Last week, the Maryland Court of Appeals issued its opinion in Peters v. Early Healthcare Giver, Inc. a case that dramatically shifts the terrain of Maryland wage and hour law in employees’ favor. September Term 2013, No. 86 (Md. Aug. 13, 2014). Most significantly, Peters holds that employees suing for unpaid overtime may now be able to recover three times the amount of overtime at issue for a period of three years prior to filing suit. It is imperative for employers to understand the significance and immediate ramifications of this decision.
In Peters, the court broke new ground on, and otherwise clarified, several issues surrounding the Maryland Wage Payment and Collection Law (WPCL), including: (1) whether unpaid overtime claims may be brought under the WPCL; (2) how courts should resolve the issue of whether there is a bona fide dispute over the unpaid wages; and (3) the scope of damages that may be awarded. The three holdings are summarized below:
- Employees May Pursue a Claim for Unpaid Overtime Under the WPCL
Prior to the Peters decision, it was widely accepted that the Maryland Wage and Hour Law (WHL), the state’s analogue of the Fair Labor Standards Act (FLSA), provided a vehicle for the entitlement to wages, i.e., for employees to bring claims for unpaid overtime to which they were entitled. The WPCL, on the other hand, existed primarily to ensure timing of wages, i.e., that an employee received his or her final paycheck promptly upon termination, by providing a cause of action for treble damages. As a result, courts (especially federal courts) had, in a long line of decisions, held that claims for treble damages for unpaid overtime were not permitted under the WPCL. See, e.g., Mclaughlin v. Murphy, 372 F. Supp. 2d 465, 474-75 (D. Md. 2004); Williams v. Maryland Office Relocators, 485 F. Supp. 2d 616, 621-22 (D. Md. 2007).
The Court of Appeals rejected this line of decisions and held that an employee may sue under both the Wage and Hour Law and the Wage Payment and Collection Law for overtime that is still owed to the employee after termination. As the Court stated:
We echo, hopefully for the final time, that both the WHL and the WPCL are vehicles for recovering overtime wages. Without a doubt, [the employee] has a right to bring a private cause of action under the WPCL to recover any unlawfully withheld overtime wages.
- Employee Not Automatically Entitled to Treble Damages
While holding that employees may sue for unpaid overtime under the WPCL, the Peters court was careful to note that an employee who prevails may recover treble damages, but such an award is not automatic. First, treble damages may not be awarded if the court finds that there was a bona fide dispute about whether the wages were, in fact, owed to the employee. As established by Maryland case law, a bona fide dispute exists where the employer actually believed that it did not owe the wages to the employee, and that that belief is objectively reasonable. The Court ruled that the employer has the burden of producing evidence of a bona fide dispute, while the employee bears the burden of ultimately persuading the court that there was no such dispute.
Second, the Court of Appeals confirmed that a trial court has discretion to not award treble damages, even if it finds there was no bona fide dispute. Nevertheless, the Court of Appeals did “encourage ” trial courts to account for “the remedial purpose of the WPCL” when issuing damage awards
- Only Treble, Not Quadruple, Damages Available
Finally, the Court rejected the claims of the employee that the WPCL authorized treble damages in addition to the unpaid overtime, for a total of four times the unpaid wages. After reviewing the history of the WPCL – namely, that its purpose was to substitute a private right of action for the suits previously brought by the Commissioner of the Department of Labor and Industry for up to three times the unpaid wages – the Court concluded that “the total amount of damages an employee may recover under the WPCL is three times the unpaid wage.”
Takeaways for Employers With Maryland Operations
The Peters opinion gives potent ammunition to employees and their attorneys who pursue claims for unpaid overtime. Whereas employees could previously only seek up to the amount of unpaid wages or, at most, double that amount under the FLSA, they may now make a legitimate claim to three times the unpaid overtime under the WPCL. The very real prospect of a treble damage award will make these cases more lucrative to plaintiff’s lawyers. Moreover, because a prevailing plaintiff is entitled to recover his attorneys fees if he brings a companion FLSA claim (and perhaps even without the federal claim), it may be worth it for a plaintiffs lawyer to hold out for a substantial settlement. To paraphrase the Court of Appeals, employers should, without a doubt, ensure that they are either (1) paying time-and-a-half for all hours of overtime that an employee works (and keeping records for 3 years, accordingly), or (2) not paying overtime for a good-faith reason, supported by law, that they can articulate to both an opposing lawyer and, if necessary, a judge and jury.
One final thought from the Editor of this blog. The Peters decision moves Maryland into the small minority of states that allow employees to recover damages for unpaid overtime that exceed the double damages available under the FLSA. While plaintiffs’ lawyers may view this as a victory for employees, it will be a pyrrhic victory if businesses leave (or refuse to locate to) Maryland because it is perceived as having unusually burdensome business regulations. With Virginia’s lower tax rate and less onerous employment laws beckoning, we may soon hear that “giant sucking sound” of exiting jobs that Ross Perot famously described in the 1992 Presidential debate.