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Out of State Employers May Be Liable Under Maryland Payment and Collection Law

A recent decision of Maryland’s high court may result in more lawsuits here against out-of-state employers as their local employees choose to stake their wage claims on Maryland’s more favorable statute.

Maryland Wage Payment and Collection Law enables employees to sue for unpaid compensation, such as salary, commissions, bonuses, and vacation pay. The statute applies to “employers,” but does not specify whether employees of out-of-state companies who work in Maryland may invoke it. This issue can be especially problematic for employers with facilities in Virginia, D.C., or Maryland and employees who work part-time in another one of those states because the laws in those jurisdictions impose different requirements for paying employees and provide different remedies. 

For example, the D.C. wage payment law requires employers to pay all unpaid compensation within 24 hours after an employee terminates employment. If the employer fails to do so, the D.C. statute imposes liquidated damages computed at 10% of the amount of the unpaid compensation per day, up to a maximum of double that amount.

The Maryland statute on the other hand, requires employers to pay former employees by the end of the next payroll period following their termination, but employees may recover three times the amount of unpaid compensation if the employer fails to comply with that requirement. An employer may avoid liability for those additional amounts, but only if a bona dispute existed about whether employee was actually owed the unpaid compensation.

Cunningham v. Feinberg, a case recently decided by the Maryland Court of Appeals, illustrates the problem confronting employers. A law firm hired an attorney, who spent most of his time working at its office in Northern Virginia, to handle cases litigated in courts in Maryland. After plaintiff’s employment terminated, he sued the law firm in Maryland under the Maryland statute governing unpaid compensation. 

In response, the law firm argued that its former employee’s claim could be maintained only under the Virginia wage collection law because the employment agreement at issue had been executed there. The Virginia law, unlike the D.C. and Maryland statutes, does not allow employees to sue to enforce it or to recover sums in addition to the unpaid compensation. An employee may only sue the employer for breach of contract or file a claim with the Virginia Department of Labor and Industry, which may levy a civil fine on the employer, payable to the state, not the employee. The Court of Appeals rejected the law firm’s argument on grounds that the Maryland statute advances an important public policy of protecting employees who work in Maryland. 

As a result of the decision, employees who work in more than one state may invoke whichever wage payment law is most favorable to them, and employers must comply with the most stringent requirements imposed by one of the potentially applicable statutes. Employers must keep abreast of all of those laws in order to avoid unexpected liabilities for unpaid compensation. 

In that regard, the recent decision imposes a substantial administrative burden on employers whose employees spend time working in Virginia or D.C., in addition to Maryland. Moreover, the court’s emphasis on the strong public policy being advanced by the Maryland statute probably precludes employers from avoiding application of that statute, even if an employment contract provides that it is governed by the law of another state.    

For more information please contact Mike Smith at 410-583-2400 or smith@bowie-jensen.com

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