Like most states, North Carolina’s Wage and Hour Act imposes liquidated damages and attorneys' fee remedies for failure to pay promised wages. Last week, the North Carolina Supreme Court wrestled with characterizing work outside of an employee’s core duties as wages or some other form of compensation. Ultimately, the court determined that the alleged wages involved non-employment duties and therefore fell outside of the Wage and Hour Act’s scope.

In Talley v. Earth Fare 2020 Inc., the plaintiff was a former founder of the business who rejoined it following a bankruptcy filing. He was paid a small salary for these efforts, but he alleged that he had been promised stock options and a portion of investor funds for performing additional work intended to revive the company’s brand. He sued for breach of contract and sought liquidated damages under the Wage and Hour Act. A North Carolina Business Court jury found no breach of contract or violation of the Wage and Hour Act, but it awarded the plaintiff damages for unjust enrichment based on the work he performed. He appealed this decision to the state Supreme Court.

The North Carolina Supreme Court affirmed the verdict, rejecting the plaintiff’s claims that he was not paid promised wages. While the per curiam opinion did not provide a basis for this decision, two dissenting justices argued that the majority opinion made it appear that a breach of contract was a prerequisite for finding liability under the Wage and Hour Act.

One justice wrote a concurring opinion rejecting this reasoning, stating that the majority decision on the Wage and Hour Act claim was not based on the absence of a contract breach. Rather, in this situation, the plaintiff offered to perform additional work outside the course and scope of his employment in return for equity in the company. Even if there had been a meeting of the minds between the parties for this additional work, it was not employment and, therefore, was not subject to Wage and Hour Act liability. A contrary decision would lead to situations where employees could perform these additional duties and then sue under the statute even if the employer never agreed to compensate them for these services.

This decision may have limited impact for North Carolina companies. Outside of higher-level executives, employers generally cannot rely on characterizing some work as employment and other services as non-employment compensation. In most situations, all services performed by employees will be deemed within the scope of the Wage and Hour Act’s penalty provisions.

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