Don’t Get Burned by the Maryland Wage Payment and Collection Act

Before Maryland employers promise employees anything of value, they should first consider the Maryland Wage Pay ment and Collection Act. Under the Wage Payment Act, any form of compensation due an employee for services performed is a “wage” and must be paid.

Usually, this is non-controversial: salaries, bonuses, or commissions are easily understood as wages. But under the Wage Payment Act, all fringe benefits or any other remuneration promised for service is also a “wage.” This expansive definition can unwittingly turn any number of employer promises into “wages.” A recent case from the Maryland Court of Special Appeals, Brian Blood v. Columbus US, Inc., shows the expansive reach of the Wage Payment Act.

A Wage or Not?

The Blood court held that salary continuation payments promised a former employee in a vice president contract (VP Contract) in exchange for an agreement not to compete following termination of employment was not a “wage” under the Wage Payment Act. The VP Contract signed 11years prior to the employee’s resignation, had a clause requiring the employer to pay Mr. Blood salary continuation payments if he honored a non-compete.

The company maintained it need not pay the salary continuation payments under the VP Contract because Mr. Blood re- signed and was not terminated. Mr. Blood sought to assert a lien for unpaid wages under Maryland’s wage lien law arguing that the salary continuation payments were wages that vested when he signed the VP Contract because they were a form of deferred compensation for services provided in the past. The company refused to pay and filed a complaint to deny the lien arguing that the compensation was not a “wage” as it was compensation for Mr. Blood’s compliance with the non- compete after his employment ended.

The Court’s Decision

In resolving the case for the employer, the Court of Special Appeals relied on two prior cases dealing with post-employment compensation promises: Stevenson v. Branch Banking and Trust Corp., 159 Md. App. 620 (2004) and Aronson & Co. v. Fetridge, 181 Md. App. 650 (2008).

The Stevenson court found a departed employee was not entitled to termination compensation because it was promised as a quid pro quo for the former employee’s compliance with the non-compete agreement signed with the company. The contract at issue in Stevenson expressly stated that the employee was not entitled to receive termination compensation if the employee violated the non-compete. This created an explicit quid pro quo agreement, and took the compensation outside the Wage Payment Act because it was not promised for Stevenson’s prior service to the company.

The Aronson court found that a former employee was entitled to termination compensation because his contract document tied the payment to his prior service to the employer. The contract in Aronson did not require the former employee to comply with his non-compete to receive the promised compensation. Rather, if the employee failed to abide by the non-compete, the company had a right to take a set-off from the post- termination compensation otherwise due. The set-off simply reduced the amount of termination compensation the former employee was entitled to for his prior years of service to the company. The compensation was, therefore, wages under the Wage Payment Act.

The Court of Special Appeals in Blood found that the VP Contract was different than the agreements in Stevenson and Aronson. Unlike the agreement in Aronson, the VP Contract had no set-off language. Unlike the agreement in Stevenson, the VP Contract had no express clause that prohibited Mr. Blood from recovering the termination compensation if he did not comply with the non- compete. Even without such express language, the Blood court found that Mr. Blood’s termination compensation was not “wages” because receipt of the compensation was tied to his refraining from competing with his prior employer after termination. Mr. Blood’s right to the compensation therefore was not a “wage” since the right vested when he honored the post-employment non- compete and not before.

Promising Compensation the Right Way

Blood, Aronson, and Stevenson provide a framework for employers when providing non-standard forms of compensation to employees.

Promises to provide employees anything of value tied to the employee’s service to the employer before termination are wages in Maryland and subject to the Wage Payment Act. A “wage” is not some- thing the employer can reconsider later without being subject to potential liability for treble damages and attorneys’ fees.

If the employer does not intend a promise to reward the employee for services performed, the employer should link its promise to pay to a quid pro quo exchange for a future post-termination act by the employee unrelated to the services provided by the employee to the employer prior to termination. Absent such a quid pro quo, the promised compensation is a “wage” under the Wage Payment Act earned by the employee when services are provided. Employers who do not intend for this result should structure their promises to employees accordingly.

Michael Neary is an employment attorney who works with businesses to prevent and defend against employee claims. For more information, contact him at 301-657-0740 or [email protected].