Author: Steve Lewicky

by Steve Lewicky

Starting a Business in Maryland

If you are thinking about starting a new business in Maryland…Congratulations!  There are many considerations to take into account when starting up a new business, and in this article, I am going to touch on a few of them.

With startup capital limited, you will need to determine what you reasonably can do on your own, and what tasks require the assistance of an attorney.  Early on, you will need to determine what type of business entity makes the most sense for your enterprise – whether it will be a limited liability company, a traditional C-corporation, an S-corporation, a limited partnership, or something else.  This decision can have tax implications, as well as other practical implications.

There will also be legal questions surrounding the choice of a name for your business – including compliance with trademark law.  You don’t want to select a business name and invest a lot of money in branding, only to find out that another company owns the trademark rights to your chosen name, and can legally exclude you from using your desired business name.

Depending on the type of business structure you decide to use, in most cases there will be a formational legal document — such as articles of incorporation for a corporation, or articles of organization for a limited liability company.  Typically, you also will wish to go beyond that organizational document to have a governing document for the entity – such as bylaws for a corporation, an operating agreement for a limited liability company, or a partnership agreement for a partnership.  Particular types of business activities may need specific provisions to be included in the governing documents.  For example, a partnership that is formed specifically to own real property may have different provisions than a partnership formed to operate a different type of business.

It’s also almost always a good idea to have an accountant, bookkeeper, and perhaps other financial advisors, lined up and available to work with you from the early stages of your business entity.

If your entity is going to hire employees, or retain the services of independent contractors, it’s very important that you follow all applicable requirements under state and federal employment laws and understand the circumstances under which independent contractors may be used.

This just scratches the surface of topics to consider in standing up a new business, and I encourage you to consult with an attorney who is knowledgeable about Maryland business law.  Our firm has the depth of experience to provide this type of help, and we would welcome the opportunity to assist you.  Please contact me with any questions, at [email protected] or (410) 489-1996.

by Steve Lewicky

Asserting Fraud Claims in Maryland

It’s common for clients to ask me whether they are a victim of fraud – either in a business transaction or in personal or family matters.  The law of fraud in Maryland is complicated, with unique rules for pleading and proving a claim, and complex issues related to the measurement of damages.  This article does not fully cover all of these issues, but I will discuss here some key points relevant to fraud claims.

Fraud is also sometimes called “intentional misrepresentation” or “deceit.”  In this article I am only addressing civil lawsuits that assert claims of fraud, not criminal prosecutions for fraud.  There are crimes arising from fraudulent conduct, but that is a separate (and also complicated) area of the law. 

A civil lawsuit claiming fraud offers a remedy to someone who has been intentionally deceived by another’s representations about the existence of — or absence of — material facts, when that person relies on the false representations, was justified in doing so, and is actually damaged by doing so.  It only constitutes fraud if:

1. the person making the representation knew that the representation was false, or
2. made the representation with reckless disregard for the truth.

A critical element of a lawsuit for fraud in Maryland is to prove that the defendant intended to deceive the plaintiff.  This is referred to the “scienter” requirement for fraud.

The false representation involved in a fraud claim can be:

1. an affirmative misrepresentation of fact, 
2. the concealment of fact, 
3. a partially misleading disclosure of a fact, or
4. even a nondisclosure of fact, if there was an affirmative duty on the person to disclose that fact. 

Fraud generally does not encompass statements of mere opinion, or promises that amount only to predictions about future conduct or events.  A statement of opinion or prediction might provide the basis for a fraud claim if the defendant possessed special information or qualifications that enhanced the credibility of their statement, however.

When bringing a lawsuit for fraud in Maryland, a plaintiff is required to state in the complaint specific facts supporting each allegation of fraud. This is known as the requirement to “plead fraud with particularity,” and is a higher standard for pleading than in other types of lawsuits. 

Another thing that distinguishes fraud from other types of lawsuits is that the plaintiff in a fraud lawsuit must prove each of the elements of fraud by clear and convincing evidence.  This is a higher standard of proof than the preponderance-of-the-evidence standard that applies in most civil lawsuits.  

In cases where a person discovers that he has been induced into a contract by fraud, that person can choose between two available remedies – to rescind the contract, and have the parties placed back in their positions held before the contract was signed, or to ratify the contract and seek monetary damages for the fraud.  To seek rescission, though, the plaintiff is required to promptly ask for recission upon discovering the fraud, and then tender back the benefits received under the contract. 

There are several complicated issues relating to the measurement of damages in a fraud case, with courts having flexibility in awarding damages based on the circumstances. The assessment of damages in a fraud case may include measuring how much was lost out-of-pocket due to the fraud, or sometimes by a benefit-of-the-bargain measurement.  Damages for fraud can even include compensation for emotional distress, but only if the distress is reflected in some physical manifestation. 

Although a claim of fraud may sometimes be based on improper concealment of a fact, when it comes to business relationships courts have struggled to determine what level of concealment constitutes fraud, and under what circumstances.  Typically, businesses engaged in an “arm’s length” commercial transaction are not in the type of confidential relationship that can support a claim for fraud based on concealment.  There could be exceptions to this general observation, however, if the parties on either side of a transaction also have a separate confidential relationship distinct from their business roles. 

Beyond classic fraud, so-called “constructive” fraud can arise when a defendant owes an equitable duty to a plaintiff because they are in a confidential relationship – such as attorney and client, or guardian and ward. As with classic fraud, clear and convincing proof is required to prove constructive fraud.

Even when an intention to deceive is not present, Maryland law also provides a cause of action for negligent misrepresentation, when someone makes a material misrepresentation in a manner that is sufficiently careless, and that misrepresentation results in monetary damages, but the conduct doesn’t rise to the level of being deliberately fraudulent.  

Whether a claim for negligent misrepresentation is available can sometimes depend on whether there is a contract between the parties, or at least the risk of economic loss.  The measurement of damages also can vary depending on whether the risk of failure to exercise due care gave rise to a threat of serious personal injury.

The broad theme here is that successfully proving fraud can complicated, and the brief discussion in this article does not fully cover all aspects of the subject.  If you believe you may have been the victim of fraud, or if you or your company is being accused of committing fraud, I would welcome the opportunity to discuss these matters with you.  Please contact me at [email protected] or (410) 489-1996.

by Steve Lewicky

Managers of LLCs Must Act in the Best Interests of the Company

A limited liability company (or LLC) can be a great way for small- and mid-size companies to structure their business.  It provides asset-protection benefits like those of a corporation, but also allows the owners of the company to elect to structure the LLC as a pass-through entity for taxation purposes.  Unfortunately, problems can arise when the manager of a limited liability company puts his or her own interests above the interests of the company – or acts in a way inconsistent with obligations owed to other owners of the company.

The Maryland Limited Liability Company Act doesn’t expressly describe the fiduciary duties that are owed by managers to the limited liability company that they manage – or the duties owed by each owner of an LLC to co-owners.  Over the years, Maryland appellate court decisions have instead established a body of law on the fiduciary duties owed by members and managers to their companies and to fellow owners.  Beyond abiding by these common law fiduciary duties, managers and members of a Maryland limited liability company also must adhere to the terms of the company’s Operating Agreement. 

Maryland law recognizes different types of fiduciary duties.  For example, there are fiduciary duties between trustees and beneficiaries of a trust, between corporate directors and corporations, between lawyers and clients, between guardians and wards, between agents and principals, and among partners in a partnership or members in a limited liability company.  When it comes to business entities such as corporations, partnerships and LLCs, the basic obligations revolve around ensuring that corporate officers, managers of limited liability companies, and partners, act only in ways that advance the interests of the company, and not the individual interests of the corporate officer, LLC manager, or partner.  Officers and managers can’t take actions that conflict with, or are adverse to, the best interests of their company. 

For many years, there was uncertainty in Maryland law on whether a distinct legal cause of action was available to sue for a breach of fiduciary duty.  In 2020, however, the Maryland Court of Appeals clarified the law in this area and expressly held that that a member or a manager of a Maryland LLC can be sued by other members of the company for breach of fiduciary duty, as an independent and free-standing cause of action.  To sue for an alleged breach of fiduciary duty in Maryland, the complaining party must be able to demonstrate:

1. that there is a fiduciary relationship between the person bringing the claim and the defendant; 
2. that this fiduciary duty has been breached; and 
3. that the complaining party was harmed by this breach.    

Not every breach of a fiduciary duty is legally actionable, and not every breach of a fiduciary duty gives someone a right to sue for monetary damages.  Some breaches of fiduciary duties can only be remedied by using a court’s equitable powers, such as through the issuance of an injunction by the court ordering the offending party to do something, or to cease doing something.

It’s common for clients to come to me describing situations that call into question whether the manager of a limited liability company may be breaching the fiduciary duties that he or she owes to the other owners of the company.  From the company’s perspective, it’s important to ensure that decisions by company leaders are directed toward the interests of the company, and not solely to protecting the interests of individual members or officers.  From the perspective of members in limited liability companies, I often hear from so-called “minority” members of LLCs – that is, members that do not control the company because they own less than half the ownership interests in the company – that the people controlling the company are acting for their own benefit, and not in the best interests of the company as a whole.  The same complaint can arise in business partnerships.  If you are facing a situation like this, I encourage you to consult with an attorney who is knowledgeable about the law in this area.  There may be time limitations on asserting any claim, and it can be critical in some situations that injunctive relief be sought without delay.  

Our firm has the depth of experience to provide detailed guidance in this area.  If you have questions or concerns about the fiduciary duties owed by manages or officers of a Maryland limited liability company, I would welcome the opportunity to answer your questions and provide legal advice on these matters.  Please contact me at [email protected] or (410) 489-1996.

by Steve Lewicky

Could the European GDPR or the new California Privacy Act affect your business?

Digital privacy rights have received more attention since it was revealed that the voter-profiling firm Cambridge Analytica gained access to personal data of millions of Facebook users. This prompted the European Union to establish some of the toughest online privacy regulations in the world. Even companies outside Europe must comply with the E.U.’s new General Data Protection Regulation (“GDPR”) if their web presence extends into Europe. Facebook, for example, announced in April that it will offer the privacy controls required under the GDPR to all Facebook users, not just Europeans.

The State of California also recently enacted the Consumer Privacy Act, A.B. 375, which is modeled on the GDPR. The California Consumer Privacy Act is set to take effect on January 1, 2020, giving citizens an array of new rights, and more control over how their data is used. California consumers will have the right to request deletion of personal information, to opt-out of the sale of personal information, and to access personal information in a “readily usable format” that enables transfer to third parties without hindrance. It also makes it more difficult to share or sell data related to children younger than 16.

This California law will have an impact outside of that State, because it will apply to any legal entity that (i) does business in California, (ii) is operated for the profit or financial benefit of its owners, (iii) collects consumers’ personal information and determines the purpose and means of processing such information, and (iv) satisfies at least one of the following three conditions:
* Has an annual gross revenue of over $25 million
* Alone or in combination, annually buys, receives, sells or shares for commercial purposes the personal information of $50,000 or more consumers, households or devices, or
* Derives 50% or more of its annual revenues from selling consumers’ personal information

The California law will force companies meeting the minimum size threshold to be transparent about how they use consumer data. These companies will have to obtain permission before using targeting ads based on personal information that they’ve received, such as a person’s job, education, or the websites and apps used by the person.
Many companies that use or gather consumer data, from retailers to cellular network providers to internet companies, have at least some California customers. Companies large enough to be subject to the new law must bring their systems and websites into compliance, and ensure that their processes are robust enough to take action in response to consumer inquiries and requests.

by Steve Lewicky

May an attorney help a self-represented party write court papers or prepare a case for trial?

People that cannot afford to retain an attorney, or don’t wish to pay substantial attorneys’ fees, sometimes ask lawyers whether they can help with drafting court papers or with preparing a court argument, for the unrepresented party to then present himself or herself in court. While the person making the inquiry may not realize it, this presents a number of ethical concerns for the attorney, and for the legal system. The so-called “ghostwriting” of court papers by attorneys on behalf of pro se litigants has received increasing attention in recent years, and some observers see it as a partial solution to the high cost of legal services. The Journal of the American Bar Association published an article this month suggesting that some jurisdictions have become more accepting of the practice. The fact remains, however, that most jurisdictions in the United States take a dim view of attorneys ghostwriting court papers for non-lawyer litigants.

The state bar for each state creates ethical rules that bind attorneys practicing in that state, and these ethical rules vary on issues of ghostwriting and the “unbundling” of legal services. Different court systems also may have their own rules regarding the practice. The Federal court system, for example, has a well-established hostility to ghostwriting by attorneys. In Federal court practice, anonymous drafting of pleadings by attorneys for pro se litigants, without the attorney signing the pleadings, can result in suspension or disbarment from practice before the court. Almost ten years ago, the American Bar Association published a formal ethics opinion approving the practice, however. This ABA opinion is not binding on state bar associations, though, and the state authorities that actually regulate the profession generally have been far less open to the practice.

The term “ghostwriting” refers to an attorney representing a pro se litigant, informally or otherwise, and preparing pleadings, motions, or briefs for the litigant that the assisting lawyer does not sign. The Federal courts have expressed great concern about this practice because the attorney seeks to remain anonymous and therefore potentially outside the professional, ethical, and substantive obligations that are imposed on members of the bar when they sign a court pleading. Courts can view this as a deliberate evasion of the attorney’s ethical obligation to the court. When an attorney signs a court submission, he or she is thereby representing to the court that there are grounds to support the assertions made in the submitted paper. The practice of ghostwriting frustrates this obligation by keeping the identity of the attorney who drafted the paper anonymously. In addition, courts often give liberal interpretation to papers filed by self-represented parties, and allowing pro se litigant to benefit from this latitude while actually receiving counsel from an attorney is a disadvantage to an opposing party that may not have the benefit of a ghostwriting. Some courts have also viewed ghostwriting as a misrepresentation by the attorney, which violates an attorney’s professional responsibility to be candid with the court.

Several years ago, Maryland court rules were amended to expressly permit attorneys and clients to contractually agree to a “limited appearance” by the attorney. In a limited appearance, the attorney agrees to appear in a court proceeding for the client only for a limited, well-defined aspect of the case. For example, a client could retain an attorney to represent the client only in the child support aspect of a family law action, but not in the property aspects of the divorce proceeding. The limited appearance must be for a discrete matter or judicial proceeding, and the notice of appearance filed with the court must be accompanied by an Acknowledgment of Scope of Limited Representation signed by the client, specifying the scope of the limited appearance. This rule does not condone ghostwriting by attorneys in Maryland state courts, but it has moved the Maryland bar some distance down the road toward acceptance of unbundled legal services.

by Steve Lewicky

Early-stage companies look to the LLC form of business entity

A limited liability company (LLC) is a “pass-through” entity for tax purposes, once properly registered with the IRS, and is the preferred form of business entity for many small and mid-size companies.

Forming an LLC in Maryland is a straightforward process. A person authorized to do so by those persons forming an LLC files signed articles of organization with the Maryland Department of Assessments and Taxation (SDAT). Articles of organization in Maryland need only contain the name of the new LLC, the address of its principal office in Maryland, and the name and address of its resident agent. Articles of organization may also include other provisions, as long as they are not inconsistent with law. For example, articles of organization can provide that the authority of individual members to act for the LLC, solely by virtue of their being members of the LLC, is limited.

Although establishing a Maryland LLC by the filing of articles of organization is relatively easy, one of the advantages of using the LLC form of business entity is flexibility in structuring governance of the entity. The “ground rules” for operating a particular LLC are set forth in the LLC’s operating agreement – a document that plays a role similar to that of bylaws for a corporation. Maryland law does not even require an LLC to have an operating agreement, but any LLC having more than a single member should have a well-drafted and thoroughly considered operating agreement. (In some cases, single-member LLCs should have a written operating agreement, as well). Working with an experienced attorney to draft the right operating agreement for an LLC is a sound investment. Lawyers that have practiced in this area for any length of time will have stories of inadequate operating agreements that clients pulled together informally, or using ill-fitting examples found on the internet, to the later regret of the LLC’s members. Creating a solid, written operating agreement for an LLC, especially at or near the time of its formation, can head off a lot of problems later.

The subjects that can be covered in a written operating agreement are too numerous to be addressed in this article, but one significant matter to be included in an operating agreement for a multi-member LLC is the designation and powers of a “manager” for the LLC. Unless otherwise provided in an operating agreement, each member of a Maryland LLC would have the power to bind the LLC in the ordinary conduct of its business. Unless the articles of organization place limits on the authority of members to act for the LLC, each member of a Maryland LLC has apparent authority to execute any document in the name of the LLC. Instead of operating under these default arrangements, members of a Maryland LLC will wish to clearly designate, in a written operating agreement, who is to serve as the manager of the LLC and provide clear delineation of the manager’s authority to act for the LLC, along with the limits on that authority.

Unlike LLC statutes in other states, the Maryland LLC Act does not use the term “manager.” The Act does not establish statutory duties or a standard of care for members, managers, or other agents of a Maryland LLC, but court decisions during the past ten years suggest that a manager of a Maryland LLC owes the LLC, and its members, the common law duties of an agent. Courts have further suggested that this imposition, by default, of agency liability on managers can be altered or expanded by the LLC’s operating agreement. Another reason to have a written operating agreement, therefore, is to expand, alter, or clarify the manager’s duties to other members.

There are many good reasons for early-stage and other companies to seriously consider choosing an LLC as a legal entity. Forming an LLC in Maryland is relatively easy, but thinking through whether the company should have a written operating agreement, and the terms of any operating agreement, is an exercise in which an experienced business attorney will add real value.

by Steve Lewicky

Maryland Legislature approves tax credit for small business paid sick leave

At the end of its session this month, the Maryland Legislature approved $5 Million in tax credits for those small businesses that provide benefits under the Mandatory Paid Sick Leave Law to employees earning less than earn 250% of the annual federal poverty guideline. A small business may receive a tax credit equal to the lesser of $500 for each qualified employee, or the total amount of paid time off provided in accordance with the Paid Leave Compromise Act (SB 135/HB 98 of 2018) to qualified employees. Only businesses with 14 or fewer employees are eligible for this credit. The credit is to be provided on a first-come-first-credited basis until the $5 Million aggregate credit amount is reached. If signed by Governor Hogan as expected, this law will take effect on July 1, 2018, but will apply retroactively to the entire 2018 tax year.

by Steve Lewicky

State of Maryland Issues Guidance on the New Paid Leave Law

The Maryland Department of Labor, Licensing and Regulation (DLLR) updated its official FAQs on March 9, 2018, to guide Maryland employers in implementing the Maryland Healthy Working Families Act (the so-called “Paid Leave Law”). Since February 11, 2018, Maryland employers have been required to provide “sick and safe” leave benefits to their employees under this new law. Companies with 15 or more employees must provide paid leave to their employees. Companies with fewer than 15 employees need only provide unpaid leave.

The new DLLR publication provides guidance on the calculation of the 15-employee threshold, sick and safe leave accrual and tracking requirements, permissible uses of earned sick and safe leave, employer verification of sick and safe leave used, rehire requirements, and specific categories of employees. Here are a few of the new items clarified in the DLLR publication:

Does an employee need to give prior notice to the employer before using sick and safe leave?

DLLR says that, if the need for sick and safe leave is foreseeable, an employer may require its employees to provide up to seven days of notice before taking leave. If the need to use leave is not foreseeable, the employee must provide notice as soon as possible.

Can an employer designate different methods of accruing sick and safe leave for different types of employees?

Yes. DLLR says that “an employer could front-load leave to full-time employees but provide that part-time employees earn leave on an accrual basis.” DLLR recommends that such a policy is in writing and clearly communicated to all employees. Such a policy must be applied consistently with regard to each type of employee.

Do paid holidays count toward earned sick and safe leave? Can an employee accrue earned sick and safe leave while using PTO?

The new guidance directs that an employer cannot deduct holiday hours from an employee’s earned sick and safe leave if the employer’s business does not operate on those holidays, and the employer provides paid time off for those holidays. If an employer’s business operates on holidays and employees work or are expected to work on holidays, however, the employer may deduct from the employee’s accrued sick and safe leave if the employee takes a leave day and does not work on the holiday. The law does not require that an employee accrue sick and safe leave while using paid time off.

What happens in weeks where an employee occasionally works less than 12 hours in a week?

An employee that normally or customarily works less than 12 hours a week is not covered by the law. However, if an employee customarily works 12 or more hours per week but on an isolated week works less than 12 hours, those hours would still count toward the employee’s sick and safe leave.

How does an employer handle the accrual of earned sick and safe leave if the employer advances the leave time at the beginning of the year and the employee is not hired at the beginning of the designated benefit year?

If an employer advances sick and safe leave time on January 1st and an employee is hired later during the year, the employer must ensure that the employee earns sick and safe leave in an amount equal to or greater than the leave provided for under the earned sick and safe leave law, until the beginning of the next benefit year.

Does earned sick and safe leave count toward the fringe benefit amount on a Maryland prevailing wage project?

DLLR says that paid sick and safe leave may be credited toward the fringe benefit requirement on a Maryland Prevailing Wage project.

What pay rate should an employee working on a Maryland Prevailing Wage project be compensated when using earned sick and safe leave?

DLLR says that earned sick and safe leave should be compensated at an employee’s standard rate of pay, at the same rate the employer compensates employees for other paid fringe benefits

by Steve Lewicky

Most Maryland employers will be required to provide sick leave in 2018

Most Maryland employers will be required, beginning sometime during the first half of 2018, to provide sick leave to their employees. It’s not entirely clear when this requirement will kick in. Mandatory employee sick leave was enacted by the Maryland Legislature last year but was vetoed by Governor Hogan. The Governor’s veto was overridden by the Legislature, on January 12, 2018. With this veto override, the law is presently scheduled to go into effect on February 11, 2018 (30 days after the override vote).

The main sponsor of the legislation has introduced emergency legislation that would delay implementation of the law for an additional 60 days, to mid-April. Many members wish to allow more time for the Hogan administration to draft implementing rules and regulations. Some Republican members of the Legislature have called for implementation to be delayed further, until July 2018. Unless the Legislature passes emergency legislation before the end of this year’s three-month legislative session, however, Maryland employers will have to provide the required sick leave benefits starting on February 11, 2018. Based on information published by the Legislature, here is a summary of what the law will require, once it goes into effect:

Which employers will be required to provide sick leave?

• Maryland employers with 15 or more employees must provide paid sick leave.
• Maryland employers with fewer than 15 employees also must provide sick leave, but for these employers, the leave may be unpaid.
• To determine the number of employees for these purposes, the law looks to the average monthly number of persons employed during the prior twelve months, including full-time, part-time, temporary, and seasonal employees.
• The following classes of employees are not covered:
  • Employees that regularly work fewer than 12 hours a week.
  • Construction industry employees who are covered by a collective bargaining agreement that expressly waives the right to leave under this Act.
  • Employees that work on an as-needed basis in the health or human services fields, to the extent they (1) can reject a shift offered by the employer, (2) are not guaranteed work by the employer, and (3) are not employed by a temporary staffing agency.
  • Independent contractors
  • Licensed real estate salespersons or brokers, or those affiliated with a licensed broker by a written agreement, who are paid solely on commission, and who qualify as independent contractors for federal tax purposes.
  • Employees that were under the age of 18 before the beginning of the year.
  • Agricultural employees processing crops or working for a farmer in the production, harvesting or marketing of the product.
  • Temporary staffing agency employees, if the agency does not have day-to-day control over their work assignments and supervision.
  • Employment agency employees providing part-time or temporary services to another person.

How does sick leave accrue?

• Sick leave must accrue at a rate of at least 1 hour for every 30 hours worked.
• Exempt employees are assumed to work 40 hours in a workweek unless they are regularly scheduled for fewer hours, in which case their regularly scheduled hours are used.
• Tipped employees receiving paid leave must be compensated at the minimum wage rate, which will be $9.25 at the time that the law becomes effective.
•  An employer may choose any 12-month period to constitute a “year” for purposes of accruing leave under the Act.
•  The amount of leave that may be earned per year is capped at 40 hours (five 8-hour days).
•  The total amount of leave that may be accrued (including carryover, as discussed below) may be capped at 64 hours (eight 8-hour days).
•  The total amount of leave that may be used by an employee may be capped at 64 hours per year.
•  An employer is not required to allow accrual of leave: (1) during a two-week pay period in which the employee worked fewer than 24 hours; (2) during a one-week pay period in which the employee worked fewer than 24 hours in the current and immediately preceding pay period; or (2) during a semi-monthly pay period in which the employee worked fewer than 26 hours.
• An employee starts accruing sick leave immediately upon hire, but an employer may prohibit the use of leave during the initial 106 calendar days of employment.

Does sick leave carry over from year to year?

• Employers are allowed to make available to employees the full annual allotment of leave at the beginning of the year. If an employer does so, then it is not required to permit carry-over from year to year
• If an employer does not make the full annual allotment available at the beginning of the year, however, the employer must permit carryover of the balance of any unused leave to the next year, up to a maximum of 40 hours.

May an employee use his or her sick leave to care for family members?

• Yes, and there is a broad definition of family members for these purposes, including:
  •  Spouse.
  • Child, including biological, foster, adopted, or step, as well as one for whom the employee has legal or physical custody or guardianship, or stands in loco parentis (i.e. acts as the parent, regardless of the legal relationship).
  •  Parent, including biological, foster, adopted, or step for the employee or the employee’s spouse, as well as one who was the legal guardian of or stood in loco parentis to the employee or employee’s spouse.
  • Grandparent, including biological, foster, adopted, or step, of the employee.
  • Grandchild, including biological, foster, adopted, or step, of the employee.
  • Sibling, including biological, foster, adopted, or step, of the employee.

May an employee use leave before it has accrued?

• An employer may, but is not required to, permit an employee to “borrow” leave that has not yet been accrued.
• If the employee terminates employment before the borrowed leave has been accrued (and therefore paid back), the employer may deduct the advanced amount of leave from the employee’s final paycheck only where there is a written, signed authorization by the employee to allow the employer to do so.
• If an employee is rehired within 37 weeks, the employer must reinstate the bank of unused leave unless it was paid out upon termination.
• If an employer acquires another company and retains employees from that company, the employees retain the leave accrued under the prior company.

Does an employee receive payment for accrued but unused sick leave, at the end of employment?

• An employer is not required to pay out accrued but unused leave upon termination of employment.

Does an employee need to give prior notice to the employer, before using sick leave?

•  If the need for sick leave is foreseeable, an employer may require its employees to provide up to seven days of notice before taking leave.
• If the need is not foreseeable, the employee must provide notice of the need for such leave as soon as practicable, and must comply with the employer’s notice requirements for absences, as long as those requirements do not interfere with the ability to use leave.
• The employer may deny the use of leave if the employee fails to provide the required notice, and the absence will cause a disruption.
• An employer is not allowed to require an employee to look for or find a replacement worker, as a prerequisite to taking sick leave.

Can an employer require proof of proper use of sick leave?

• Yes. An employer may request verification of the appropriate use of leave if an employee uses more than two consecutive scheduled shifts of leave.
• Verification may also be required if the employee uses leave between the 107th through 120th calendar days after beginning employment, on terms that the employee agreed to at the time of hire.
• If the employee fails to provide the verification, subsequent requests to take leave for the same reason may be denied.

Are their record-keeping requirements?

• Of course, there are! Each time wages are paid, an employer must provide a written statement of available leave. This requirement may be satisfied through an electronic system where the employee can access their leave balances.
• Employers must maintain records, for at least three years, of leave accrued and used by each employee. Failure to keep these records creates a rebuttable presumption that the employer has violated the Act. These records must be available for inspection by the DLLR.

It’s important for all Maryland employers to examine their leave policies before the present effective date of the law (February 11, 2018) to ensure compliance. After the law goes into effect, employees will have the right to file complaints about violation of the law with the commissioner of the DLLR.

This summary is not legal advice, and should not be used for this purpose. Please contact the Law Office of Steven J. Lewicky with any questions about these new requirements.