When Statutory Notice Isn’t Enough Under State Wage Payment Acts

October 15, 2010

Like many states, the current South Carolina labor law poster outlines the following concerning the South Carolina Payment of Wages Act:

When an employee is hired, the employer must notify the employee in writing of:

  • the wages agreed upon
  • the normal hours the employee will work
  • the time and place wages will be paid
  • the deductions an employer may make from wages, including insurance

Changes to these terms must be in writing at least seven (7) calendar days before they become effective.

One common issue employers have in navigating the requirements of this Act and other similar state wage payment requirements is determining what a company must do to inform an employee about a reduction in pay. According to the South Carolina poster, it appears to be quite easy: the employer must simply give an employee written notice of the reduced wage seven calendar days before it goes into effect. However, in the recent case Mathis v. Brown & Brown of South Carolina, Inc., the South Carolina Supreme Court made a caveat to this requirement when it comes to employees who have employment contracts that outline their wage.

Case Background

In 2004, Brown & Brown, an insurance brokerage firm, offered Blair Mathis a position as sales manager in Greenville, S.C. The offer included a guaranteed salary of $110,000 in his first year of work with the company and $120,000 in his second year.

Approximately one year later in July 2005, Mathis’ supervisor informed him verbally that his salary would be reduced to $90,000 because Mathis failed to meet certain goals. The supervisor then confirmed the pay reduction on August 1, 2005 via letter, stating that it would take effect on August 8, 2005. Over Mathis’ objections, Mathis’ salary remained at $90,000 per year until his termination from employment at Brown & Brown in March 2006. Soon thereafter, Mathis sued the company under the South Carolina Payment of Wages Act for improperly reducing his wages.

SC Supreme Court Decision

Brown & Brown’s defense to Mathis’ claim was that the August 1, 2005 letter complied with the Act’s notice provision. Specifically, Section 41-10-30(A) of the Act provides:

Every employer shall notify each employee in writing at the time of hiring of the normal hours and wages agreed upon, the time and place of payment, and the deductions which will be made from the wages, including payments to insurance programs. The employer has the option of giving written notification by posting the terms conspicuously at or near the place of work. Any changes in these terms must be made in writing at least seven calendar days before they become effective. This section does not apply to wage increases.

(Emphasis added).

Although on its face it appeared that the company’s August 1 letter complied with the notice requirement of the Act, the South Carolina Supreme Court ultimately disagreed, holding that, in this instance, the letter alone was insufficient. To support this conclusion, the Court first analyzed Section 41-10-40(C) of the Act, which provides that “[a]n employer shall not withhold or divert any portion of an employee’s wages unless the employer is required or permitted to do so by state or federal law or the employer has given written notification to the employee of the amount and terms of the deductions as required by subsection (A) of § 41-10-30.”

The Court noted that the statute permitted the withholding or diversion of wages when, among other things, the employer gives written notice of the amount and terms of a deduction as permitted by § 41-10-30(A). However, the Court interpreted Brown & Brown’s alteration of Mathis’ salary as a reduction of salary – not a deduction (which the Court defined as the “taking away from a salary in order to fund some benefit”). Thus, the permitted reasons for noticed deductions did not apply. Further, the Court noted that because the employee in question had an employment contract, “[Brown & Brown] cannot comply with the Payment of Wages Act, while breaching the contract, simply by providing seven days notice” for the salary reduction. (Emphasis added).

Employer Take-Away

This holding is significant, because it highlights the fact that employers should be wary of unilateral changes to an employee’s wages, when his or her pay is determined by contract. Indeed, when this occurs, employees may be able bring a claim not only for breach of contract, but for violation of the applicable state’s wage and hour act as well (which often provides for payment of liquidated damages and attorneys’ fees above and beyond the lost wages at issue).
For further information or assistance in complying with your state’s wage and hour laws, please contact the author or any member of the McGuireWoods Labor and Employment Team.