To Pay or Not to Pay: Maryland Legislature Addresses Common Employee Leave Issues

July 24, 2008

Two laws of particular importance to Maryland employers were passed by the Maryland General Assembly this past session. The first was intended to correct the confusion in Maryland law created by an unpublished 2007 decision of the Maryland Court of Special Appeals as to whether employees had to be paid their accrued but unused vacation upon termination. The second was intended to give employees flexibility in the use of employer paid time off in the event of an immediate family member’s illness.

However, regardless of whether you are a Maryland employer, the new provisions are illustrative of common leave issues that should be analyzed for each state where an employer has sited employees when determining whether updates to a company’s leave policies are warranted in light of applicable state law requirements.

Amendments to the Maryland Wage Payment and Collection Act

Effective April 24, 2008, Sections 3-504 and 3-505 of the Maryland Wage Payment and Collection Law (“WPCL”) were amended to address for the first time the issue of whether an employer must pay terminated employees for any accrued but unused leave upon termination. Specifically, like in many other states, the amended sections provide that an employer is not required to pay accrued leave to any employee if:

  1. The employer has a written policy that limits the compensation of accrued leave to employees;
  2. The employer notified the employee of the employer’s leave benefits in accordance with § 3-504(a)(1); and
  3. The employee is not entitled to payment for accrued leave at termination under the terms of the employer’s written policy.

Md. Code Ann., Lab & Empl. Art. § 3-505(b). In addition, Subsection 3-504(a)(1) was amended to require an employer to give employees information about leave benefits, in addition to notice of an employee’s rate of pay and payday, at the time of hire.

The Maryland Department of Labor, Licensing and Regulation’s Division of Labor and Industry (“DLI”) offers the following guidance on whether employers are required to pay unused vacation upon the end of their employment:

The answer to this question depends on the employer’s written policy, and whether this policy was communicated to the employee at the time of hiring. For example, if an employer informs employees in writing at the time of hiring that unused vacation leave will be lost or forfeited upon termination, then an employee will not be able to claim it. On the other hand, where the employer does not have a written policy that limits the compensation for accrued leave to a terminated employee, that employee is entitled to the cash value of whatever unused earned vacation leave was left — provided it was otherwise usable.

It had long been generally accepted under Maryland law that: (a) whether unused vacation was payable upon termination depended on the employer’s policy, and (b) unused vacation would not be payable if the employer had a clearly communicated policy that limits payment of vacation upon termination. That was also the DLI’s guidance on the subject. However, in August 2007, a panel of the Maryland Court of Special Appeals in Catapult Technology, Ltd. v. Wolfe held that accrued but unused leave constituted a wage that had to be paid upon termination under former Section 3-505. Though the decision was unreported, it received a significant amount of publicity and resulted in a change to the DLI’s guidance.

The amendments to the WPCL have been described as being intended to restore Maryland law to its pre-Catapult state, though it is not clear that they did so entirely. In addition, the amendments do not answer all questions related to the implementation and modification of leave policies, some of which likely will be answered only through litigation. However, what is clear is that, going forward, an employer can limit the payment of accrued but unused leave upon termination if it had a written policy to that effect that was communicated to employees at the time they were hired.

Maryland’s Flexible Leave Act

In April 2008, the Maryland Legislature also passed the Flexible Leave Act, which allows employees to use any sort of earned paid leave for the illness of the employee’s child, spouse or parent. The law does not define “illness.”

The law which goes into effect on October 1, 2008 will be codified through amendments to Sections 3-801 and 3-802 of the Labor and Employment Article of the Maryland Code. The current requirement of those sections — that an employer who provides paid leave to an employee following the birth of the employee’s child must provide the same paid leave to an employee when a child is placed with the employee for adoption — will remain in effect.

The Flexible Leave Act does not apply to Maryland employers that employ fewer than 15 individuals, but otherwise applies broadly to all employer-provided leave with pay, including sick leave, vacation time and compensatory time, whether provided under the terms of a collective bargaining agreement or pursuant to an employment policy, as long as it is earned. In addition, the Act provides that an employee who has earned more than one type of leave with pay may elect the type and amount of paid leave to be used. The law states specifically that it does not affect leave granted under the FMLA, though it clearly intermingles with FMLA leave.

The law also contains an anti-retaliation provision that prohibits an employer from taking adverse action against an employee who exercises rights granted under the law or who files a complaint or assists in an action for a violation of the law.

As with many state laws, the impact the Act will have on employers depends significantly on the employer’s particular leave policies and practices. For example, an employer that has a general paid time off policy that does not take into account the reason for requested leave will be affected less than an employer that maintains separate sick and vacation leave policies. Employers covered by this new Maryland law need to consider how the law impacts all of their policies and practices and modify those policies as necessary to bring them into compliance by October 1st. This includes, for example, attendance policies that may well be impacted by this law.

For assistance in analyzing your company’s wage and leave policies in light of these and other state law changes made throughout the United States as a result of new state legislative action in your region, please contact any member of the McGuireWoods Labor & Employment or Employee Benefits Teams.