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Employee vacation benefits at termination-MD legislature action

Maryland Legislature Acts to Clarify Employer Duty to Pay Vacation Benefits When Employees Exit

In direct response to the Catapult Technology case, the Maryland Legislature passed a bill aimed to clarify an employer's obligation.  Senate Bill 797 allows employers to adopt policies regarding employee leave and to restrict the employer's obligation to pay that leave when employees leave.  This limitation is qualified, though, by requiring the employer to disclose the policy to the employee at the beginning of employment.  The governor has thirty days to act on the bill.

Most employers are aware that they must pay employees all "wages" earned at the time of termination.  Accrued benefits such as vacation can be "wages" under Maryland law.  There are various forms of compensation that are included in the definition of "wages".  Some examples of compensation that might be payable, depending upon the circumstances, are vacation time, sick time, bonuses, commissions, and future wages pursuant to an employment contract.

Until recently, the Maryland Department of Labor Licensing and Regulation had declared that vacation time was considered wages.  Notwithstanding, an employer could have a written policy stating that an employee forfeited his or her vacation time upon termination to avoid the obligation.  After the ruling in the Catapult Technology case, the guidance, and the DLLR position, changed.  The DLLR’s regulatory guidance now states that “when an employee has earned or accrued his or her leave in exchange for work, an employee has a right to be compensated for unused leave upon the termination of his or her employment regardless of the employer's policy or language in the employee handbook.”  Based upon the court ruling, the DLLR change in position, and the resulting potential conflict and change in the law, the Legislature acted.

In the unreported Court of Special Appeals opinion of Catapult Technology LTD. v. Wolfe, the court  held vacation time is payable upon termination.  In the case, the employer, Catapult Technology, had an Employee Handbook which stated that if an employee did not provide two weeks notice prior to resignation, the employee would forfeit all rights he or she had in universal leave which had accrued.  Wolfe resigned from his employment without giving the two weeks notice as required and Catapult, therefore, failed to pay Wolfe his accrued vacation time.   Wolfe filed a complaint for violation of Maryland’s wage payment laws.   The Court said that since employees “earn” unused and accrued vacation time in exchange for work, vacation time is considered a wage that must be paid upon termination.  Any policy which states otherwise is invalid.  This court cited other cases from the Maryland Court of Appeals related to other employment fringe benefits, such as incentive payment, as precedent. 



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