Unpaid Bonuses Lead to Big Legal Headache – and Seven-Figure Award

Sometimes, the payment of bonuses is at the discretion of the employer. But at other times, bonus payments are required under the terms of an applicable employment agreement. When that is the case – and the bonuses aren’t paid – employers can find themselves in some pretty serious trouble.

A case from South Carolina shows just how costly it can be for employers to improperly withhold employee bonuses. A state appeals court upheld a verdict of more than $1.5 million in back pay for underpaid bonuses.

Bonuses Dispute: How It All Started

Paul David Hess, a nurse practitioner, started working at Dr. Elizabeth Morphis’ pediatric clinic at the start of 2009.

In 2010, he signed a written employment agreement that set an annual base salary of $100,000. The agreement said any bonuses would be paid “at the discretion of the board” or as determined by an appendix. In turn, an appendix said that as long as Hess “[met] criteria as decided upon by the board,” he would get an annual bonus equal to half of the clinic’s net profits.

Morphis was the board’s sole member.

Boss: Let’s Do Something Different Here

In 2015, Morphis approached Hess to talk about changing the bonus to 5% of the clinic’s gross revenues. After a meeting, Morphis’ accountant sent her a spreadsheet showing both gross revenues and net income – but sent a different spreadsheet to Hess that omitted the net income information.

Near the end of 2015, Hess signed a new agreement that changed his annual bonus from 50% of the clinic’s net income to 5% of its gross revenues. He said Morphis’ accountant told him he would get about the same bonus under the new agreement.

It didn’t work out that way. For example, Hess received a bonus of $70,000 for 2015. He later found out that the clinic’s net income that year was more than $500,000.

For 2010 through 2014, Hess was paid annual bonuses of $75,000, $25,000, nearly $47,000, $48,000 and $48,000.

Did Employer Hide Key Information?

Something smelled funny to Hess, especially in light of the identical bonus amounts for two straight years. He said that when he asked to see financial reports, Morphis did not grant him access to them. He also said that when he asked the accountant if he was getting half the profits while the 2010 agreement was in effect, the accountant told him he could not divulge that information to him.

Morphis terminated Hess’ employment. He sued her and the clinic to allege a violation of the South Carolina Payment of Wages Act. He also alleged other claims, including breach of contract and fraud.

He said Morphis did not pay him the full bonuses he was owed under the 2010 agreement and wrongfully withheld the financial information that he sought.

Morphis testified that her husband told her that he thought Hess was being overpaid and that she thought she had been “fair” to him.

A jury awarded Hess nearly $550,000 in actual damages and added $475,000 in punitive damages.

From Bad to Worse for Employer

Hess decided to forego the punitive damages award because the state wages act permitted treble damages as well as attorneys’ fees.

The trial court granted the request for treble damages, attorneys’ fees, costs and prejudgment interest. It awarded Hess about $1.6 million in damages, nearly $157,000 in attorneys’ fees, about $9,600 in costs, and about $407,000 in prejudgment interest.

Morphis appealed the awards, while Hess appealed the trial court’s decision to award attorneys’ fees at a lower hourly rate than he sought.

The state appeals court ruled in favor of Hess.

It rejected Morphis’ argument that Hess waited too long to file his claim under the wage payment act. A three-year limitations period applied, the court noted, and there was conflicting evidence on the question of whether Hess knew or should have known he had a viable claim under that law more than three years before he sued.

In particular, there was evidence that Morphis withheld financial information from Hess and thus prevented him from knowing that he was not being paid properly under the 2010 agreement, the appeals court said.

The appeals court also rejected the argument that annual bonuses were discretionary under the 2010 agreement. It said the language of that agreement suggested that Morphis was obligated to pay half of the clinic’s profits per the appendix. And the fact that he was paid some bonus for each of the contested years showed that he met the criteria to receive a bonus, the appeals court added.

Whether Morphis followed the bonus calculation method in the 2010 agreement was for the jury to decide, the appeals court said.

The appeals court also upheld the award of treble damages because there was evidence to support the finding that Morphis did not have a good-faith basis to dispute the amount of the bonuses Hess was owed.

Finally, the appeals court agreed that Hess’ attorney was entitled to a higher hourly rate, resulting in an increased attorneys’ fee award of $215,475.

Bonuses: Takeaways for Employers

This case is an important reminder for employers to be sure of the distinction between discretionary and non-discretionary bonuses.

Assuming that all bonuses are discretionary is a huge mistake. Generally speaking, a bonus is discretionary only if the employer has sole discretion to decide whether to pay the bonus and set its amount – and there is no existing agreement to pay it.

Nondiscretionary bonuses include those that are agreed to by written agreement and paid, for example, based on a predetermined formula.

The case is also a strong reminder to make sure employment agreements are crafted in clear and careful terms. The disputed agreement here spoke in terms of discretionary bonuses but also set forth a formula that clearly called for the payment of an annual bonus.

Remember: If you are the one drafting an agreement, ambiguities in language will be resolved against you. Words matter, and a deal is a deal. In this case, what is sometimes kindly referred to in the law as “inartful drafting” (translation: bad writing) came back to haunt the employer.

Hess v. Morphis Pediatric Group, No. 2022-001589 (S.C. Ct. App. 7/9/25).