Choice of Law Provision Likely Unenforceable If It Causes a Maryland Employee to Forfeit Earned Wages

Choice of Law provisions are common in employment contracts and pay plans.  They state that the parties choose that a certain state's law (i.e., New York, New Jersey) will apply should there ever be a dispute over the meaning of the contract or pay plan. 

Maryland has several employee-favorable worker protection statutes, including the Maryland Wage Payment and Collection Law ("MWPCL").  The MWPCL allows employees to collect earned commissions and allows for triple damages if wages are withheld in bad faith. 

One could see how an employer might want to avoid the MWPCL.  One way an employer could do that is through a Choice of Law provision.  The employer could say, "This pay plan will be interpreted in accordance with Laws of New York [or some other law.]"  For many years, Court in Maryland enforced these provisions.

But in a case called, Cunningham v. Feinberg, the Maryland Court of Appeals stated the Maryland Legislature signaled that the policy underlying the MWPCL was so important that it could not be waived through a choice of law provision.  A good example of the effect this has had is this decision in Blanch v. Chubb & Sons, in which a Judge reversed herself on the application of a Choice of Law Provision because of Cunningham.

Bottom line, if you work in Maryland, the MWPCL applies to you.

Maryland Employees: Do Not Lose Earned Wages When You Change Jobs

I have written many times about the Maryland Wage Payment and Collection Law, the basic law that protects employee wages.  The Law states that employees are entitled to the wages that they earned. If an employer fails to pay earned wages, it could be liable for triple damages and attorney's fees.

Below are examples of earned wages that can be recovered in Wage Payment and Collection Law cases.

Commissions. A series of favorable Maryland decisions (reviewed here) state that if an employee performs the work necessary to earn a commission, he is entitled to it -- even if he or she has left the company

Bonuses. Did you do everything you could possibly do to earn the bonus? If so, you probably earned it and are owed it.

Severance. If severance is promised to entice an employee to take a job or to reward an employee for years of service, it likely falls under the category of earned wages.

Straight wages.  Did your employer just fail to pay?  You are owed your wages.

Overtime:  A recent amendment  includes overtime in the Law's definition of wages.

The Law can be enforced in three ways:

1.  You can file a lawsuit.  I recommend you consult a Maryland Employment attorney before doing so.

2.  You can file an administrative complaint with the Maryland Department of Labor (DLLR).  Instructions on how to file such a complaint can be found on the DLLR website.  

3. You can file a criminal complaint for a willful violation.  A warning:  I have not yet seen a criminal wage violation prosecuted.   My impression is that such claims are rarely prosecuted (since they are left to the civil process).

NOTE: Beginning in October 2013, Maryland employees can place a lien on their employer's property under the   Maryland Wage Lien Act.

Individual Owners of Corporations May Be Liable Under the Maryland Wage Payment and Collection Law

  The Maryland Wage Payment and Collection Law provides that employers must pay employees their earned wages on time.  An employer that violates the Law may be liable for triple damages and attorney's fees.   Lawyers have long debated whether a company's owners individually can be held responsible for failing to pay wages (in addition to holding the corporation responsible).  A recent decision holds that individuals can be liable if they control the employee's work.  Control can mean the power to hire and fire, set wages and schedules, and maintain records.  Hence, company-owners cannot hide behind a corporation when they control their employees but fail to pay them.  

Maryland's intermediate appellate court issued the decision.  I suspect there will be continued debate about the issue, which may end up before the Maryland Court of Appeals.    

How Much Does an Entry-Level Maryland Wage and Hour Investigator Make?

$28,434 - $44,520.




There are three ways to enforce the Maryland Wage Payment and Collection Law, the Law that allows Maryland employees to recover earned but unpaid wages.  The three ways are:

1. By filing a civil lawsuit; 
2. By filing a criminal complaint for a willful violation (I have never seen this done successfully); and
3. By filing a claim with the Maryland Department of Labor (the "DLLR").  The DLLR may assign an investigator to investigate your claim.  As mentioned, the DLLR currently is hiring an investigator and is offering a salary of  $28,434 to $44,520.  

Baltimore Business Journal Article on Non-compete Agreements (Subscription Required)

The Baltimore Business Journal recently published a pro-non-compete piece directed at small businesses.  No surprise there:  the BBJ is a business oriented publication.  The reporter, Jack Lambert, called me for the employee perspective on non-competes.  Here is the part of the interview that made it into the article:

When drafting non-compete contracts, employers should consider how great of a burden to put on their employees, said Jim Rubin, a principal of the Rubin Employment law Firm in Rockville. He said some businesses include jury waivers. Those are clauses that dictate where the case can be litigated. They also include requirements that employees pay the company's legal fees if they lose the case."All sorts of provisions are put in there that are really unfair," said Rubin, who represents employees in non-compete contract matters.

I wrote about unfair non-compete contract provisions in my last post.

Triple Damages Standard Under the Maryland Wage Payment and Collection Law

I recently won a verdict at a bench trial (no jury) that included enhanced damages under the Maryland Wage Payment and Collection Law. The Law allows an employee to recover up to three times the amount of earned unpaid wages. I am frequently asked what the standard is for awarding enhanced damages. The Law states that enhanced damages can be awarded if the employer withholds the money not as a result of a bona fide dispute. The Maryland Courts have interpreted this to mean that enhanced damages can be awarded if the employer withholds wages in bad faith. With any evidence of bad faith the issue should go to the jury.

How does this translate to a jury trial? Below is version of an instruction I suggested the Court give to the jury on this issue:

The Maryland Wage Payment and Collection Law authorizes employees and former employees to recover up to three times the amount of unpaid wages if the withholding of payment was not the result of a bona fide or good faith dispute.
If you rule in favor of the Plaintiff on his claims under the Maryland Wage Payment and Collection Law, you must determine whether the Defendant's refusal to pay the Plaintiff all or part of his earned commission, bonus, or severance was not the result of a good faith dispute.
An employer may be liable for treble damages for all or any portion of the amount claimed.
If you find that the withholding of all or part of the commission, bonus or severance was not the result of a good faith dispute, you may award up to three times the amount of the commission, bonus or severance that was not the result of a good faith dispute.

Court of Appeals Dismisses Hoffeld

As mentioned in a previous post, the Maryland Court of Appeals had agreed to review the most recent commissions case brought under the Maryland Wage Payment and Collection Law. The name of the case is Hoffeld v. Shepherd Electric. Our lower appeals court, the Court of Special Appeals, ruled that a salesman was not entitled to several commissions because the employer had not yet invoiced several deals. I helped draft a brief urging the Court of Appeals to review the decision to further define the rights that Maryland's salespeople have to their commissions in their pipeline when their employment terminates.

After oral argument, the Court of Appeals dismissed Hoffeld. The Court offered no explanation for its action. As a result the Court of Special Appeals decision is intact.

What does this mean?

1. Maryland salespeople still have the right to commission in their pipeline if they have completed the sales work necessary to earn those commissions.

2. The Court is likely to re-visit this area of the law when the right case comes around -- since Hoffeld was not the right case.

Satisfied Client -- Commissions Case Under the Maryland Wage Payment and Collection Law

Last year I worked very hard for a client suing his former employer for commissions under the Maryland Wage Payment and Collection Law. We settled the case on the courthouse steps toward the end of the year. Because we worked so hard on the case last year I am posting with his permission my client's very kind testimonial.

To Whom it May Concern:

I am writing this letter in support of Mr. Jim Rubin. I will preface this letter by saying that I had very high expectations of the attorney I hired for my case. The amount of commission money I had at stake was substantial, and the company that I worked for was putting all of their resources into their legal machine to prevent me from collecting the money I earned. I interviewed several employment attorneys before selecting Mr. Rubin to take on my case, and am confident I made the right decision.

As a commissioned sales representative fighting for unpaid wages, I knew I needed an advocate knowledgeable in employment law. The selected attorney needed to guide me through the legal process, and counsel me throughout this stressful and emotional process.

Mr. Rubin was organized, knowledgeable, confident, and prepared for the legal onslaught we faced. After a long and hard fight, we settled the case with my previous employer. I feel very strongly that my previous employer was more amenable to settlement knowing I had a good attorney that was going to present a very persuasive case. I am thrilled with the result, but would have liked to see Jim present the case he worked so hard preparing. I have no doubt that if we had to go the distance we would have had a favorable result.

As with most serviced based occupations (real estate agents, lawyers, dentists, etc.) everyone seems to have “someone” to recommend. I am fully confident in Jim’s ability to take care of my friends, family members or colleagues that require the services of a skilled employment attorney. It is a situation that I never hope to be in again, but I am glad I now have a very good “someone” if the need arises.

Best Regards,
AJW
Former Outside Salesman

My comment on Hoffeld v. Shepherd Electric

In my prior post I reviewed the recent decision issues by the Court of Special Appeals in Hoffeld v. Shepherd Electric. After a bench trial (no jury), the Court held that the plaintiff was not entitled to several commissions because the employer had not yet invoiced several deals. The Court apparently reasoned in part that because Hoffeld knew that invoicing was part of the sale, he was not entitled to a commission on deals Shepherd had yet not invoiced by his last day worked.

After reading the decision, my feeling and the feeling of several of my colleagues was that it was not entirely consistent with the seminal case in the area, McCabe v. Medex. Medex holds that an employer cannot tie the payment of commission to a condition unrelated to the work necessary to earn those commissions. Because it appears from the trial record that Hoffeld had done all the work necessary to earn several commission, tying commission to the invoice date appeared to be arbitrary.

Hoffeld asked the highest Court in Maryland, the Court of Appeals, to review the Court of Special Appeals decision. The Metropolitan Employment Lawyers Association (MWELA) and Maryland Lawyers Association (MELA) filed an amicus brief supporting Hoffeld's request. I co-authored the brief.

I am pleased to report that Court of Appeals granted Hoffeld's request and will review the decision issued by the Court of Special Appeals.

New Commissions Case issued by Court of Special Appeals

The Court of Special Appeals recently issued Hoffeld v. Shepherd Electric Co. There, Mr. Hoffeld worked for a wholesale and retail electrical supplier as an outside salesman. Shepherd Electric paid Mr. Hoffeld solely on commission. Shepherd Electric did not pay a commission until an order was shipped and invoiced. Mr. Hoffeld had continuing responsibilities from the date a customer indicated its intent to purchase through the date of delivery and invoice. Specifically, business requirements for a customer’s particular project frequently evolved in terms of the nature, amount, and/or prices of the goods specified, inevitably requiring adjustments to the original purchase order. Such changes required Mr. Hoffeld to perform additional work throughout the order interval, continuing those duties until the order is actually shipped. When Mr. Hoffeld quit, Shepherd Electric transferred his accounts to a new representative who received the entire commission at issue.


Mr. Hoffeld contended he was entitled to commission on several purchase orders that were not invoiced and/or shipped until after his termination. Shepherd Electric contended the commission was not earned until invoiced and paid.


The Court of Special Appeals ruled that the trial court did not commit clear error in finding that sales were made and commissions were earned when the orders were shipped and invoiced. According to the Court, commissions were not linked to the arbitrary factor of employment, but to a reasonable job requirement, i.e., Mr. Hoffeld’s continuing service to a customer. Of particular importance to the Court of Special Appeals was the fact that Shepherd Electric did not keep the commissions at issue, but paid them to another salesperson who assumed Mr. Hoffeld’s accounts. Notably, in Hoffeld, the Court of Special Appeals stated Shepherd Electric’s policy was properly scrutinized to ensure that it has not been used to circumvent the MWPCL. Indeed, an employer may not terminate an employee as pretext to avoid paying commissions. Such act would violate the Wage Payment and Collection Law.

Triple Damages Under the Maryland Wage Payment and Collection Law

I frequently represent salespeople seeking unpaid commissions under the Maryland Wage Maryland Wage Payment and Collection Law. I have written about this area of the law many times.

One important part of the Maryland Wage Payment and Collection Law is the provision that allows the Court to award triple damages if the plaintiff successfully proves his or her claims. If the jury finds that an employer withheld earned commissions “not as a result of a bona fide dispute,” the jury may award the employee an amount not exceeding 3 times the wage. The Court may then also award reasonable counsel fees and other costs. Under the provision, a claim for $25,000 may represent $75,000 or more of potential liability.

What does a plaintiff need to prove to get triple damages?

• Here is a brief on when employees are entitled to triple damages under the Maryland Wage Payment and Collection Law.

• Here are suggested jury instructions on triple damages.

Top Five Ways Employers Violate Maryland's Wage Laws

I am amazed at how creative employers can be when it comes to violating Maryland's wage laws. However, as my law practice continues to grow, several consistent wage violations continue to recur. In no particular order, here is what I see.

1. Employers fail to pay their non-exempt employees overtime when they work more than 40 hours in a week.
2. Employers misclassify their non-exempt employees as exempt from receiving overtime.
3. Employers misclassify their employees as independent contractors.
4. Employers fail to pay salespeople commissions in their pipeline when their employment terminates.
5. Employers fail to pay accrued vacation at termination.

How Employment Lawyers Charge Their Clients

Employment lawyers work to earn money. When an employment lawyer is evaluating a case his or her eyes are on the bottom line. "Can I service my client while making a profit?" is the question we are asking. Many cases come with laudable rewards in addition to money, including working to attain a measure justice for our clients. But do not kid yourself: lawyers work for money.

There are four ways a lawyer can charge: by the hour, on a flat rate, on a contingency-fee basis, or some combination therof. Choosing how to charge involves an evaluation of risk for both the attorney and the client.

Hourly billing -Most risky for client; Least risky for attorney.

The attorney keeps track of his or her time and send the client a bill for the hours worked. Because liability often is not readily apparent in employment law cases, many employment law attorneys require that the initial phase of the attorney-client relationship be based on hourly billing. In purely defensive cases, such as when an employer is claiming my client is violating a non-competition agreement, hourly billing is often the most rational choice. (Much has been written about hourly billing variants, such as value-based billing. I am keeping it simple for this article.)

Flat Rate -- Moderately risky to the client; Moderately risky to attorney.

Employment lawyers bill a flat rate for certain discrete tasks. For example, I have processed federal employee disability retirement applications on a flat rate. The client pays a set fee and does not need to worry about the amount of time I am spending on his or her matter.

Contingency Fee -- least risky to the client; most risky to attorney.

The attorney only recovers a fee if the client wins. For this reason, most employment attorneys will not consider a pure contingency fee relationship unless the employer's liability and ability to pay are clear. I generally only consider pure contingency fee arrangements in overtime, unpaid commissions, and accrued vacation pay cases.

Combination of Hourly, Flat Rate, and/or Contingency Fee.

The lawyer and client and agree to any combination of the above. For example, the lawyer and client may agree to hourly billing until the bills reach a certain dollar amount and then agree to convert the matter to a contingency fee relationship. The possibilities are infinite and require careful analysis of the merits of the claim and the possibility for settlement or success at trial.

Medex v. McCabe and Accrued Vacation

The Maryland Court of Appeals seminal wage payment and collection law decision is Medex v. McCabe. The rule of Medex is:

If an employee earns compensation he or she is entitled to it and an employer cannot arbitrarily require an employee to forfeit those wages.

The Court of Appeals reinforced Medex's holding in a severance case, Stevenson v. BB&T. The Court distinguished between severance an employee earns and severance an employer gives the employee for something other than his or her labor (such as in exchange for a covenant not to compete or in exchange for a waiver of claims). Earned severance is subject to the Wage Payment and Collection Law; unearned severance is not subject to the Wage Payment and Collection Law. (Coverage matters because the Wage Payment and Collection Law allows an employee to recover up to triple the amount owed and his or her attorney's fees.)

Is the law any different for vacation pay. I think not. Medex nearly says as much. The Court citing a series of out of state decisions comes to the conclusion:

[A]n employee’s right to compensation vests when the employee
does everything required to earn the wages

If an employer allows employee to accrue or earn vacation based the time they work such vacation "vests."

Note the idea of vesting vacation pay exists in other states, most notably California.

Why The Maryland Wage Payment and Collection Law Benefits Commissioned Employees: The Fourth Circuit Rejects Virginia Employee's Claim to Commissions

The Maryland Wage Payment and Collection Law grants employees a special right: once an employee earns wages or benefits and employer cannot impose arbitrary conditions that require the employer to forfeit those wages. This issue arises most often with: (1) accrued vacation (see here and here); and (2) commissions earned but not paid before an employee's termination (see here, and here). Once an employee does the work to earn the commissions or accrued vacation, an employer cannot take those benefits away.

Why is this important? The law is very different and less favorable to employees in other states. Take for example, Jensen v. IBM, a decision issued by the Fourth Circuit yesterday. Applying Virginia Law, the Court interpreted a provision in an employee's compensation plan. The plan stated: "No one becomes entitled to any payment in advance of his or her receipt of the payment." In other words, IBM reserved the right to change the terms of the plan up until the point that it decided to pay the commissions. The Court found this language (as well as other clauses in the plan) "did not invite a bargain or manifest a "'willingness to enter into a bargain.'"

I am quite confident that this portion of Jensen would have been decided differently had the Court applied the Maryland Wage Payment and Collection Law, rather than Virginia state law. Maryland employers cannot change the terms of a plan or require an employee to forfeit compensation once the employee has earned the compensation.

(Note: there are other aspects of Jensen not discussed here that indicate that the Court was correct in deciding that the employee was not entitled to the commission he was seeking.)

US DOL Opinion Letter Addresses Mortgage Loan Officers' Right to Overtime

There has been significant litigation in Maryland over the rights of mortgage loan officers. Most of the litigation has focused on an individual's right to commissions that close after his or her employment terminates. I wrote about this issue here.

In addition, there has been litigation over whether Maryland loan officers are exempt from receiving either the minimum wage or overtime. One exemption that may apply is the outside sales exemption. A recent opinion letter issued by the United States Department of Labor applies the outside sales exemption to mortgage loan officers. Not surprisingly, the issue in these case is to the extent to which the loan officer "is engaged away from the employer's place of business." The opinion letter assumes that the loan officers work "primarily outside the employer's offices." Given that assumption, it did not take much for the Department of Labor to conclude the loan officers at issue are exempt outside salespeople.

If a loan officer performed most of his or her work in the employer's office, the result may likely be that he or she is entitled to the minimum wage and/or overtime.

Another Maryland Commissions Case

Here is another case on a salesperson's right to commissions that close after his or her employment terminates. This opinion follows the decisions discussed in my post on terminal commissions.

Terminal Commissions

The Maryland law on commissions is favorable to employees. The Law that applies to commissions in Maryland is the Maryland Wage Payment and Collection Law. http://mlis.state.md.us/cgi-win/web_statutes.exe?gle&3-501

A key provision of the Law states:

“Each employer shall pay an employee or the authorized representative of an employee all wages due for work that the employee performed before the termination of employment, on or before the day on which the employee would have been paid the wages if the employment had not been terminated.” Md. Code Ann. Lab. & Empl. §3-505. http://mlis.state.md.us/cgi-win/web_statutes.exe?gle&3-505


“Wages” are defined as “all compensation that it is due to an employee for employment,” including commissions. Md. Code Ann. Lab. Empl. §3-501(c)(1) &(2). http://mlis.state.md.us/cgi-win/web_statutes.exe?gle&3-501

Section 3-501.1 provides the employee a civil cause of action to recover wages withheld in violation of Section 3-505. In addition, the Court can award the plaintiff treble damages and reasonable attorney’s fees. http://mlis.state.md.us/cgi-win/web_statutes.exe?gle&3-507.1

The Maryland Court have issued a series of opinions on the rights salespeople have to collect their earned commissioned under the Maryland Wage Payment and Collection Law.

● Admiral Mortgage, Inc. v. Cooper, 357 Md. 533, 745 A.2d 1026 (2000).

In Admiral Mortgage, Inc. v. Cooper, 357 Md. 533, 745 A.2d 1026 (2000), an employee, whose main job was to generate and develop loans, sued for commissions that closed after his termination. For the loans in question, Mr. Cooper had obtained a completed application and other necessary documents and turned the files over to another employee for processing and closing. 357 Md. at 537, 745 A.2d 1026. Admiral Mortgage claimed that, "when a loan officer left, any of his or her pending applications would be worked on by someone else, and that person would be paid the commission when the loan closed." Id. at 544, 745 A.2d 1026. Rejecting the employer’s assertion that no commission was due on any loan that had not closed by the time the plaintiff left his employment, the jury awarded the plaintiff the unpaid commissions. The Maryland Court of Special Appeals affirmed the judgment based upon the jury award.


● Medex v. McCabe, 372 Md. 28, 811 A.2d 297 (2002)

In Medex, the plaintiff was a sales representative for a medical supply manufacturer. Part of his compensation package was incentive fees based on sales made during fiscal years. His employment agreement, however, provided that “[p]ayment from all Company incentive compensation plans is conditional upon meeting targets and the participant. . . [being] employed at the time of actual payment.” 372 Md. at 33, 811 A.2d 297.

The plaintiff resigned on February 3, 2000, four days after the fiscal year ended. The employer paid the inventive fees on March 31, 2000. Because the plaintiff was not employed on that date, his employer refused to pay plaintiff’s fees.

Reversing the decision of the trial court, the Court of Appeals held that the plaintiff was entitled to the incentive fees. While acknowledging that under common law contract principles, the contract provision would have provided sufficient basis to deny payment, the Court of Appeals noted that “[c]ontractual language between the parties cannot be used to eliminate the requirement and public policy [of §3-505] that employees have a right to compensated for their efforts. Id. at 39, 881 A.2d 297. The court found the contract language in question invalid and unenforceable. Id.

The Medex Court further explained that employers in this State cannot hold their employees hostage by imposing arbitrary barriers to their compensation. The Court of Appeals held that “the employee’s right to the payment of wages vests without satisfaction of the provision of continued employment. To hold otherwise would place the rights of employees to these wages at the whim of their employer, who could simply terminate any at-will employee whose incentive fees if didn’t wish to pay.” Id. at 42, 811 A.2d 297.

● McLaughlin v. Murphy, Civ. No. CCB-04-767, 2004 WL 1634980 (D.Md. July 20, 2004) (Blake J.)

In Murphy, the plaintiff was a loan officer paid by commission. His employment agreement provided that, should his employment be terminated, he would not receive a commission on loans that had not settled before termination. After he was terminated for lying about his dealings with a client, Mr. McLaughlin brought claims against his former employer under the Wage Payment Act for commissions on three loans that he had originated but had yet to close at the time of his
termination.

In denying the plaintiff’s claim, Judge Blake noted that, for two of the pending loans, Mr. McLaughlin had signed up the customers for loan programs for which they did not qualify. As a result, these loans had to be completely redone by another loan officer. Significantly, the replacement loan officer was paid the commission once the loans closed. The third loan had yet to close when Judge Blake issued her decision. 2004 WL 1634980 at *5.2


● Rogers v. Savings First Mortgage, LLC, 362 F. Supp. 2d 624, 643-646 (D.Md. 2005)

The plaintiffs in Saving’s First were loan officers who sued their employer for unpaid commissions on loans that went to closing after a “voluntary or involuntary” termination. 362 F. Supp 2d at pp. 624, 627. The employer’s policy was not to pay commission to a loan officer on any deal that went to closing after a loan officer’s employment terminated.

After reviewing Murphy and Admiral Mortgage, Judge Nickerson denied the employer’s
motion for summary judgment in Savings First. He found the facts there were more similar to Admiral Mortgage than Murphy. The loan officers at Savings First developed leads then assigned most of the administrative work to other employees. Significantly, after the plaintiffs terminated their employment, Savings First did not hire new loan officers to complete the work. Nor did it pay commissions to any other loan officer. It just kept the money. In such circumstance, the Court could “[]not conclude that Defendants' bright line rule denying all Plaintiffs their terminal commissions is reasonable.”

James Rubin

These materials have been prepared by The Rubin Employment Law Firm, P.C. for information purposes only and are not legal advice. Transmission of the information is not intended to create, and receipt does not constitute, an attorney-client relationship between the sender and receiver. Internet subscribers and online readers should not act upon this information without seeking professional counsel.