A 1099 and a separate LLC put $200,000 in payouts beyond wage-law reach
A North Carolina court has ruled that profit-sharing routed through an employee's own company isn't protected "wages," narrowing a former manager's claims.
The July 30, 2026 decision from the North Carolina Business Court signals something for anyone who designs pay: how a company structures and pays out bonuses or profit-sharing can decide whether state wage law protects those payments.
The case involved a former plumbing operations manager at Efincia Construction, a limited liability company (LLC). His offer letter set a salary plus profit-sharing - 15% of profits from customers developed by current management and 50% of profits from customers or projects he brought in himself, per the court's account of the letter.
Months into the job, the manager set up his own limited liability company, and every profit-sharing payment then went to that company, not to him personally. The payments came by check, with a final wire in August 2022, and were reported to tax authorities on a Form 1099 as nonemployee compensation. His company took in roughly $200,000. His salary, by contrast, was paid to him directly, reported on a W-2, and run through payroll withholdings.
That contrast decided the case. After he resigned in August 2022 and sued, he argued the unpaid profit-sharing was "wages" under the North Carolina Wage and Hour Act. The court disagreed. For more than five years, both sides had treated the profit-sharing as the income of a separate company the manager himself created for that purpose - while treating his salary as ordinary employee pay. That course of dealing, the court held, showed the payments were not wages owed to an employee. It granted the employer summary judgment - a ruling issued without a trial - and dismissed the wage claim.
The employer also defeated a claim for unfair and deceptive trade practices. The court said the manager's evidence, even if true, described a contract dispute over how payments were calculated and withheld - not the "forged documents, lies, and fraudulent inducements" the law requires to make a broken contract an unfair-practices claim.
Not everything went the employer's way. The manager's breach of contract and quantum meruit claims survived and are headed to trial, so whether he is owed that money remains open - a point the court expressly left undecided.
For HR and compensation teams, the lesson is practical. Paying incentive pay to an employee's separate entity, on a 1099, can move those dollars outside wage-law protections - which cuts both ways. Make each pay component's tax and payment treatment deliberate and consistent, because courts read that pattern as what the parties intended.
