Maryland Employers Need To Review Vacation Pay Policies
By Eric Paltell
For many years, Maryland employers have operated on the assumption that they were not required to pay employees all accrued buy unused vacation at termination. However, two recent developments in Maryland law have called this practice into question, and require that employers revisit how they handle the payout of unused leave at termination.
In August 2007, the Maryland Court of Special Appeals -- in an unpublished, non-precedential decision -- ruled that accrued, unused paid time off (PTO) constitutes a "wage" under the Maryland Wage Payment and Collection Law and must be paid to employees upon termination. The Court’s decision in Catapult Technology Ltd. v. Wolfe, No. 997 (August 20, 2007) was a dramatic departure from established Maryland law, where both judicial and administrative guidance had permitted employers to determine whether and when accrued but unused leave time would be paid to departing employees.
The initial reaction to the Catapult Technology case was one of only mild concern, since the case was unpublished. Then, in late 2007, the Maryland Department of Labor, Licensing and Regulation (“DLLR”) revised its “Maryland Guide” to track the Court of Special Appeals holding in Catapult Technology. The Guide now states:
When an employee has earned or accrued his or her leave in exchange for work, an employee has a right to be compensated for unused leave upon the termination of his or her employment regardless of the employer's policy or language in the employee handbook.
See http://www.dllr.state.md.us/labor/wagepay/wpunusedvacpay.htm.
So what should an employer in Maryland do? First, keep in mind that there is no binding court decision requiring that accrued vacation be paid at termination, nor is there a statute that clearly requires such payments. Also keep in mind that – as the Catapult Technology court stated – “DLLR’s guidance is certainly not law.” Nevertheless, we should expect that employees will rely on the Catapult Technology case and the recent change in position by DLLR to argue for payment of all accrued but unused leave (except sick leave) at termination. Under Maryland’s Wage Payment & Collection Statute, employees can recover three times the unpaid vacation pay, plus attorney’s fees, if they are not paid all accrued leave that they are entitled to at termination.
To protect against these claims, Maryland employers should give serious consideration to revising the way leave is characterized in employee policy statements. If a policy manual states that vacation pay is not earned, but rather that it is a benefit current employees are eligible to receive in return for continued employment, we believe that the employer may not have to pay out vacation at termination. The Catapult Technology court based its holding on the fact that PTO accrued based on the number of hours worked and therefore was an earned benefit which must be paid at termination. Likewise, DLLR’s Maryland Guide requires that leave be paid when “an employee has earned or accrued leave in exchange for work.” If the policy manual states that leave is not earned or accrued, we believe it may not be payable at termination.
We recognize that changing a policy manual to state that vacation is not an earned benefit may not be feasible for every employer. For example, many payroll systems show “accrued leave” on pay stubs; such practices would create the impression that leave is an earned benefit no matter what the policy manual says. If an employer is in a position where it is not practical to change a policy manual to eliminate references to accrued or earned leave, then the employer should consider eliminating PTO programs, providing for accrual on a weekly or monthly basis instead of allowing for immediate accrual at the beginning of the year, and instituting caps on accruals (meaning, for example, that once an employee has achieved a certain amount of accrued leave, he or she cannot accrue any more leave until their balance falls below this threshold amount).
We encourage all of our Maryland clients to take a look at their leave policies and prepare to revise them as needed to respond to these new developments. As always, we are available to provide assistance to our clients to determine which approach works best for their needs.
New Maryland Privacy Law Takes Effect January 1, 2008
There’s a new law in town: Maryland’s Personal Information Protection Act (PIPA) takes effect on January 1, 2008. This new law requires businesses to take steps to protect personal information of employee and customers and imposes significant obligations on any business that has personal information of persons living in Maryland. The biggest problem facing companies under the new law is that there is not entirely clear guidance on compliance. For example, while "Personal Information" is defined, along with requirements for access, destruction and the transfer of information to third parties (think your payroll management company), the notification requirements in case of a breach are both cumbersome and expensive. Yet, violation of the law is an unfair or deceptive trade practice, subject to enforcement and penalty provisions, including civil and criminal actions. And, by the way, waivers of the PIPA are not valid. Many companies already have protections in place. Does yours?
Maryland’s New Right To Sue For Discrimination In State Court
By Eric Paltell
On October 1, 2007, there will be a dramatic change in the way workplace discrimination claims are resolved in Maryland. After more than 40 years of being required to pursue these claims in federal courts, employees alleging employment discrimination will be able to bring a lawsuit in state courts -- a right they previously did not have unless they worked in Prince George’s, Howard, or Montgomery Counties.
The amendments to Article 49B, which were signed into law by Governor O’Malley last Spring and take effect October 1st,, also give Maryland employees the right to sue for alleged acts of discrimination that were previously not actionable. In addition to claims available under Title VII, the Age Discrimination in Employment Act (“ADEA”), and the Americans With Disabilities Act (“ADA”), Maryland law allows employees to sue for discrimination and harassment based on family status, marital status, and sexual orientation – categories not protected by federal law.
For Maryland employers, this change in the law requires that companies reassess the risks associated with an employment discrimination lawsuit. Unlike federal judges, most state court judges do not regularly hear discrimination cases. As a result, we should expect that, at least initially, state court judges may be less inclined to dismiss a case on summary judgment than their federal counterparts would be. This means employers face a greater likelihood that the case will go to trial, with the added investment of time and expense that goes with litigating in front of a jury.
We should also expect that, over time, Maryland will begin to develop a body of discrimination law that differs in some respects from federal law, just as has happened in New Jersey, Michigan, California, and other states that permit employees to sue for employment discrimination in state court. For example, in California, unlike under federal law, a disability need not “substantially” limit a major life activity to be protected – it is enough that it imposes some limitation on the employee. We should not be surprised if Maryland’s appellate courts eventually establish definitions of terms such as “hostile work environment” and “reasonable accommodation” that deviate from those established by the federal district and appellate courts.
One of the most immediate concerns about the new law is the absence of any statute of limitations on the filing of a discrimination suit. As presently drafted, the statute provides that an employee may file suit for discrimination so long as they have filed a charge of discrimination with some agency (federal, state, or local) and waited at least 180 days since the date they filed the charge. There is no requirement that the charge of discrimination be timely filed (in other words, it could be filed years after the alleged discrimination), and there is no deadline within which the employee must file suit. This means that employers could be faced with lawsuits challenging personnel decisions that occurred years earlier. However, the Maryland Chamber of Commerce (with the assistance of the author) is working with the statute’s drafters to introduce amendments in the next General Assembly session to address these issues. Our hope is that in 2008, the law will be amended to provide for a time frame within which a lawsuit must be filed, as well as a requirement that any charge of discrimination be timely filed as a prerequisite to filing suit under Article 49B.
So what should a Maryland employer do to prepare for the changes being wrought by the new private right of action under Article 49B? The following steps could go a long way towards minimizing an employer’s risk:
- Make sure your managers are trained (and retrained) in how to properly administer discipline and document performance issues;
- Review and revise your employee handbook to make sure that employees are put on notice of the company’s rules and expectations;
- Review and revise supervisory manuals which set forth the guidelines for disciplining employees, conducting evaluations, and administering company policies;
- Make sure that your company conducts periodic workplace harassment training. The training should be done at two levels -- one for managers, and a separate training program for staff. Keep records to show that employees have been trained;
- Make sure that any complaints of discrimination and harassment are promptly investigated. Where evidence of discrimination or harassment is found, take prompt and effective steps to correct the action; and
- Review and revise your document retention policies. This applies to both electronically stored information and hard copies. Although Maryland state courts have not yet adopted the federal standards regarding the preservation of electronically stored information, Maryland employers would still be wise to follow the federal standards to prepare for state court litigation.
The change in Maryland law does not mean that “the sky is falling” for employers. It does mean, as Bob Dylan would say, that “the times they are a changin’.” The sooner employers in Maryland take steps to prepare for and adapt to the new law, the better position they will be in to minimize their risk.
Kollman & Saucier, P.A., The Business Law Building, 1823 York Road, Timonium, MD 21093 Phone: 410-727-4300
Fax: 410-727-4391 © 2008 Kollman & Saucier, P.A. All rights reserved.
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