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Is Your Employee Handbook Obsolete?

Changes are occurring so quickly under federal and state law that Maryland employers may be scrambling to revise their Employee Handbooks to reflect the changes and to ensure that they do not run afoul of new laws and court decisions that have dramatically changed the employment landscape. In an ever changing environment, it is essential that Human Resources professionals remain abreast of the changes to ensure compliance. The following is a highlight of a few of the changes that may be of particular interest to Maryland employers in the short term.

New Leave Rights For Families of Servicemembers
On January 28, 2008, President Bush signed the National Defense Authorization Act of 2008 [NDAA]. In addition to providing funding for military operations, the Act also included significant amendments to the Family and Medical Leave Act [FMLA]. It is essential to note that these amendments relate to the FMLA as opposed to the Uniformed Services Employment and Reemployment Rights Act [USERRA]. While USERRA applies to all employers, the FMLA only applies to employers with fifty (50) or more employees within a seventy-five (75) mile radius.

a. Two New Qualifying Events.
Under the Amendments, leave under the FMLA is extended for eligible employees under two additional qualifying events:

  1. Any qualifying exigency if the employee's spouse, child or parent is on active duty or has been notified of an impending call or order to active duty in the Armed Forces in support of a contingency operation
  2. To care for a covered servicemember who is the spouse, child, parent or next of kin of an eligible employee.

b. Leave for "Qualifying Exigency"
The provisions in the NDAA for leave for any qualifying exigency will not be effective until the Department of Labor issues regulations defining the terms "qualifying exigency." According to the current available guidance from the Department of Labor, it is expeditiously preparing the required regulations. However, in the interim, the Department of Labor "encourages employers to provide this type of leave to qualifying employees."

"Exigency" leave is included within the existing FMLA leave entitlements, which allow for a total of twelve (12) workweeks of leave during any twelve (12) month period. Employees requesting "exigency" leave are required to provide notice to employers as is reasonable and practical. This leave may be taken on an intermittent or on a reduced leave schedule.

c. Servicemember Family Leave
The provisions pertaining to leave to care for covered servicemembers, on the other hand, were effective from the date that President Bush signed them into law. Under the new provisions, eligible employees can take up to twenty-six (26) workweeks to care for a member of the Armed Forces, including members of the National Guard or Reserves, who has suffered a serious injury or illness and is (i) undergoing medical treatment, recuperation, or therapy, (ii) in an outpatient status, or (iii) on a temporary disability retired list. Unlike other provisions in the FMLA that apply to serious health conditions, this form of leave is based on serious injury or illness, which is defined as an illness or injury incurred in the line of duty. The terms "line of duty" are not defined in the Amendments but have specific meaning within the Armed Services. Although not stated in the Amendments, eligibility for this leave may be dependent upon a Line of Duty investigation conducted by the Armed Forces regarding the servicemember's injury or illness. Employers are permitted to request a certification from a health care provider in order to approve servicemember family leave, but the Department of Labor has not issued regulations at this point prescribing the nature of the certifications that may be requested.

Servicemember family leave is extended to next of kin, which could serve as an expansion of employees eligible for leave. Under the Amendments, next of kin are defined as the nearest blood relative of the servicemember. Unlike other provisions of the FMLA, which are limited to spouses, children or parents, servicemember leave may extend beyond those traditional boundaries.

d.  Calculating Leave Entitlement
The combined available FMLA leave for eligible employees during a single twelve (12) month period is twenty-six (26) weeks, whether used for servicemember family leave, "exigency" leave or existing FMLA leave. Servicemember family leave is only available during a single twelve (12) month period. However, it is important to note that "exigency" leave is not similarly limited, but rather is treated in the same manner as existing FMLA leave.

Employers should implement these new qualifying events into employee handbooks. At the same time, employers should ensure that employees have been adequately notified of the changes. At present, the Department of Labor has not published a new poster incorporating the Amendments, but employers should be vigilant in ensuring that the revised poster is conspicuously posted when it become available.

"Use Or Lose" May Now Mean That You Lose
In a decision that reversed years of employer practices regarding accrued, but unused leave, the Maryland Court of Special Appeals recently held that accrued, but unused leave qualified as wages under the Maryland Wage Payment and Collection Law [WPCL]. Quoting other cases that stated that the public policy underlying the WPCL is that "an employee's right to compensation vests when the employee does everything required to earn the wages," the Court held that employees earned their leave "in remuneration" for work and that accrued, but unused leave thus fits within the definition of wages under the WPCL.

The case, Catapult Technology, Ltd. v. Wolfe, involved a claim by fourteen former employees for payment of accrued universal leave. Under Catapult's policy, universal leave provided paid time off for vacation and illness, without distinction. When Catapult lost an existing contract, it notified its employees that it would seek to find positions for those employees who would be affected. The former employees apparently lost hope that their jobs would be secure and sought employment with the new contractor that had won the contract. When they did so, they failed to meet Catapult's requirement of fourteen (14) days advance notice in order to be eligible for payment of their accrued leave. Based on its employee handbook, Catapult refused to pay the former employees. When the employees sued, Catapult not only lost on the issue regarding accrued leave, but also was subjected to a verdict for treble damages under the WPCL because the jury found that it lacked a bona fide dispute for its failure to pay. Although Catapult was successful on appeal in having the treble damages award set aside, employers with future claims under the WPCL should not expect similar treatment now. It must be noted that the Catapult opinion is unreported, which means that it is not precedent for Maryland Courts to follow. However, this should provide little solace to Maryland employers because the Maryland Division of Labor and Industry has already adopted the holding as its own.

As with many employers, Catapult crafted its policy in reliance, in part, on the guidance that had been published by the Maryland Division of Labor and Industry regarding this topic. On its website, the Division had previously provided the following:

  1. Unused Vacation at Termination - Is It Payable?
  2. The answer to this question depends on the employer's policy, and whether this policy was communicated to the employee in advance. For example, if an employer informs employees at hiring that unused vacation leave will be lost or forfeited when employment ends, then an employee will probably not be able to claim it. On the other hand, where no policy exists or was made known in advance to a terminated employee regarding forfeiture of accrued vacation, the employee may receive the cash value of whatever unused earned vacation leave was left - provided it was otherwise usable.

Interestingly, this language was removed from the website near the time that the appellate briefs were filed in Catapult, and the website was silent on the topic at that point. Shortly after the Catapult opinion was published, the Division updated its website to provide the following guidance on the topic:

  1. Unused Vacation at Termination - Is It Payable?
  2. 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.

The net effect of the unreported Catapult opinion and the new guidance from the Department of Labor and Industry is that Maryland employers cannot withhold payment of accrued leave at termination without some risk of a claim under the WPCL for treble damages and attorneys fees. Although Catapult was able to avoid treble damages based on its good faith reliance on prior precedent, it is extremely doubtful that the same argument would be available to employers after the Catapult opinion and the new guidance on the Division's website.

The same arguments would seem to apply to use or lose policies providing for the forfeiture of accrued vacation at the end of a calendar year. Under the Catapult opinion, accrued leave qualifies as wages, which would not be subject to forfeiture based on the Division's analysis regarding final pay. Neither the opinion nor the website addresses this particular issue, but employers should expect claims under these policies now that accrued vacation will be construed as wages by the Division.

Employers should consider revisions to employee handbooks to reflect these new developments. Before refusal to pay for accrued vacation, employers should carefully review their offer letters or employment agreements to determine whether an argument could be made that vacation is not in remuneration for work, but rather a gratuitous benefit provided to induce an applicant to accept employment. These arguments will need to be carefully analyzed. In addition to potential claims for payment of accrued leave, employers should consider whether accrued, but unused leave should be reflected as a liability on its accounting records. Employers may want to consult with appropriate tax and accounting professionals regarding the potential impact of this new liability that may cover multiple accounting periods.

Protection of Employee's Personal Information
Effective on January 1, 2008, the Personal Information Protection Act requires that Maryland businesses implement and maintain reasonable security procedures and practices to protect personal information that they own or license. Under the Act, personal information means an individual's first name or initial and last name in combination with a social security number, driver's license number, financial account number along with a security code, access code or password that would provide access to the individual's account, or a taxpayer identification number. Personal information that is encrypted, redacted or otherwise protected is excluded from the definition provided that the name or data elements are rendered unreadable or unusable. The Act incorporates broad language that would cover personal information relating to employees and applicants regarding whom employers maintain computerized data. Under the Act, when a business learns of the breach of security of its system, it must undertake an investigation to determine whether it is likely that personal information will be misused. In the event that misuse of personal information has occurred or is reasonably likely to occur, businesses must provide notice to state residents who are affected. The notice provisions are relatively specific, with an exception regarding breaches that are the subject of a criminal investigation. In the event that a breach occurs for which misuse is determined to be unlikely, businesses are required to maintain records regarding their investigation and determination for three (3) years. Violations of the Act are defined as unfair and deceptive trade practices under the Consumer Protection Act, which allows for private causes of action, including attorney's fees and penalties.

The Act does not set forth any specific requirements that businesses must meet in protecting personal information. Instead, the Act requires that businesses implement reasonable procedures and practices that are appropriate to the nature of the personal information and to the nature, size and operations of the business itself. Likewise, when engaging in destruction of personal information, the Act requires that businesses implement procedures and practices that take into account the sensitivity of the records, the nature and size of the business, the costs and benefits of different destruction methods, and available technology.

The Act will also affect the content of contracts between Maryland businesses and outside service providers to whom personal information is disclosed. For employers, this will include vendors that are provided personal information regarding employees or applicants, including by way of example companies that conduct background checks, administer benefit plans or otherwise require protected information. On or before January 1, 2009, written contracts with outside service providers must require that the providers implement or maintain reasonable security procedures and practices to protect personal information. The procedures and practices must be appropriate to the nature of the information disclosed and reasonably designed to protect the information from unauthorized access, modification, disclosure or destruction.

Employers should consider implementation of employee policies governing access to personal information along with consultation with information security professionals regarding reasonable encryption or security methods.

For more information or assistance with updating your employee policies and handbook, please contact Paul Finamore at pmfinamore@nilesbarton.com or (410) 783-6349.

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