Act.  The Charleston County Circuit Court held that Ligand Pharmaceuticals breached the employment agreement and that the RBM Plan violated the Act.  As a result, the court awarded Ross $36,000 as treble damages, $18,000 in attorneys’ fees, and $837.60 in costs.  Ligand Pharmaceuticals appealed.

Legal Analysis

Section 41-10-30 of the South Carolina Payment of Wages Act requires employers to notify employees in writing of the “time and place” of wage payment.  Ligand Pharmaceuticals argued that it had complied with this time and place requirement since it had provided target dates in the RBM Plan.  The South Carolina Court of Appeals found, however, that while the RBM Plan provided for payouts according to its estimated schedule of target dates, Ligand Pharmaceuticals admitted that that it frequently distributed checks after the target dates.  Ligand Pharmaceuticals also admitted that, to be eligible for payout, employees must be employed on the date checks are distributed, which could have been later than the target dates, and which was entirely at the company’s discretion.  Thus, the court concluded that Ligand Pharmaceuticals did not provide employees with a definite time that payment would occur.  As a result, the court held that Ligand Pharmaceuticals failed to satisfy the “time and place of payment” requirements of section 41-10-30 and affirmed the decision of the lower court. 

Ligand Pharmaceuticals also argued that even if it had violated the Act, treble damages and attorneys’ fees were inappropriate.  The court upheld the treble damages and attorneys’ fees awards, however, holding that Ligand Pharmaceuticals’ failure to pay the incentive payout on the target date was “arbitrary and unreasonable.”

Practical Impact

According to Stephen Woods, a shareholder in Ogletree Deakins’ Greenville office: “All South Carolina employers with incentive, bonus or commission plans should review these plans to ensure they include a specific payout date or time period.  Bringing plans into compliance is relatively easy.  Likewise, the downside of not modifying your plans is significant, since these cases – with their treble damages and attorneys’ fees – are very attractive to plaintiffs’ lawyers.”  

Note: This article was published in the June 2007 issue of the South Carolina eAuthority.