Maryland Enacts New Law Limiting the Payment of Accrued Leave Upon Termination

Maryland recently amended its Wage Payment and Collection Law, Md. Code §§ 3-501et seq., in a manner that affords employers a powerful statutory defense to employee lawsuits for monetary compensation and/or trebled damages for not compensating a departing employee on termination for accrued unused leave.  As amended, the Maryland law now provides that an employer’s written leave policy will dictate whether or not the employee is entitled upon termination to recover accrued unused leave provided the leave policy was communicated to a new employee at the time of hire.  It provides no shield to employers that do not have a written policy that limits compensation for accrued leave to a terminated employee.

The amendment, which codifies Senate Bill 797, effectively overrules a 2007 Maryland appellate court ruling.  That case, Catapult Technology, Ltd. v. Wolfe, No. 997 (Ct. Spec. App. 2007), concluded that accrued unused leave is a “wage,” within Maryland’s Wage Payment and Collection Law, that necessarily must be paid upon termination, even where an employee handbook expressly limits compensation for accrued leave to a terminated employee.  The case was deliberately not published by the intermediate appeals court that decided it, rendering it of dubious value from the standpoint of legal precedent.  Remarkably however, regulators charged with administering Maryland’s wage and hour laws immediately embraced its conclusions.  They abandoned their longstanding regulatory position that the determination of whether unused leave is payable at termination turns on whether the employer has a written policy that limits compensation for accrued leave on discharge or resignation from employment.

As a result of the enactment of S.B. 797, the Maryland Division of Labor and Industry’s newly updated Web site provides that the answer to the question of whether unused vacation is payable at termination “depends on the employer’s written policy, and whether this policy was communicated to the employee at the time of hiring.”

Moreover, the enactment of S.B. 797 provides employers, in a time of considerable economic unrest, with necessary tools to counter the inclination of plaintiffs’ lawyers to bring collective actions under the Maryland Wage Payment and Collection Law for trebled damages (and attorneys’ fees) based on alleged failure to pay accrued unused leave at termination.  By way of illustration, the Catapult Technology case, which the new law effectively overrules, was brought as a collective action in Montgomery Circuit Court on behalf of 14 former employees.  After resigning en masse and without notice to work for a direct competitor, they sued and were awarded monetary compensation for their accrued unused leave.  They prevailed in their lawsuit despite clear language in their employee handbooks mandating the forfeiture of their accrued but unused leave if they failed to provide at least two weeks notice upon resignation.  The new law restores the efficacy of such a limitation provided the leave policy is written and is communicated to employees at the outset of employment.

Additional Information

For more information about the new Maryland law as well as advice on compliance, please contact the Ogletree Deakins attorney with whom you normally work or the Client Services Department at 866-287-2576 or via email at clientservices@ogletreedeakins.com.

Note: This article was published in the April 30, 2008 issue of the Maryland eAuthority.