News

by Steve Lewicky

Maryland condominium associations may not use condominium amenities to enforce condominium assessment payment

The Maryland Court of Appeals issued a decision on June 23, 2017, discussing the extent to which a condominium association may impose restrictions on a unit owner’s right to access common amenities of the condominium.    In Elvation Towne Condominium Regime II, Inc. v. Rose, the court looked at a condominium association with a “suspension-of-privileges” rule, by which the association prohibited unit owners from parking overnight on the property or using the pool during periods when the owner was delinquent in paying condominium fees.  The unit owners bringing this case were alleged to be in arrears in making require payments of assessments, so the association not only sued the owners for the amount owed in the District Court of Maryland but also barred them from overnight parking or use of the pool.  The owners brought their own suit against the condominium association in Circuit Court, seeking a declaratory judgment striking down the prohibition against the use of common amenities.

The Court of Appeals held that a Maryland condominium association may restrict access to common areas and amenities as a means to enforce payment of condominium fees, but only if this enforcement mechanism is expressly provided for in the condominium’s declaration.  This was not the case here, because the action was taken based only on a rule enacted by the condominium’s board. Therefore, the court would not allow this enforcement mechanism against these particular owners.

In making this decision, the court wrestled with whether a “suspension-of-privileges” rule constitutes a taking of property, requiring more than a rule-making under the Maryland Condominium Act.  The court held that, when a rule disparately affects a portion of unit owners by revoking a property interest they acquired when they purchased their units, without affecting the rights of other unit owners, there is a taking of property.  The court went on to find that restricting a condominium owner’s access to the community-held property is a significant infringement of the owner’s property rights, which may only be authorized by a provision in the condominium’s declaration, and not be a rulemaking.

by Steve Lewicky

Prevailing parties in Maryland breach of contract lawsuits may be awarded compensation for time spent supporting litigation efforts, if the contract provides for reimbursement of business losses.

As a general rule in American jurisprudence, each party to a lawsuit pays its own attorneys’ fees and costs of litigation, regardless of which party prevails.  A well-established exception to this rule provides that parties to a contract may agree that the prevailing party in any lawsuit arising out of the contract is to be awarded its attorneys’ fees and court costs as part of the judgment, to the extent the court finds such fees and costs to have been reasonable.  In the recent case of Under Armour, Inc. v. Ziger/Snead, LLP, however, Maryland’s intermediate appellate court interpreted a contract between two parties to also permit reimbursement of business costs incurred due to litigation, beyond attorneys’ fees and typical court costs.  This potentially expands the exposure of losing parties to paying substantial additional amounts to prevailing parties.

The contract, in this case, was between a property owner and an architecture firm.  The contract provided that, if the architecture firm employed attorneys to gain enforcement of the agreement, the property owner would have to reimburse the architecture firm for its attorneys’ fees, costs, and expenses arising in litigation.  That portion of the contract was typical of a fee-shifting provision, but the contract went on to also provide for reimbursement of “losses” incurred by the prevailing party.

At trial, the jury awarded $58,940 in compensatory damages to the architecture firm, and after post-trial motions, the court also awarded the architecture firm $182,735 in attorneys’ fees, $155 in court costs, $42,830 in litigation expenses, and another $62,190 to compensate it for business “losses.”  These recovered losses were the value of time expended by one of the principals in the architecture firm, and several employees of the firm, on the investigation of the dispute and in performing litigation-related tasks at the request of its attorneys. To prove the amount of its losses, the firm presented evidence of the number of hours spent by its principal and other employees on litigation matters, multiplied by their hourly billing rates typically charged to firm clients – on a theory that the time expended on litigation matters was time they otherwise would have been billing to clients for their usual services.  The court decided to compensate the firm for 79 ½ hours of employee time spent evaluating the case and preparing for and attending mediation, 154 ½ hours investigating the facts, dealing with discovery, and preparing for and attending depositions, and 69 ½ hours preparing for and attending the trial.

The award of business losses, in this case, will be a surprise to many attorneys, because there has been a well-established practice of limiting the scope of most fee-shifting contract provisions to reasonable attorneys’ and court costs.  Opening the door to compensating a prevailing party for the value of its employees’ time preparing for and participating in litigation will cause careful contract drafters to include “losses” among the items that can be awarded to a prevailing party, should a dispute arise under the contract.  The result could be substantially larger awards in contract actions.  This outcome probably feels fair to the prevailing party and may be considered outrageous by the losing party, but the practical result will be that contract litigation may now become even more financially risky.  In this case, the amount of compensatory damages was $58,940, but additional fees and costs that were awarded totaled about $230,000, of which $62,190 were to compensate for “losses.”  Litigating parties will face pressure to negotiate a settlement prior to trial, in light of increased financial exposure in the event of a loss a trial.  Placing increased financial pressure on all parties effective benefits the party having greater financial resources, since that party can better withstand a negative result at trial.

by Steve Lewicky

Federal contractors now must provide training to their employees on protection of Personally Identifiable Information

New requirements were placed on Federal contractors this year, to train their employees on the protection of personally identifiable information (known as “PII”).  Under a new rule that went into effect in January 2017, all federal contractors that handle or have access to the personally identifiable information of others must provide training to their employees.  The rule applies not only to large government contractors, but also to contractors “at or below the simplified acquisition threshold (SAT), and to contracts and subcontracts for commercial items, including contracts and subcontracts for commercially available off-the-shelf (COTS) items.” The rule requires prime contractors to flow down these privacy training requirements to their subcontractors.  Personal identifiable information (“PPI”) is any type of information that may be used to trace or distinguish an individual’s identity.7

Government contractors and subcontractors must ensure that their employees complete an initial privacy training course, and thereafter undergo annual refresher training. An employee must receive training if they:

• Have access to any system of records
• Design, maintain, develop, or operate the contractor’s system of records
• Store, collect, create, use, maintain, or dispose of personal identifiable information on behalf of the contractor.

The training is to include:

• Explanation of the authorized and official use of personal identifiable information, and of records containing such information
• How to appropriately safeguard and handle private information
• Applicable restrictions of the use, collection, access, disclosure, and disposal of personal identifiable information
• Procedures to be followed during a suspected or confirmed breach of security for personal identifiable information

Contractors are required to customize their privacy training to fit particular employee’s duties, and the training must include foundational levels of privacy training, as well as advanced privacy training where appropriate. Employees must be tested to ensure they have the level of knowledge necessary to keep personal identifiable information private. Contractors are required to keep records of training to show what type of training particular employees received, and these records are subject to audit by the government.

Federal contractors and subcontractors need to consider which of their employees (if any) handle or have access to the personally identifiable information of others, and prime contractors need to ensure that their subcontractors comply with these new training requirements.  In addition to providing the required training, contractors and subcontractors also must comply with the record-keeping requirements in the new rule.

by Steve Lewicky

A new, less expensive alternative to special needs trusts will become available in late 2017

Persons with disabilities often confront substantial financial difficulties — especially as adults — because ownership of more than $2,000 in assets will make them ineligible for government benefits that are critical for their care and support.  Families with the resources necessary to create special needs trusts have used these trusts to hold assets for the benefit of disabled persons without those assets affecting eligibility for government benefits or programs.

At the end of 2014, President Obama signed the federal ABLE Act, modeled after Section 529 of the Tax Code governing college savings plans.  The ABLE Act allows states to establish programs whereby disabled people may save money in tax-deferred accounts that may be used to pay for qualified disability expenses, without losing eligibility public benefits as a result of owning assets held in these accounts.  Withdrawals from ABLE accounts will be tax-free, as long as they are used for qualified disability expenses.  States also may choose to offer a state tax deduction for contributions to these accounts.

Unlike 529 college savings accounts, only the disabled individual or a legal guardian (or someone holding a power of attorney) may open an ABLE account, and each disabled person may only have a single ABLE account.  Accounts cannot be opened by other people on behalf of a disabled person.  Multiple individuals can contribute to a disabled person’s ABLE account, but the total contributions in a particular year may not exceed the federal gift limit, which is currently $14,000.  Total lifetime contributions may not exceed $350,000.  When the beneficiary passes away, and if that person used Medicaid, the Medicaid program can be reimbursed out of funds remaining in the account.

Assets in an ABLE account are disregarded for purposes of determining Medicaid eligibility.  For purposes of determining eligibility for Supplemental Security Income (SSI), however, only the first $100,000 in ABLE account assets are disregarded.  SSI payments of monthly cash benefits will be suspended if the beneficiary’s ABLE account balance exceeds $102,000.  In other words – unlike the current situation, in which a disabled person may hold no more than $2,000 in personal assets without losing government benefits – a disabled person may now hold up to $102,000 in an ABLE account without losing SSI benefits.

The Maryland Legislature has established a Maryland ABLE program, and the program is in the process of being set up.  Maryland has decided to make the first $2,500 per year in contributions to an ABLE account deductible from state taxes (in addition to all earnings on the accounts being tax-free).  Maryland plans to decide, by the end of this summer, which investment company will serve as the program manager, and Maryland ABLE accounts are scheduled to become available to the public by approximately November 1, 2017.

While ABLE accounts perform many of the same functions as a special needs trust, costs for an ABLE account are far lower than the cost to establish and maintain a special needs trust.  While there still will be some situations in which a special needs trust is needed, for many families an ABLE account will meet all of their needs at a substantially lower cost.  Individuals can maintain both an ABLE and account and a special needs trust, if necessary.

More information about ABLE accounts may be found at Maryland529.org/MDABLE.

by Steve Lewicky

New mandatory paid leave requirements are expected to take effect in early 2018

On March 15, 2017, the Maryland Senate passed the Maryland Healthy Working Families Act (S.B. 230) (often referred to as the “Paid Leave Act”).  The Act was previously passed by the House of Delegates as H.B. 1.  Time ran out on the annual legislative session before the governor acted on the bill, but Governor Hogan is expected to veto the Act prior to the beginning of the 2018 legislative session, setting up an override vote at the beginning of that session.  The Act appears to have veto-proof support in the Legislature, however.  Therefore, it is likely that the Act will take effect in early 2018.

If the Act becomes law, Maryland employers will need to update their employee handbooks and policies to reflect these new leave mandates.  The Act would require all Maryland employers with 15 or more employees to provide paid leave to their employees, up to 40 hours per year.  Maryland employers with 14 or fewer employees will be required to provide unpaid leave to their employees, up to 40 hours per year.  Employees that work more than 12 hours per week will be entitled to leave. Leave may be used by an employee to care for or treat his or her physical or mental illness or injury, to obtain preventative medical care for the employee or for a member of the employee’s family, to care for a family, or for maternity or paternity leave.

The Act will not apply to employees that work fewer than 12 hours per week, to some on-call employees in the health or human services industries, to temporary workers, or to construction workers that are covered by a collective bargaining agreement in which the requirements of the Act are expressly waived.

If an employer grants leave on an accrual basis throughout the year, it must allow employees to carry over up to forty hours of their accrued but unused leave into the following year.  If leave is granted in a lump sum at the beginning of the year, however, the employer need not allow carry-over of accrued but unused leave at the end of the year.  Employers are not required to pay employees for unused leave upon termination.

The Act carries significant penalties for those employers that fail to comply.  Available penalties include awards equal to three times the value of unpaid earned leave, punitive damages, reimbursement of attorneys’ fees, and injunctive relief.  Before filing suit, however, an employee must file a written complaint with the Maryland Department of Labor, Licensing and Regulation, which may issue an order directing payment of the monetary value of the unpaid earned leave, and potentially other penalties.  Only if the employer fails to comply with the Department’s order may the employee then file suit in court.

While advocates believe that provision of family leave will be beneficial to workers and their families, many business groups fear that extending required paid leave to businesses with as few as 15 employees may have a substantial adverse effect on the economy. Regardless of the law’s economic impact, it is important that all Maryland employees be aware of these likely changes to leave requirements, beginning in early 2018, and adjust their policies and employee manuals to reflect these anticipated changes.

by Steve Lewicky

Federal court expands definition of “joint employment” for wage and hour compliance purposes.

The U.S. Court of Appeals for the Fourth Circuit, which makes decisions that are binding on federal courts in Maryland, issued a ruling on January 25, 2017, that will have a significant impact on industries where subcontractors provide labor on projects.

The Fair Labor Standards Act (FLSA) establishes a federal minimum wage and requires employers to pay “time and a half” overtime to employees that work more than forty hours in a single workweek. The Department of Labor has long maintained regulations recognizing that it is possible for a single worker to serve in the role of an employee to two or more employers at the same time, for purposes of the FLSA. The regulations make a distinction between “separate and distinct employment” of a worker and “joint employment” of a worker by two companies. An employment relationship is “separate and distinct” when two employers act entirely independently of each other and are completely disassociated from each other with respect to a worker’s employment. Joint employers, on the other hand, are responsible (individually and jointly) for compliance with overtime laws and regulations. The hours that an employee works for each of two joint employers in a single workweek must be aggregated to determine whether, and to what extent, the worker is to be paid overtime. When there is “joint employment,” a worker’s employment by the joint employers is treated as “one employment” for purposes of determining compliance with wage and hour requirements, and the joint employers are held jointly and severally liable for violations.

In the case that was recently reviewed by the Fourth Circuit, several workers were employed by a small subcontractor as framing and drywall installers, and that subcontractor did almost all of its work for a single general contractor. While the subcontractor was responsible for hiring and firing, on a few occasions workers received paychecks directly from the general contractor. The general contractor played a role in determining the workers’ daily and weekly schedules, and the general contractor regularly communicated its site staffing needs to the subcontractor. The workers wore hardhats and vests bearing the general contractor’s name and logo and were required to sign in on timesheets provided by the general contractor. The general contractor’s foremen continually supervised the workers and owned nearly all the tools and materials used by the workers.

Applying a previously-applicable legal test to determine whether these facts constituted “joint employment,” the trial court ruled that it did not. On appeal, however, the Fourth Circuit has now established a broader test than was applied by the trial court. Going forward, federal courts in the Fourth Circuit (including the federal courts in Maryland) will consider six factors in determining whether two or more employers are “not completely disassociated” with respect to a worker, for purposes of determining joint employment:

1. Whether, formally or as a matter of practice, the putative joint employers jointly determine, share, or allocate the power to direct, control, or supervise the worker, whether by direct or indirect means;
2. Whether, formally or as a matter of practice, the putative joint employers jointly determine, share, or allocate the power to – directly or indirectly – hire or fire the worker or modify the terms or conditions of the worker’s employment;
3. The degree of permanency and duration of the relationship between the putative joint employers;
4. Whether, through shared management or a direct or indirect ownership interest, one putative joint employer controls, is controlled by, or is under common control with the other putative joint employer;
5. Whether the work is performed on premises owned or controlled by one or more of the putative joint employers, independently or in connection with another; and
6. Whether, formally or as a matter of practice, the putative joint employers jointly determine, share or allocate responsibility over functions ordinarily carried out by an employer, such as handling payroll, providing workers’ compensation insurance, paying payroll taxes, or providing the facilities, equipment, tools, or materials necessary to complete the work.

These six factors are not an exhaustive list of all potentially relevant considerations for a court to review. Ultimately, the determination of “joint employment” will be based upon the circumstances of the entire activity. The appeals court expressly held that the fact that there is a legitimate contractor-subcontractor relationship between the putative joint employers is not relevant, nor is liability predicated on any bad faith by the two companies in seeking to avoid compliance with wage and hour laws.

This broader standard is likely to expose many companies to joint liability for payment of minimum wages to the employees of their subcontractors. Companies that retain subcontractors would be well-advised to closely examine particulars of their relationships with employees of subcontractors, to avoid the consequences of being found to be the “joint employer” of employees for purposes of complying with the FLSA.

by Steve Lewicky

Maryland court clarifies the burden of proof to be applied in defamation lawsuits

People often think that any false statement asserted about a person is defamatory.  In fact, the law of defamation is complicated, and different standards apply to public figures and to private citizens outside of public life.

To successfully make a case of defamation in Maryland, you must establish that the accused defendant made a defamatory statement to a third person, that this statement was false, that the defendant was legally at fault in making the statement, and that the plaintiff suffered harm as a result of the statement’s publication.  A statement is only “defamatory” if it tends to expose a person to public scorn, hatred, contempt, or ridicule, and thereby discourages the community from having a good opinion of, or associating with, the person that was the subject of the statement.  Even if a statement is defamatory, a defendant still may raise what is known as a “qualified” or “conditional” privilege from being held responsible and thereby be excused for the defamation if the defense is proven.

One form of conditional privilege is the First Amendment privilege.  The U.S. Supreme Court established decades ago that statements pertaining to public figures on matters of public concern are excepted from defamation liability, unless the speaker or writer had actual knowledge that the statement was false, or acted with reckless disregard for the truth.  This is a very high standard of proof and makes it very difficult for a public figure to win a defamation action.

Private citizens that are not public figures do not have to overcome this First Amendment privilege to prevail in a defamation action, but there are other privileges, arising under the common law, that may derail a defamation action brought against a private person.  There is a “public interest” privilege, for example, permitting persons to communicate to public officials about matters that are within their public responsibility.  There is a privilege to communicate with someone who shares a common interest or to make statements in defense of oneself, or in the interest of others.  There is a “fair comment” privilege, and a privilege to make a fair and accurate report of public proceedings.  The breadth of these common-law privileges is not precisely defined by case law.

On November 22, 2016, the Maryland Court of Appeals issued a decision clarifying one aspect of defamation law:  In cases of private defamation, the plaintiff has the burden of proving the falsity of the allegedly defamatory statement.  If the defendant asserts a common law conditional privilege, the plaintiff also bears the burden of overcoming that privilege.  The Court, in this recent case, has now clarified that the standard of proof that the plaintiff must meet in overcoming a conditional privilege is proof by a preponderance of the evidence.  This decision establishes that a plaintiff in such a case need not meet the higher standard of overcoming a conditional privilege by clear and convincing evidence, which is required in some other states.