What You Should Know About This Recent Supreme Court of NC Decision

The Supreme Court of North Carolina handed down a decision that has important implications for employment litigation. The case (Morris v. Scenera Research, LLC, No. 429PA13) was a double threat in that it answered two novel legal questions under both North Carolina’s Wage and Hour Act (NCWHA) and the Retaliatory Employment Discrimination Act (REDA).

What happened

  • Defendant Scenera Research offered a patent bonus program to its employees, under which Plaintiff Robert Morris and others were to receive $5,000 for every patent application submitted to the U.S. Patent and Trademark Office and another $5,000 if a patent was issued.
  • The bonus program was suspended at a time when Morris was owed $210,000 in bonuses for submitted patents, as well as some undetermined, additional amount in bonuses for patents to be issued at some future date. After some time of nonpayment, Morris threatened to sue to recover the $210,000 under the North Carolina Wage and Hour Act.
  • When Morris’s employment terminated on June 17, 2009, there was some question as to whether Morris quit or was fired. Morris argued that Scenera terminated his employment in violation of the North Carolina Retaliatory Employment Discrimination Act (i.e., for threatening to sue for the unpaid bonuses).
  • The Supreme Court upheld an award of $1.935 million to Morris. The damages included $210,000 for unpaid bonuses for submitted patents, $675,000 for unpaid bonuses for issued patents, and $390,000 for REDA violations, as well as $450,000 in attorney’s fees and $210,000 for liquidated (double) damages for the unpaid bonuses for submitted patents. (Morris was not awarded liquidated or treble damages for the unpaid bonuses for issued patents and REDA violations.)

Why it’s important

At the level of dollars and cents, the massive award serves as a valuable reminder of the unique provisions in the North Carolina Wage and Hour Act and the Retaliatory Employment Discrimination Act that provide for the awarding of attorney’s fees, costs, and the doubling (and/or tripling) of damages.

Getting beyond the amount of the award, the decision is important for two reasons—it provides answers to questions about the definitions of both “calculable” wages under the North Carolina Wage and Hour Act and the “willfulness” of violations under the Retaliatory Employment Discrimination Act.

“Calculable” Under NCWHA

The North Carolina Wage and Hour Act states, “Employees whose employment is discontinued for any reason shall be paid all wages due on or before the next regular payday…Wages based on bonuses, commission or other forms of calculation shall be paid on the first regular payday after the amount becomes calculable when a separation occurs.” Courts in North Carolina have interpreted the NCWHA to require an employer to pay “those wages and benefits due when the employee has actually performed the work required to earn them.”

The facts of the case raised questions about when bonuses were due for issued patents (as opposed to submitted patents). In other words, could Scenera calculate the amount it owed Morris in patent issuance bonuses, as of the date his employment ended, for patents to be issued, if at all, at some later date by the U.S. Patent and Trademark Office? Morris argued at trial that this amount could be calculated using his historical success rate of 90% of patent applications resulting in a patent being issued. (With 150 outstanding patents x $5,000 for each successfully issued patent x 90% patent issuance success rate = $675,000.) The jury agreed and awarded Morris $675,000.

On appeal, the Court of Appeals referenced a dictionary that defined “calculable” as “that which can be calculated or estimated.” Before the Supreme Court, Scenera argued that “calculable” under the NCWHA does not mean capable of being estimated, as this would result in impermissible speculation as to future wages.

The Supreme Court disagreed with Scenera and upheld the award, finding that the question of whether the amount owed to Morris was “calculable” was a question of fact for the jury and that Morris had met his burden of proof.

The effect of the Court’s decision is that an employer cannot avoid paying a terminated employee on the basis that the amount owed cannot be calculated with precision. So long as the amount can be estimated, an employer should pay the employee in order to avoid potential liability under the NCWHA.

“Willfulness” Under REDA

The second question answered by the Court related to what conduct involves a willful violation of the Retaliatory Employment Discrimination Act. REDA provides that if “the court finds that the employee was injured by a willful violation of [the section prohibiting discriminatory or retaliatory action by an employer] the court shall treble [i.e., triple] the amount awarded.”

The Supreme Court of North Carolina had not previously addressed the definition of “willful” in the context of REDA. The Court in Morris held that a willful violation of REDA “requires a showing of the accused party’s knowledge or reckless disregard of whether an action violated the statute.”

More importantly, the Supreme Court clarified that willfulness under REDA is a question of fact, but one for the court, not the jury, to decide. This somewhat-unusual arrangement was based on the Court’s textual reading of the statute, which references that damages will be tripled if “the court finds that the employee was injured by a willful violation.” The Supreme Court upheld a finding of no willfulness by Scenera, applying the “competent evidence” standard.

The effect of the Court’s ruling is that it places increased power in the hands of judges (not juries) to determine the important question of whether to triple damages under REDA for willful violations. The designation of judges in REDA cases will be an issue of increased concern to attorneys following the Morris decision.

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