Maryland Employers Can Be Liable For Up To Treble Damages For Misclassification 'Overtime Pay' Claims Under State Law

On August 13, 2014, the Maryland Court of Appeals held in Peters v. Early Healthcare Giver, Inc. that employers can be held liable under the Maryland Wage Payment and Collection Law ("Wage Payment Law" or MWPCL) for all overtime violations, including allegations of misclassification under the Fair Labor Standards Act (FLSA) and the Maryland Wage and Hour Law (MW&HL). This holding by the state's highest court is a clear departure from current law. Accordingly, this decision has significant ramifications for Maryland businesses because: (1) it increases potential liability in that the law allows employees to receive up to treble damages, assuming no "bona fidedispute" exists; and (2) the court held that the burden of proving a "bona fide dispute" falls on the employer, and not the employee. On the other hand, the court held also that an award of up to treble damages does not mean an aggrieved employee receives the principal unpaid wages plus three times that amount, and that a fact-finder is not required to award enhanced damages, even in the absence of good faith.

To foster a complete understanding of the court's rationale with respect to whether an employer can be held liable under this statute for misclassifying its employees, this article first sets forth a brief history of the legal controversy and then turns to the facts and evidentiary issues in the Peters case. This article also addresses the important lessons an employer can learn from this case in order to avoid or limit enhanced liability in Maryland.

Brief History

Pre-2010 Amendment and Case Law

The Wage Payment Law provides employees with a private right of action to recover unpaid wages, including a bonus, commission, fringe benefit, or any other remuneration promised for service.1 The statute's private right of action appears to be limited by the following language:

if an employer fails to pay an employee [unpaid wages] in accordance with § 3-502 or § 3-505 of this subtitle, after 2 weeks have elapsed from the date on which the employer is required to have paid the wages, the employee may bring an action against the employer to recover the unpaid wages.2

In turn, § 3-502 addresses the timing of payment, such as establishing regular pay days, and § 3-505 addresses final payments upon termination. In other words, the plain language of the private right of action provision suggests that the action is limited to violations of § 3-502 or § 3-505 only.

Based on this reading, Maryland federal courts had held that an "entitlement" to overtime pay, as with allegations of misclassification, must be asserted under the FLSA and MW&HL. The courts reasoned that neither § 3-502 nor § 3-505 addresses the complicated issues surrounding these types of claims. For example, in McLaughlin v. Murphy,3 the issue was whether plaintiff was properly classified as an exempt outside sales employee4 under the FLSA. The federal court dismissed the plaintiff's Wage Payment Law claim because the statute:

limits the availability of treble damages, however, to violations of § 3-502 or § 3-505. Section 3-502 deals with the timing of payment, and Section 3-505 deals with payment on cessation of employment. In contrast, McLaughlin's minimum wage and overtime claims are based on his entitlement to the wages themselves. He does not allege that Freedmont failed to pay him regularly, but that it failed to pay him enough; and he does not allege that Freedmont failed to pay him minimum wage and overtime due him upon his termination, but that it failed to pay him these wages at all.5

Following this decision, Maryland federal courts routinely dismissed similar claims under the Wage Payment Law because the "entitlement" to overtime pay may be brought only under the FLSA and MW&HL.6

The Maryland General Assembly Responds to These Federal Court Decisions

In response to these federal court decisions, the Maryland General Assembly in 2010 added "overtime wages" to the definition of a "wage." The plaintiffs' bar believed this amendment would end the controversy by undercutting the rationale of these decisions. They were mistaken because the analysis had little to do with whether overtime pay...