Maryland: New Employment Laws – Expedited Minimum Wage Increase, Changes to Paid Family and Medical Leave, and More (and a Webinar!)

By Fiona Ong - Shawe Rosental LLP

April 12, 2023

The Maryland General Assembly’s 2023 session ended at midnight on Monday, April 10. Although there were fewer employment bills passed this year compared to recent years, several of them will have a significant impact on employers, including an expedited increase to the minimum wage rate and some clarification around and a delay to the new paid family and medical leave benefits program. There was also an expansion to the non-compete ban, as well as new authority for the Maryland Attorney General to pursue discrimination claims against employers. Finally, although the cannabis reform bill does not directly speak to the general workplace impact, there are developments of which employers should be aware. We will be holding a webinar with the Maryland Chamber of Commerce at noon on May 3, 2023 to provide guidance on compliance with these new laws.

At this point, all of these bills have gone to the Governor, who could sign them into law, veto them, or allow them to become law without his signature. He has already signed the minimum wage bill. As to the remainder, given that we now have a Democratic Governor working with the majority Democratic General Assembly, vetoes are not expected. Once they become law (i.e. are enacted), most new laws typically have an effective date of October 1 of the same year; however, some will take effect earlier this year.

A. The Minimum Wage Increase (SB 555)

Takeaway: The minimum wage rate will increase to $15.00 per hour on January 1, 2024.

As many of you will likely recall, a law was passed in 2019 that increased the minimum wage rate for employers with 15 or more employees in increments from the then-applicable rate of $10.10, to $15.00 by January 1, 2025. A delayed schedule applied to smaller employers, who would reach the $15.00 rate by July 1, 2026. The current rate for larger employers is $13.25, and for smaller employers is $12.80.

Upon assuming office this January, however, Governor Moore made it one of his legislative priorities to expedite the increase to $15.00. This increase will now take effect on January 1, 2024.

During the legislative process, concern was expressed about the impact on smaller employers, who will experience a larger bump in the rate and who generally experience a greater relative impact on their operations as a result of these types of workplace mandates. However, the suggestion to delay the increase for these employers was ultimately rejected, and the $15.00 minimum wage will apply to all employers regardless of size.

B. Modifications to the Paid Family and Medical Leave Insurance Program (SB 828/HB 988)

Takeaway: Implementation is delayed for a year, total contribution is capped at 1.2% of wages, and the contribution will be split 50-50 between the employer and employee.

As most employers know, last year the General Assembly passed a law, over then-Governor Hogan’s veto, that set up a paid family and medical leave insurance program. The program will apply to all employers with employees in Maryland. It will provide eligible employees with 12 weeks of paid family and medical leave, with the possibility of an additional 12 weeks of paid parental leave (for a possible total of 24 weeks of paid leave). This $1.6 billion program will be administered by the State and funded by contributions from employers and employees. Contributions were to begin October 1, 2023, with benefits starting January 1, 2025. The Maryland Department of Labor was directed to conduct studies and issue regulations to implement the provisions of the law.

Last year, we summarized the extensive provisions of the new law and identified many of the concerns raised by the hastily-passed and poorly-structured law. Recognizing the multitude of issues with the law, the General Assembly has passed a bill that modifies the law to some degree – although it still leaves many questions and concerns unaddressed. Among the more significant things that the bill does:

•   Implementation dates are delayed by a year. Contributions will now begin on October 1, 2024, and benefits will begin on January 1, 2026. The Secretary of Labor has been directed to issue regulations implementing the program by January 1, 2024.
•  The total contribution rate is capped at 1.2% of an employee’s wages, up to and including the Social Security wage base. (Social Security limits the amount of earnings subject to taxation for a given year; for 2023, this wage base is $160,200.) Under the current law, this amount had been left to the Maryland Department of Labor to determine without any limitation. At this time, based on the required studies, the MDOL has posited that the actual initial contribution rate will fall somewhere between .91% and 1.15%.
•  The total contribution rate will be adjusted annually by the Secretary of Labor, rather than every two years as set forth in the original law.
•  The contribution will be split 50-50 between the employer and the employee, although an employer may choose to pay more. The law originally provided that each party’s contribution would range between 25-75% of the total, with the MDOL determining the actual split. As a reminder, employers with fewer than 15 employees will not be required to make the employer contribution; however, their employees will still be required to do so and will still be entitled to paid leave benefits under the law.
•  If an employee declines to apply for benefits under this program while on designated leave under the federal Family and Medical Leave Act, the FMLA leave will still count against the employee’s 12-week entitlement to benefits.
•  Employees cannot be required to use certain paid leave – including vacation, sick leave, or PTO – before or while receiving program benefits. The employer and employee may agree to allow the use of paid leave to bridge the difference between the program benefit amount and 100% of pay.
•  Employers may require that program benefits be coordinated with employer-provided leave or benefits for parental care, family care, military leave, or disability.
•  “Domestic partner” is added to the list of family members for whom the employee may take leave to provide care. As we previously noted, the list already includes several relatives beyond those covered in the federal Family and Medical Leave Act (spouse, parent, and child under age 18): grandparents, grandchildren, and siblings
•  It adds a definition of wages to include: hourly wage or salary; commission; compensatory pay; severance pay; standby pay; tip or gratuity; holiday or vacation pay; and any other paid leave, including sick leave, paid entirely by the employer.
•  Originally, the State was required to notify the employer within 5 business days after an employee files a claim for benefits. The bill now adds other events requiring notice by the State to the employer: when a determination regarding a claim is made; when an appeal to a claims determination is filed; and when a change is made to a claims determination.
•  Employees may file an application for benefits up to 60 days before and up to 60 days after the anticipated start of the covered leave. This deadline can be waived for good cause, however.
•  The law originally required the State to pay the employer’s share of the contribution for community-based agencies or programs funded by the Behavioral Health Administration, the Developmental Disabilities Administration, or the Medical Care Programs Administration to serve individuals with mental disorders, substance-related disorders, or developmental disabilities. The bill now sets different rates of State reimbursement of the employer’s contribution for the different categories of community-based agencies or programs.

There are still many issues left to be addressed – hopefully by the required regulations. As for the actual implementation of the program, it seems that the Department of Labor, which is understaffed and under-resourced, is considering outsourcing it to a third party. It would also not be surprising if further modifications to the program occur in the next General Assembly session.

This law is set to take effect on June 1, 2023.

C. Expansion of the Noncompete Ban (SB 591)

Takeaway: Noncompetes are banned for employees making less than 150% of the minimum wage rate.

Under a 2019 law, employers are prohibited from including a noncompete or conflict of interest provision in an employment contract with an employee earning $15 or less per hour or $31,200 or less annually. According to the law, such provisions, which restrict the ability of the employee to work for a new employer or become self-employed in the same or similar business or trade, are void as against public policy.

This session, the law was amended to increase the cutoff to 150% of the State minimum wage rate. At the current minimum wage rate of $13.25 for employers of 15 or more employees, this means employees making $19.88 per hour. For smaller employers at the $12.80 rate, the applicable cutoff will be $19.20 per hour. This will jump up to $22.50 per hour on January 1, 2024, when the above-discussed minimum wage increase takes effect. The increase in the applicable rate means that more employees will be covered by the ban on noncompetes. However, the existing law specifically provides that employers may still prohibit such employees from taking client lists or other proprietary client-related information.

Upon enactment, the revisions to the law will take effect on October 1, 2023.

D. Civil Rights Enforcement Authority of the Attorney General (SB 540)

Takeaway: The Maryland Attorney General will now be able to investigate and bring suit against employers for violations of Maryland’s anti-discrimination law – and recover the costs of doing so from the employer.

During this legislative session, the Maryland Attorney General sought and received the authority to investigate, prosecute, and remediate civil rights violations, specifically including acts of discrimination under Maryland law. This means that the Attorney General may investigate and file suit against employers for violations of the State anti-discrimination law. The Attorney General has stated that he intends to go after employers engaged in a pattern or practice of discrimination against multiple employees.

This bill raises some significant concerns for employers. First, under the well-established process for asserting employment discrimination and harassment claims under State law, an employee must first file a complaint of discrimination with the Maryland Commission on Civil Rights before they can file suit. Any such complaint must be filed with the MCCR within 300 days of the allegedly wrongful act. The Attorney General, however, need not follow that process and may commence an action up to 3 years after the incident of discrimination or harassment.

In addition, the bill gives the Attorney General the right to seek injunctive relief (prohibiting continuing wrongful action) without meeting the standard requirements for such relief. Typically, the party seeking an injunction must establish that there is no adequate remedy at law and that it would suffer an irreparable injury absent such relief. The Attorney General, however, will not be required to make such a showing.

If there is a violation, the Attorney General may obtain equitable relief, which includes injunctions as well as “any appropriate action.” Additional remedies expressly include economic damages. The Attorney General may also obtain a civil penalty, up to $10,000 for a first violation and $25,000 for subsequent ones.

But of greatest concern, the Attorney General is able to obtain reimbursement of the costs of the investigation and litigation from the employer – an unprecedented remedy by the State.

Once enacted, the law will take effect on October 1, 2023.

E. Cannabis Reform – Workplace Impact? (SB 516/HB 556)

Takeaway: Although the bill does not address the impact of recreational marijuana in the general workplace, the Attorney General believes that employers may take employment action based on a positive drug test. There are labor provisions applicable to cannabis growers.

Given the legalization of recreational cannabis or marijuana, many employers have concerns about their ability to test and discipline for cannabis use by employees, and they were hoping for clarification in the massive cannabis reform bill. Unfortunately, the bill does not contain any workplace provisions applicable to employers generally.

As originally drafted, the bill contained language that specifically authorized an employer to take disciplinary action based on a positive test. That language was removed during the legislative process. In connection with that language’s removal, however, the Maryland Attorney General asserted that existing drug testing law in Maryland already provided that authority to employers. According to the Maryland Chamber of Commerce, a formal opinion letter to that effect has been requested from the Attorney General. Such an opinion letter would be very helpful to the employer community – although not law, it would be a powerful interpretation by the State’s top attorney as to how the law should apply.

We further note that, at this time, with regard to the medical use of cannabis, the Maryland Medical Cannabis Commission publicly states in its Patient FAQs that “Maryland law does not prevent an employer from testing for use of cannabis (for any reason) or taking action against an employee who tests positive for use of cannabis (for any reason).”

The cannabis reform bill does include some labor-related provisions specific to licensed cannabis growers. It requires as a condition of licensure that licensed growers enter into a labor peace agreement (LPA) with a union. In summary, an LPA is an agreement between an employer and union whereby the employer pledges to remain neutral in the union’s organizing efforts – and often provides a union with access to its employees – in exchange for the union forfeiting its right to engage in certain economic action that would interfere with the employer’s operation, including work stoppages (e.g., strikes), boycotts, and picketing among other activities. By July 1, 2024, the newly-established Maryland Cannabis Administration will adopt the standards to be included in an LPA. This bill ensures that the MCA’s forthcoming regulations will prohibit a union from “engaging in picketing, work stoppages, boycotts, or any other economic interference with the operation” of a licensed grower. It will likely be determined by these regulations how long such a prohibition will remain in effect. As a point of reference, in the sports wagering industry, the State’s prohibition on unions engaging in such activity extends for five years from the date of the State-issued sports wagering license.

Notably, this bill does not require dispensaries to enter into a LPA with a union as a condition to obtain an adult-use license. (Things could change in the future, of course.)

The bill has been designated “emergency legislation,” meaning that it will take effect immediately upon signature by the Governor, who has already stated that he will sign the bill.

F. Webinar: Complying with Maryland’s New Employment Laws – 2023

We, in partnership with the Maryland Chamber of Commerce, will be holding a complimentary webinar on Wednesday, May 3, 2023, at noon Eastern. Senior Vice President of Government Affairs Andrew Griffin, and Shawe Rosenthal partners Fiona Ong, Lindsey White, and Chad Horton will explain further the obligations and requirements of these new laws, and will provide guidance on compliance. You may register for the webinar here.

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