MARYLAND COURT HOLDS ACCRUED LEAVE MUST
BE PAID OUT UPON TERMINATION
The Maryland Court of Special Appeals, in an unreported
decision, rejected the previously well established rule
in Maryland that employers may, by policy, deny payment
for accrued, unused leave at termination. Although unreported
decisions are technically not binding authority, lower courts
are likely to follow the decision anyway, unless it is reversed
by the Court of Appeals. Failure to pay accrued vacation
due at termination without any bona fide dispute permits
a jury to award treble damages and attorneys’ fees.
Facts of the Case: In Catapult
Technology LTD v. Wolfe, the plaintiffs resigned from
their jobs without providing two weeks notice. They were
denied pay for their accrued, unused leave because, under
company policy, employees who resigned without notice forfeited
their accrued leave. The employees sued the company, claiming
the policy violated Maryland’s Wage Payment and Collection
Act because fringe benefits (such as leave) are wages and,
by law, all wages must be paid at termination. The employer
countered that companies may, by policy, set the terms under
which fringe benefits are earned and paid. The trial court
granted summary judgment in favor of the employees. Although
company witnesses (including the General Counsel of Catapult)
testified that the pay was withheld based on the company’s
understanding of Maryland law, the trial Court permitted
a jury to impose treble damages.
The Court’s Ruling: The
Court of Special Appeals upheld the trial court’s
ruling on the employee’s legal entitlement to pay
for the accrued leave, but rejected the jury’s award
of triple damages because there was a bona fide dispute
about the entitlement. Because employees’ accrued
leave was based on the number of hours they worked, the
leave was “promised for service.” Once accrued,
the leave constituted wages that could not be withheld at
termination. In addition, because Maryland’s wage
law does not permit its provisions to be waived by private
agreements, company policy could not be used to invalidate
the entitlement to the wages. The Court rejected a federal
court’s contrary interpretation of Maryland law, as
such cases do not bind Maryland State courts in their interpretation
of Maryland law. However, the Court found that the employer’s
reliance on this authority created a bona fide dispute about
the wages due, and thus the jury should not have been permitted
to assess triple damages.
Lessons Learned: The ruling
is significant because it is a departure from what Maryland
practitioners (and even the Maryland Department of Labor,
based on its web site), had presumed to be the law. Although,
as noted, it is not binding authority, employees who are
denied pay for unused, accrued leave at termination likely
will cite it. Accordingly, employers need to review their
leave policies. Notably, a policy that does not distinguish
between vacation and sick leave would under this rule require
an employer to pay employees for all accrued leave at termination.
Sick leave, however, is distinguishable from other paid
leave, since it is typically provided for use only in the
event of illness. Employers that have not previously distinguished
between sick leave and vacation leave should consider whether
to separate these types of leave. Finally, employers that
operate in multiple jurisdictions should also be aware that
whether leave is subject to forfeiture by company policy
(and what type of leave may be forfeited) varies from state
to state.
Shawe
Rosenthal, LLP provides this publication for informational
purposes, and it should not be construed or relied upon
as legal advice. You should contact your Shawe Rosenthal,
LLP lawyer to discuss any questions that you may have concerning
your own situation.
|
