For years, Maryland employers could adopt policies making clear that unused vacation leave would not be paid out to employees upon termination of employment. In 2007, two events raised questions about the continued viability of this approach.  First, Maryland’s Court of Special Appeals, in an unpublished opinion, ruled that "earned" vacation must be paid out at termination under Maryland’s Wage Payment and Collection Law, regardless of the employer’s policy. See Catapult Technology, Ltd. v. Wolf, et al, No. 997 (Md. Ct. Spec. App. August 20, 2007). 

Second, the Maryland Division of Labor and Industry (DLLR) updated its “Guide to Wage Payment and Employment Standards” to state “[w]hen 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... .”

In April 2008, however, the Governor signed a new law that makes it clear that unused leave need not be paid out upon termination if there is a policy against such payments.  The new law states an employer is not required to pay accrued leave to an employee if (1) the employer has a written policy that limits the compensation of accrued leave to employees; (2) the employer notifies the employee of the leave benefits in writing at the time of hiring; and (3) the employee is not entitled to payment for accrued leave at termination under the terms of the employer's written policy.

The DLLR has recently updated its website to reflect the new law. See here.        

Maryland employers now have a clear roadmap for dealing with unpaid leave upon termination.

The Arent Fox Labor and Employment Law Group regularly assists employers with the drafting of paid leave policies and defends them against claims for unpaid compensation in administrative agencies and courts.  If you have any questions about this issue or any other leave issue, please feel free to contact us.