Personal Injury Protection (“PIP”) Can Be Legally Excluded

/in /by Personal Injury Protection (“PIP”) Can Be Legally Excluded

The claimant owned a personal vehicle and a taxicab. There were two separate auto policies issued by different insurance companies covering the two vehicles. There was a liability policy covering the claimant’s taxi, but this did not include any Personal Injury Protection (“PIP”) coverage. Maryland law requires every auto policy issued in the State to have a minimum of $2,500.00 PIP coverage (this can be waived by the insured as to certain specified persons). However, pursuant to Maryland insurance law, by definition, a taxi [and also a bus] is not a “vehicle” for purposes of requiring PIP (this is also the same for otherwise mandatory Uninsured Motorist (“UM”)/Under Insured Motorist (“UIM”) coverage). The policy covering claimant’s personal vehicle included PIP coverage as required by Maryland law. However, this also provided that PIP was excluded for an insured who is injured “while occupying a motor vehicle owned by you . . . and which is not insured under the liability coverage of this policy” (the “owned but not insured exclusion”).

Maryland insurance law does provide that an insurer can properly exclude PIP benefits for “any injury that occurs while the named insured . . . is occupying an uninsured motor vehicle owned by the named insured.” However, in contrast (and some potential conflict, as became apparent in this matter), another part of Maryland insurance law provides “the insurer through whom PIP benefits are generally available shall pay PIP benefits to an individual insured under the policy who is injured in a motor vehicle accident … while occupying a motor vehicle for which [PIP coverage is] not in effect” – effectively providing that PIP coverage follows the person and not necessarily the vehicle.

The claimant was injured in a motor vehicle accident while driving his taxicab. He applied for PIP benefits through the insurer of his personal auto that had PIP coverage. The claim was denied based on the exclusion. The claimant filed a complaint with the Maryland Insurance Administration (MIA), who ruled in favor of the claimant and imposed a penalty against the personal auto insurer. The MIA found the claimant was not “occupying” a “motor vehicle” because a taxi by definition is not a “motor vehicle,” and so the exclusion did not apply. The MIA further interpreted “uninsured” to mean the vehicle had to have no insurance at all for the exclusion of PIP to be valid. In turn, because the taxi in this case had some insurance, just not PIP, then the exclusion did not apply.

The insurer sought judicial review in circuit court, which reversed the MIA’s ruling. The MIA then appealed to the Court of Special Appeals, who affirmed the ruling of the circuit court, finding that the insurer properly denied the claimant’s application for PIP benefits based on the exclusion. The Court of Special Appeals found that “taxi” not coming within the definition of “motor vehicle” was simply to provide that certain otherwise mandatory coverages (such as PIP) were not required. However, this had no effect on other provisions of the insurance article referring to “motor vehicles,” which would include taxis. The Court of Special Appeals also interpreted “uninsured” in this particular section of the statute to refer specifically to having no PIP insurance – and whether or not there was any other insurance on the vehicle was irrelevant as to the exclusion being effective. The Court looked to a similar provision of Maryland insurance law allowing for an “owned but uninsured” exclusion in the context of UM/UIM coverage. It is clear that the “uninsured” reference in that statutory language specifically states that there is no UM/UIM coverage on any policy covering the occupied vehicle.

Bear in mind that the facts and circumstances of this matter are quite unusual. Not only was there confusion that a taxi is not a motor vehicle for certain insurance purposes, the fact the claimant owned both vehicles was a key issue in the ultimate determination.

Private Entity Has No Duty of Care for the Design/Construction of Public Roads

/in /by Private Entity Has No Duty of Care for the Design/Construction of Public Roads

The decedent was riding his bicycle eastbound on Maryland Route 75 at its intersection with Shepherd’s Mill Road (“the intersection”) when he was struck and killed by a tractor-trailer making a right turn from Shepherd’s Mill Road using a merge/acceleration lane. The tractor was coming from a cement plant owned and operated by Lehigh Cement Company, LLC (Lehigh). The tractor and trailer were not owned by Lehigh, and the driver was not an employee or agent of Lehigh.

The family and estate of the decedent settled with the driver of the tractor. A wrongful death and survival action was then brought against Lehigh, alleging that it was substantially involved in the negligent design and construction of the intersection. Specifically, it was claimed that the intersection negligently funneled bicycle traffic into the acceleration lane and that the intersection’s design violated the Manual on Uniform Traffic Control Devices (“MUTD”) (which includes a section on traffic control devices for bicycles); and the Transportation Equity Act for the 21st Century (“TEA-21”) (providing for cycle lanes on new road construction).

Over many years, there had been proposals and plans to redesign the intersection. The main purpose of any redesign was to deal with and accommodate increasing truck traffic to the cement plant. Pursuant to the MUTD and TEA-21, the initial plans and designs included bicycle lanes. However, final plans and designs altered the bicycle lanes to be a shoulder, which then became the merge/acceleration lane at the intersection. This was the road configuration that was actually constructed.
Lehigh’s alleged involvement was that it: 1) participated in a meeting with government entities to discuss the expansion of the cement plant; 2) prepared a proposed transportation system to provide alternate access to the plant; 3) contributed $300,000.00 to the engineering costs of developing such a system; and 4) publicly characterized the transportation system as a “public/private partnership.”

The trial court granted Lehigh’s Motion to Dismiss, finding there was no duty owed by Lehigh with respect to the design and construction of public roads. The plaintiffs appealed, arguing governmental entities may delegate their duties to private entities “pursuant to a public private partnership;” that private entities may voluntarily assume duties of public entities by conduct or by contract; and that the trial court improperly made the factual finding that there was no partnership between Lehigh and the government.

The Court of Special Appeals affirmed the circuit court’s dismissal of the complaint. The power to design, construct and maintain state and county roads is exclusively within the power of state and county governments. The Court did acknowledge that the state and county may delegate the design and construction of public roads to private entities. However, the Court determined that the plaintiffs did not assert any facts to substantiate that the design and construction of the subject intersection was delegated to Lehigh – there was no allegation in the complaint of any contract with Lehigh. Lehigh’s one statement referencing a “public/private partnership” had no legal significance and the relationship between Lehigh and the design of the intersection was “quite limited in regard to voluntarily assuming any duty.” Finally, the Court held that there was no fact finding by the trial court in regard to the existence of a partnership. The decision was legal in nature that the complaint did not properly allege either a partnership agreement or any actions of the parties holding out a partnership existed.

This case piqued the interest of Franklin & Prokopik as it was tangentially involved. F&P had mobilized its emergency response capability on the happening of the occurrence and on behalf of the tractor driver. F & P attorneys were aware, based on the terms of the settlement release from that matter, that there was the possibility of further litigation directed at the road configuration.

Recent F&P Success: Half Million Dollar Verdict Overturned for Improper Admission of Evidence from the Lack of Insurance

/in /by Recent F&P Success: Half Million Dollar Verdict Overturned for Improper Admission of Evidence from the Lack of Insurance

The plaintiff was a pedestrian when he was struck and injured by a dump truck making a right turn on its way to deliver asphalt and other materials to a construction site. At the time of the accident the truck driver’s license was suspended, the registration for the dump truck had expired and the insurance on the vehicle had lapsed for non-payment. The plaintiff sued the driver and the motor carrier company, but also sued the construction company who had hired the carrier. The plaintiff claimed the construction company (who was F&P’s client) had directly hired the driver, who was therefore an agent of the construction company, such that it was vicariously liable for the driver’s negligent actions under the legal theory of respondeat superior. The plaintiff also claimed that the construction company was directly liable for negligent hiring, because there was no liability insurance on the vehicle as required by law.

In support of the negligent hiring count, the plaintiff elicited testimony from a police officer and an insurance representative that there was no insurance on the dump truck. Maryland law generally provides that “[e]vidence that a person was or was not insured against liability is not admissible upon the issue of whether the person acted negligently or otherwise wrongfully.” However, while the trial court agreed with our arguments that evidence of insurance was inadmissible on the vicariously liability count, it concluded that evidence of lack of insurance was relevant to the negligent hiring claim.

The jury returned a verdict of $529,000.00 in favor of the plaintiff. F&P noted an appeal to the Court of Special Appeals (Maryland’s intermediate appellate court). The Court of Special Appeals reversed the jury’s verdict. The Court found that the lack of liability insurance was relevant to the driver’s fitness/competency to operate a motor vehicle (since Maryland law requires that all persons driving a motor vehicle have liability insurance), but the driver’s unfitness based on the lack of liability insurance was NOT a proximate cause of the accident or the plaintiff’s injuries. Specifically, the Court explained “it was not [the driver’s] lack of insurance coverage that caused the accident. Rather, it was [the driver’s] negligent driving that caused [the plaintiff’s] injuries and damages.”

The plaintiff noted an appeal to the Court of Appeals of Maryland (Maryland’s state supreme court). Following full briefing and recent oral argument, the Court of Appeals affirmed the decision of the Court of Special Appeals – throwing out the more than half million dollar judgment. Franklin & Prokopik again argued that the driver’s lack of liability insurance alone did not speak to his ability to safely operate a motor vehicle. The Court of Appeals agreed, holding that it was legal error to admit evidence of the driver’s lack of liability insurance coverage, because this was not the “cause and effect” of the plaintiff’s injuries and “was not probative” of the client’s control over the driver. The Court further explained that this error was prejudicial because it likely was a factor included in the jury’s deliberations and determination of liability on the count of vicarious liability. Specifically, the Court of Appeals opinion provides that the lack of liability insurance coverage “greatly increased the likelihood that the jury inferred fault . . . and considered that evidence in finding [defendant] liable under a theory of respondeat superior.”

Moran Perry v. Asphalt & Concrete Services, Inc., 447 Md. 31 (2016)

The Servicemembers’ Civil Relief Act: What is it and What Does it Mean for Your Business?

/in /by The Servicemembers’ Civil Relief Act: What is it and What Does it Mean for Your Business?

With its roots dating back to the Civil War, the Servicemembers’ Civil Relief Act (the “Act”) is perhaps one of the most comprehensive packages of protection Congress has enacted to shelter the interests of those called to serve our country. While the Act has been amended several times, its general purpose remains the same; to allow military servicemembers to focus their efforts on national defense by affording them certain privileges in civil actions. The act does not provide any protections in criminal actions.

Generally speaking, the Act does not  relieve servicemembers of their legal obligations; however, it can be invoked by a servicemember to delay certain legal obligations. In order to receive protection under certain parts of the Act, the servicemember must show that military service has had a material effect on the financial or legal matter at hand. Although there are numerous situations in which the Act may be invoked, a general understanding of when it may arise is beneficial as it has the potential to impact civilians and servicemembers alike.

All active duty personnel from all branches of the Armed Forces, including the Army, Navy, Air Force, Marines, and Coast Guard are covered by the Act, as are reserve personnel while on active duty. Additionally, under certain circumstances, servicemembers’ dependents, including spouses, children, and any other individual directly supported by the member may also be protected. Because active duty in the Armed Forces is an absolute requirement, the Act does not cover government contractors, whether working domestically or abroad.

Perhaps the best-known protections afforded by the Act, and the ones most relevant to business owners, are its protections in the context of civil litigation and from the execution of judgments. If a servicemember requests a stay and is able to show that his or her military status had a material effect on his or her ability to defend the legal action that produced the judgment, the court must stay execution of that judgment for at least ninety days. The Act also prevents civil plaintiffs from obtaining default judgments against absent servicemembers until the court appoints counsel for the absent defendant.

In addition, since servicemembers often face the possibility of being transferred to a new location, the Act provides servicemembers with the freedom to terminate certain leases, including residential, professional, and agricultural, if the member receives orders for a permanent change of station, or deployment, for a period of no less than 90 days. Similarly, if a civilian executes a lease and subsequently enters military service, he or she may be able to terminate the lease. The Act also extends to automobile leases and allows servicemembers to terminate leases if certain conditions are met. For example, a preservice automobile lease may be terminated if the servicemember receives active duty orders for a period of 180 days or more. An automobile lease entered into while on active duty may be terminated if the member is deployed to a location outside the continental United States, or for a period of 180 days or more.

The Act also provides other protections. For example, it: (a) prohibits the eviction of servicemembers or their dependents from rented or mortgaged property, (b) provides service members the right to ask a court to review whether entry of judgment against a member was appropriate in light of his service responsibilities, and (c) caps the interest rate on certain transactions entered into prior to service at six percent.

As a practical matter for small business owners, the Act will sharply curtail the ability to collect money from a delinquent customer in the military service, or to evict a service member from rented or mortgaged real property. If a defendant simply fails to respond to a lawsuit, the Act saddles the plaintiff with the burden of proving by affidavit that the non-responsive defendant is not in the military service. The defense manpower data center does maintain a database that potential plaintiffs can use to check  a defendant’s service status, but a search requires either a social security number or complete birthdate. Accordingly, without one or the other, it may be impossible to safely aver that a defendant is not in the military service and thus impossible to obtain a default judgment against such a defendant.

Small businesses, especially those that deal frequently with individual consumers, are best protected by obtaining one of the identifiers mentioned above, in addition to a customer’s name. Of course, such personal information must be appropriately protected, and must not be obtained or used in violation of Federal or state credit, debt collection, or anti-discrimination laws.

In sum, while the Act offers salutary protections for servicemembers, it also offers de facto, and likely unintended, protection for all defendants. Because a plaintiff bears the burden of proving that an individual defendant is not in military service, the Act can function as an unintended trap for unwary business owners. Relatively minor preparation in advance may save a business from significant and unnecessary delays when collecting from those not in the military service.

 

Independent Contractor or Employee? A Critical Distinction for Your Business

/in /by Independent Contractor or Employee? A Critical Distinction for Your Business

Businesses large and small must properly classify their workers as either independent contractors or employees for federal employment tax purposes. Misclassification results when an employer treats a worker,who legally qualifies as an employee as an independent contractor.

Under the Internal Revenue Code, employers must withhold federal income taxes from, and pay Social Security, Medicare, and unemployment taxes on, wages paid to employees, but not to independent contractors. So, employers – especially small businesses – and their workers often seek to describe their relationship as an independent contractor arrangement.

However, worker misclassification costs the Federal government billions of dollars in lost revenue. So, as part of its ongoing heightened enforcement efforts the IRS recently issued further guidance to businesses. In particular, business owners should be aware that the risks of misclassification are great, especially in comparison to the perceived benefit.

Penalties for misclassification can be severe, even if the misclassification is unintentional. In that case, an employer might nevertheless be liable for all of the FICA that it would have had to pay if the employee had been properly classified, plus forty percent of the FICA that the employee would have had to pay, plus one and one half percent of the wages paid to the employee.

Penalties for intentional or fraudulent misclassification are far worse. In those cases, an employer can be fined an amount equal to one hundred percent of the FICA that both the employer and employee should have paid, plus twenty percent of the wages paid  to the worker. In addition, the intentional or fraudulent misclassification is punishable by criminal prosecution, with a maximum sentence of five years in prison or a fine of up to $100,000 (for individuals) or $500,000 (for corporations), or both, plus the costs of the prosecution (which can be quite substantial).

So, it is critically important for businesses to classify their workers correctly. The label placed on the relationship by the company is not determinative, and often will have little to do with a worker’s proper classification. Businesses are not left to wander on their own in the dark, however. The IRS has issued some guidelines, and will help with the determination, though business owners should almost never approach the IRS for its “help” on the issue without first consulting a lawyer, an accountant, or both.

The IRS has advised that, in general, “an individual is an independent contractor if the employer has the right to control or direct only the result of the work, not what will be done and how it will be done” (emphasis added).

Ultimately, the determination is extremely fact-dependent, but the IRS has identified three categories for businesses to consider in classifying workers: (1) Behavioral Control; (2) Financial Control; and (3) Relationship of the Parties. Each category includes a list of key factors that serve to aid a business in evaluating its relationships with its workers.

A worker is properly classified as an employee if the employer exercises significant behavioral and financial control over the worker. Some factors that indicate control are: (a) detailed instructions on when and where to work; (b) significant investment in the tools the worker uses to complete the work; and (c) payment of a regular hourly or weekly wage. A worker is also properly classified as an employee if there is evidence of an intent to create an employer-employee relationship. Some factors that indicate an employment relationship are: (a) receipt of employee-type benefits (e.g., insurance, pension, and vacation pay); (b) establishment of written contracts describing the employment relationship; and (c) expectation of a permanent or indefinite working relationship.

Because of the potentially significant consequences of misclassifying a worker, even unintentionally, if the classification question is close, businesses should generally classify and pay workers as employees, notwithstanding the potential increase in short-term costs for both the company and the employee. When in doubt, employers should consult with experienced employment counsel.

 

Maryland Law Updates

/in /by Maryland Law Updates

“Equal Pay for Equal Work” Maryland Labor and Employment § 3-301

Effective October 1, 2016, this law prohibits employers from “providing less favorable employment opportunities” based on sex or gender identity. Examples of “less favorable employment opportunities” include anything from assigning an employee to a less favorable career track or position, failing to provide information about promotions, or limiting or depriving an employee of opportunities that would otherwise be available to the employee but which are not offered because of sex or gender identity.

Employers are prohibited from paying one wage to an employee of one sex or gender identity at a rate less than the rate paid to another employee of a different sex or gender identity so long as both employees work in the same establishment and perform work of comparable character or work in the same operation, business, or of the same type.

To adjust for any unlawful wage disparity, employers are not permitted to reduce any employee’s wages. If an adjustment is necessary for compliance, the employer may only increase an employee’s wages. Of course, the law does permit wage variances in certain scenarios: a seniority system, a merit increase system, jobs requiring different skills or regular performance of different duties or services, work performed on different dates and/or times, a system measuring performance based on quality/quantity/production, and education, training, or experience.

In addition, House Bill 1004 established an Equal Pay Commission on June 1, 2016. The Commission will be responsible for collecting and reviewing data from employers for wage disparities considering factors such as race, sex, or gender identity. The Commission will also be responsible for recommending practices for equal pay for equal work and assisting in enforcement.

Montgomery County Sick Leave Paid Law

Effective October 1, 2016, employees working in Montgomery County are entitled to paid sick leave which will accrue at a rate of 1 hour for every 30 hours that employee works within the County. Those working for businesses with five or more employees are entitled to a maximum of 56 hours of earned paid sick leave annually. Those working for businesses with less than five employees are entitled to a maximum of 32 hours of earned paid sick leave annually and 24 hours of unpaid sick leave. An employee may ‘carry over’ up to 56 hours. Only employees working more than eight hours each week are covered by the legislation.

Many businesses, including some of the largest employers in Montgomery County, will be unaffected by this law as they already offer their employees at least 56 hours of paid sick leave annually. Paid sick leave does not mean the employee has to be sick, other reasons include caring for a family member or child care when schools and daycare facilities are closed. Montgomery County employers must determine how many hours of sick leave they are granting their employees to ensure compliance with the new local law.

National Guard Employment Rights Maryland Public Safety § 13-307

Effective October 1, 2016, members of the National Guard whose employment rights have been violated may bring a civil suit for economic damages. A court may order such damages upon a finding that the employment and/or reemployment rights were violated. This state law is in addition to the rights already granted to members of the National Guard under federal law.

New Competition for Non-Compete Agreements

/in /by New Competition for Non-Compete Agreements

In October 2016, the White House issued a “State Call to Action on Non-Compete Agreements.” The Call to Action notes that nearly one in five US workers have entered into a non-compete agreement, and roughly one in six of those workers are without a college degree. The Call to Action urges state legislatures to pass laws that curb the use of non-compete agreements because research revealed that “states that strictly enforce noncompete agreements have lower wage growth and lower mobility than states that do not enforce them.”

The White House proposed three different ways that legislatures can reduce misuse of noncompete agreements. First, the White House proposed that certain categories of workers should not be eligible for non-compete agreements, such as workers who are unlikely to possess trade secrets or workers who were laid off or terminated without cause. Second, the White House encouraged greater transparency by only upholding non-competes that were proposed prior to the acceptance of a job offer or promotion. Finally, the White House proposed policies that would make agreements that contain unenforceable provisions entirely void, in order to incentivize employers to draft more reasonable non-compete agreements.

In Maryland, a non-compete agreement will only be enforced if it meets the following four requirements: “(1) the employer must have a legally protected interest, (2) the restrictive covenant must be no wider in scope and duration than is reasonably necessary to protect the employer’s interest, (3) the covenant cannot impose an undue hardship on the employee, and (4) the covenant cannot violate public policy.” Recently, in Seneca One Finance, Inc. v. Bloshuk, No. RWT 16-cv-1848, 2016 WL 5851626, (D. Md. 2016), the United States District Court for Maryland held that provisions of a non-compete agreement for an employee who had worked as a purchasing manager for a company involved in purchasing structured settlement annuities and deferred payment plans for lump sum payments was overbroad. In the Bloshuk case, a purchasing manager was responsible for managing the day-to-day relationships with structured settlement annuitants and building relationships with prospective customers. It was alleged that prior to her resignation, Ms. Bloshuk discouraged a potential customer of Seneca One, and once Ms. Bloshuk began working at her subsequent employer, she solicited the business of the customer she discouraged from engaging with Seneca One. The non-compete agreement in the Bloshuk case read as follows: “While [employee is] employed by Seneca One and for 12 months after the termination of [her] employment for any reason, [she] will not directly or indirectly, for [herself] or on behalf of any other person or entity, engage in the same or similar business as Seneca One in any of the markets in which Seneca One has provided products or services or formulated a plan to provide products or services.”

The Court found the non-compete agreement to be overbroad for a number of reasons. First, it noted that the agreement prevented Ms. Bloshuk from engaging directly or indirectly in the same or similar business as Seneca One. The Court noted that Seneca One conducted business across the United States, and by preventing her from working for similar businesses or competing indirectly, Seneca One’s non-compete clause was overbroad. In fact, the Court stated, “the provision at issue here is not reasonably necessary to protect any goodwill that Ms. Bloshuk created with customers and serves only to limit her potential employers.” The Court also found the non-competition agreement to be overbroad in geographic scope. The Court stated that “Any attempt to enforce a non-competition provision that prohibits a former employee from pursuing her chosen career anywhere in the country is legally troublesome at best.” The Court further noted that “Courts interpreting Maryland law have at times found non-competition provisions lacking a geographic limitation to be reasonable. But these provisions have generally been more narrowly tailored as to the scope of activities prohibited.” The Court ultimately dismissed Seneca One’s claims that Ms. Bloshuk breached her non-competition agreement.

In light of the White House’s Call to Action and the Bloshuk opinion, it would be prudent for employers that utilize non-compete agreements to consider revisiting the procedures for entering into non-compete agreements (i.e. making the agreements available to new hires when the offer of employment is made) as well as narrowly tailoring non-compete language to protect the goodwill created with customers or to dissuade the misuse of trade secrets, in order to strengthen the chances of the non-compete agreement being held as valid. There certainly remain scenarios in which non-compete clauses are necessary to protect the interests of the employer. However, employers should be aware of recent movements and decisions that reduce the enforceability of such contracts.

Recent Case Law Gives Insight on Employer “Rights” and “Responsibilities” Under the FMLA

/in /by Recent Case Law Gives Insight on Employer “Rights” and “Responsibilities” Under the FMLA

Recent decisions of the U.S. Court of Appeals for the Fourth Circuit have provided guidance for employers as to their rights and responsibilities under the Family Medical Leave Act (FMLA).

Employers’ Responsibilities

On June 28, 2016, the Court issued its opinion in the case of Vannoy v. The Federal Reserve Bank of Richmond, in which it held that an employer may be liable for a violation of the FMLA even if it grants an employee’s request for medical leave. The Court found that a defective “Rights and Responsibilities” notice which omitted information about the right to reinstatement may have interfered with the employee’s understanding and exercise of his rights under the FMLA.

Vannoy, an employee of the Federal Reserve Bank of Richmond, was battling depression and alcoholism. The bank was aware of this condition and made efforts to accommodate his condition. In November 2010, Vannoy was hospitalized for psychiatric treatment where it was recommended that he complete a 30-day inpatient rehabilitation program. Around this time, the bank granted his request for one month of leave under the FMLA (which was submitted as an application for short term disability). The bank sent Vannoy a notice of his FMLA rights and responsibilities, but the notice did not include any reference to job protection rights under the FMLA. Vannoy returned to work with a doctor’s note before the expiration of the month of approved FMLA leave and did not enter into the recommended inpatient treatment program. Vannoy testified that he was fearful that taking extended time off from work would result in termination. Vannoy was subsequently terminated after failing to report for a three-day work assignment in Baltimore. In his suit against the bank, Vannoy claimed that he would have stayed on leave longer if he was aware of his restoration rights.

The Fourth Circuit reversed the district court’s finding of summary judgment in favor of the bank, and held that there was sufficient evidence to show that Vannoy would have exercised his rights under the FMLA differently had he known his job would be protected. Thus, the Fourth Circuit found that the evidence presented was sufficient to show prejudice to Vannoy for the bank’s failure to provide the requisite notice of the right to reinstatement under the FMLA.

Employers’ Rights

On October 31, 2016, the Court decided the case of Sharif v. United Airlines, Inc., holding that the termination of an employee for fraudulently using FMLA leave is not considered “retaliation” under the FMLA. Sharif, an employee of United, took a scheduled vacation with his wife (also a United employee) from March 16 through April 4, 2016. Sharif was unable to obtain approval for his scheduled shift on March 30, 2016, and on the morning of March 30, 2016, Sharif called United and requested intermittent FMLA leave pursuant to an existing FMLA certification for an anxiety disorder. United noticed the suspicious timing of the FMLA request for the only shift Sharif was scheduled to work in the middle of his vacation and mounted an investigation. Upon questioning, Sharif provided a number of inconsistent stories regarding his understanding of his schedule that day, including suffering a panic attack and an inability to secure a return flight back to the United States. Upon receiving notice of United’s intent to terminate his employment in light of the FMLA abuse and lying during the investigation, Sharif decided to retire. Subsequently, Sharif filed suit against United, alleging retaliation for his use of FMLA leave.

The Fourth Circuit upheld the district court’s granting of summary judgment in favor of United. The Court relied on the FMLA’s implementation of regulations that an employee who fraudulently obtains FMLA leave is not protected by the Act’s provisions. The Court stressed the importance of preventing the FMLA from being abused and held that United had made a “reasonably informed and considered” decision before terminating Sharif.

These recent Fourth Circuit cases it make clear that employers should be fully aware of both their rights and responsibilities under the FMLA in order to avoid costly litigation. While the Court has confirmed an employer’s right to terminate employees after a thorough investigation into FMLA abuse, it has also confirmed that employers should always ensure compliance with FMLA requirements in issuing notices to employees regarding their rights under the FMLA.

“Exempt” is Over: A Review of the New Regulations for “Overtime-Ineligible” Employees

/in /by “Exempt” is Over: A Review of the New Regulations for “Overtime-Ineligible” Employees

As featured in Behind the Wheel, a quarterly publication of the Maryland Motor Truck Association.  By Bert Randall and Matthew Kuspa

The U.S. Department of Labor (“DOL”) has issued new overtime regulations which are currently scheduled to go into effect on December 1, 2016. In Maryland alone, an estimated 79,630 currently nonexempt employees (1.9% of the working population) will become entitled to overtime under the new regulations.

Under the old regulations, executive, administrative, or professional employees (EAPs) were generally “exempt” from overtime if they performed certain job duties (the “duties test”) and were paid a salary (the “salary basis” test) of not less than $455 per week (the “salary level” test). Highly compensated employees (HCEs) were exempt from overtime if they were paid at least $100,000 and passed a “minimal duties” test, meaning that they customarily and regularly performed at least one of the exempt duties of an exempt EAP.

Under the new regulations, the DOL will now refer to nonexempt employees as “overtime-protected” or “overtime-eligible,” and exempt employees will be referred to as “overtime ineligible” or “not overtime-protected.” The new regulations do not make any changes to the duties tests for either EAPs or HCEs, however, the salary levels will be raised substantially for both overtime-ineligible EAPs and HCEs. Finally, in meeting the new standard salary level for overtime-ineligible EAPs, employers will be allowed to include non-discretionary bonuses and make “catch-up” payments as needed.

Raising the Salary Levels

The DOL has set the new “standard salary level” for EAPs at the 40th percentile of full-time salaried workers in the lowest-wage Census Region in the United States. Based on data from 2015, the standard salary level will increase from $455 per week to $913 per week (or from $23,660 per year to $47,476 per year), effective December 1, 2016.

The salary level for HCEs will also change, and will now be set to the 90th percentile of full-time salaried workers nationally. Based on census data from 2015, the new salary level for HCEs will be $134,004, also effective December 1, 2016.

Part of the purpose of tagging the salary levels to census data is to allow for “automatic updates” to the salary levels for EAPs and HCEs. The first update to the salary levels will take effect on January 1, 2020, and salary levels will be updated every three years thereafter. The DOL will calculate the new salary levels based on data from the second quarter of the year preceding the update, and will post the new salary levels at least 150 days prior to each update (or August 4th of the preceding year).

Bonuses and “Catch-Up” Payments

Employers are now permitted to count nondiscretionary bonuses, incentives, and commissions toward up to 10% of the standard salary level for overtime-ineligible EAPs. Examples of such “non-discretionary” payments include bonuses that are announced to employees to encourage them to work more steadily, rapidly, or efficiently (in other words, bonuses tied to productivity or profitability), and bonuses designed to encourage employees to remain with the employer. Examples of “discretionary” bonuses include unannounced bonuses or spontaneous rewards for specific acts.

In order to be counted toward the standard salary level, non-discretionary bonuses must be paid at least quarterly. In some situations, the bonuses may be less than expected and an EAP’s weekly salary plus bonuses for the quarter will not equal or exceed one-quarter of the yearly salary level. In such a case, the DOL will permit employers to make a “catch-up” payment no later than the pay period after the end of the quarter to raise the employee’s salary to the standard salary level.

Motor Carrier Exemption

Section 13(b)(1) of the Fair Labor Standards Act, also known as the “motor carrier exemption,” continues to provide an overtime exemption for employees regulated by the Department of Transportation (DOT). Drivers who transport goods across state lines and certain other employees whose duties may affect the safety of motor vehicles in interstate commerce generally fall within DOT jurisdiction and are not entitled to overtime under FLSA, even if they also work on intrastate routes. The new regulations do not affect the motor carrier exemption. Under Maryland law, state overtime law does not apply to employees regulated by the Department of Transportation.

Options for Employers

Employers may increase the salary of newly overtime-eligible employees to keep the employee exempt from overtime. This may be a good option for employees who have salaries slightly under the new exempt salary level.

Employers may also choose to keep salaried employees that will now be overtime-eligible at the same rate of pay and pay overtime as needed. There is no requirement that employers convert employees from salaried to hourly in order to pay overtime. Employers may instead calculate an employee’s rate of pay by dividing the total pay for the employee in any workweek by the total number of hours actually worked, and use that rate to pay the salaried employee overtime.

Preparing for the Change

In preparing for the change on December 1, 2016, employers should consider:

  • Identifying employees who are at or near the new standard salary level,
  • Preparing early by having salaried employees who are newly “overtime-eligible” track their time in anticipation of the change,
  • Developing policies for tracking time for employees who work remotely and/or are issued a company computer or cell phone, and
  • Evaluating bonuses to determine whether they are “discretionary” or “non-discretionary” and reviewing and adjusting their compensation schemes and policies accordingly.

Private employers may also refer to guidance issued by the DOL on the final overtime rule (available at https://www.dol.gov/). Whether employees are “exempt,” “overtime ineligible,” or “not overtime-protected,” employers will have to pay much closer attention to employee compensation and overtime work as the regulations continue to update.

Editor’s Note: On November 22, 2016, a federal judge in the Eastern District of Texas issued a nationwide injunction halting the new overtime regulations until the court rules on challenges against the validity of the regulations.

What does this mean for employers? For now, the overtime rule will not take effect as planned on December 1, 2016 but it could still be implemented at some point in the future. Employers may continue to follow the existing overtime regulations until a final decision is reached, but should be aware that there is a possibility that the rule could be enforced retroactively, and should carefully track the hours of employees who will be affected by the changes. Those employers who have already reclassified employees have the option of proceeding forward with implementation of the new rules.