Maryland Enacts Emergency Legislation Regarding Leave Pay Outs

Eric Paltell
Eric Paltell

On April 24, 2008, Governor O’Malley signed into law Senate Bill 797.  This emergency legislation, which was drafted by the author and takes effect immediately, returns to Maryland employers to right to have a written policy which determines whether or not unused leave time must be paid to a departing employee.   The legislation reverses the effects of a 2007 unpublished court decision and subsequent change in policy by the Maryland Department of Labor, Licensing and Regulation (“DLLR”).

As we have previously reported, in August 2007, the Maryland Court of Special Appeals issued an unpublished decision which held that accrued, unused paid time off (“PTO”) must be paid to employees upon termination, regardless of what the employer’s policy said about payment of unused leave to terminating employees.  The Court’s decision in Capapult Technology Ltd. v. Wolfe was contrary to established Maryland law, where both judicial and administrative guidance had long permitted employers to determine whether and when accrued but unused leave time would be paid to the departing employees.  Shortly thereafter, in November 2007, the DLLR reversed its position and adopted the Court’s holding in Catapult as its position in the Maryland Guide to Wage Payment and Employment Standards.

Following the DLLR’s change in position, many of our clients contacted us to express their concerns about the impact of the change in the law on their business.  Nonprofits with generous leave policies now faced the prospect of being required to pay out substantial unused leave balances to departing employees, as well as the obligation to carry these balances as accrued liabilities on their books.  Some clients were concerned that any employee who quit or was terminated in the three years preceding the change in the law might now file suit to recover their unpaid leave, as well as triple damage penalties and attorneys’ fees.  Other employers asked us to help them limit liability by revising their policies to limit the amount of leave employees could accrue.  The result of the Catapult decision and the change in DLLR position was that both employers and employees suffered, as companies faced the prospect of a new liability, while employees would be given less leave and less flexibility in using their leave.

As a result of our client concerns, I decided to ask the Maryland Chamber of Commerce’s Employment Relations Committee (on which both Darrell VanDeusen and I sit) to consider finding a sponsor in the Maryland General Assembly who would support a legislative effort to reverse the effects of the Catapult decision and the DLLR change in policy.  As those of you who are familiar with Maryland politics know, getting pro-business employment legislation through the Maryland General Assembly is no easy task.  Nevertheless, we succeeded in getting bipartisan sponsorship from Senators John Astle (Democrat) and Allan Kittleman (Republican), and we teamed with the Maryland Association of Non-Profit Organizations, the Chesapeake Human Resources Association, and the Maryland Chapter of the Society of Human Resources Management (“SHRM”) to draft legislation and lobby the General Assembly.  Much to our pleasant surprise, the legislation passed the Senate and the House unanimously, and was declared an Emergency Bill, meaning that it takes effect on the date that it was enacted (April 24, 2008).

Under the provisions of the new law, an employer is required to give notice of leave benefits to employees at the time they are hired.  If the employer gives such notice to employees, and the employer has a written policy that places limits on the circumstances under which unused leave will be paid to employees at termination, then that written policy governs a departing employee’s right to unused leave.  On the other hand, if the employer does not have a written policy in place, or fails to give notice of leave benefits to employees at the time they are hired, then the employee is entitled to be paid for accrued but unused leave (exclusive of sick leave) at termination.  Because of the emergency nature of the legislation, the law also provides that, if an employee was terminated on or after November 1, 2007, but prior to April 24, 2008, the employee is not entitled to accrued leave at termination if the employer had a written policy placing limits on the payment of accrued leave at termination and the policy was communicated to the employee prior to his or her termination.  For a copy of the new legislation, click here.

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