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Frequently Asked Questions About Hiring, Firing, & the Employment Relationship

The following summary of principles of Federal and Maryland law addresses some of the questions raised by our company and individual clients concerning employment issues. District of Columbia employment law is quite similar to Maryland law and is not discussed separately here for the sake of keeping this note a manageable size. As a summary, it should be read with CAUTION. Entire areas of employment-related law must be omitted and the very general statements set forth here necessarily omit considerable detail, including "who" and "when" and "how" that is essential for proper protection of the interests of all concerned in the transaction. After you have read this, you should consult a knowledgeable professional to decide what you need to do in the situation you are facing.

About Hiring:

A. Background Checks

An employer must have the prospective employee's permission to obtain a consumer report. If the candidate who is rejected because of information in such a report asks why he or she was rejected, the employer must inform the candidate in writing of the "nature and scope of the information" obtained. 15 U.S.C. 1681d. A "consumer report" is defined under Federal law as "any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer's eligibility for ... credit or insurance to be used primarily for personal, family, or household purposes ... [or] employment purposes." 15 U.S.C. 1681a.

B. Medical examinations

Generally speaking, medical examinations (except drug testing) before an offer of employment is made are illegal. Such exams are permitted after a conditional offer is made if they are a general practice for entering employees in the job category. The examination must be job-related and consistent with business necessity and not used to discriminate, and the results must be confidential. See Maryland Code Labor & Employment 3-701

C. Drug testing

Drug testing is not considered a medical exam under the Americans with Disabilities Act, and employers may test for drugs. Drug testing procedures are regulated by local law. Maryland provides for the certification of testing facilities and restricts the kinds of testing that can be performed. Testing must be for a job-related purpose. If testing is ad hoc and not pursuant to a general testing policy, testing requests may raise the risk of discrimination claims.

D. Lie detectors

With some exceptions, use of lie detectors (including voice stress analyzers) is generally prohibited. See Maryland Code Labor & Employment 3-702(c)

E. I-9 compliance

Employers must verify eligibility for all new hires by completing Form I-9, no matter how obvious and firmly known a candidate's eligibility to work in the U.S. is; failure to complete an I-9 for the President's daughter is a violation. It is illegal for an employer knowingly to hire an individual who is not eligible to work in U.S.

F. New hire reports

In Maryland employers are required to report new hires (name, social security number, etc.) to the state reporting agency within 20 days of hire. Maryland new hire registry

G. Negligent hiring

Employers whose employees deal with the public must use reasonable care in selecting employees and may be held directly liable for employee torts (e.g., DWI, assault, fraud, criminal acts, etc.) even if torts are outside the scope of employment.

H. Liability for misrepresenting job

An employer who misrepresents a material aspect of a job to a candidate may be liable in deceit or fraud.

While Employed

A. Employee or independent contractor

This is a very complex area. Whether a worker is an independent contractor depends on a number of factors which are weighed and applied differently, depending on which statute (or common law claim) is involved. The weighing might be by a federal or a state agency (e.g., NLRB, IRS, state unemployment insurance, state workers compensation, etc.) or one or another (state or federal) court (which, for example, might be asked to impose liability on account of worker negligence). The factors that will be considered include (but are not limited to) how the parties characterize the relationship, the relative bargaining power of the parties, who controls the details of the work, whether the contractor is engaged in a distinct business or occupation, skill required, who supplies the instruments, the tools and the workplace, length of the relationship, and method of payment. Typically some factors dicate one result and others a different result. There is no magic formula that invariably works; even a signed contract stating the worker is an independent contractor may not be sufficient, dependig on how the other factors weigh in, what statute is at issue and what forum is deciding the question. Misclassification of a worker as independent contractor can result in tax withholding liability and penalties, liability for workers' comp, unemployment insurance benefits, etc. Federal law contains safe harbor provision if classification as independent contractor follows statutory procedures.

B. Federal wage and hour requirements

1. Overtime pay. In general, the employer must pay one-and-one-half times non-exempt employee's regular hourly rate for each hour of work in excess of 40 hours in any 168-hour (7 days X 24 hours) workweek.
2. Exempt employees. The Fair Labor Standards Act contains numerous exemptions, generally all classified as "white collar exemptions" - executives, administrators, professionals and outside salespersons. In general, to be exempt the employee must meet a primary duty test as executive, administrator, etc., and must be salaried at $455 per week ($23,660 per year). If employer treats salaried employee as hourly, employee will be non-exempt. [Department of Labor Information on FLSA]

C. Maryland wage and hour requirements

1. Wage Payment Act. The Act requires employers to establish regular paydays and pay at least twice per month in U.S. currency. [Maryland Code Provision]
2. Direct deposit. Direct deposit is permitted only if the employee agrees.
3. Overtime issues. Maryland has its own overtime rules and exemptions. As between federal and state rules, whichever is more favorable to the employee governs.
4. Government prosecution of private claims. Federal and local agencies may provide counsel at no cost to employees making some kinds of claims. The counsel are knowledgeable but overworked; an employee able to secure such representation may not receive the active personal attention of a private counsel, but is not at risk for attorneys fees.

When Firing is Being Considered

A. Definition of at-will employment

In keeping with the law of most states, in Maryland an employment contract of indefinite duration is at will and can be legally terminated at the pleasure of either party at any time for any reason or for no reason, with or without cause. "At will" employment is philosophically related to the "right to work" policy, which holds that individuals have a right to engage in their trades; while an employer may terminate employment at any time, a terminated employee has the right (absent a non-compete contract or improper use of a trade secret (strictly defined in Maryland law) to go out and compete against that employer.

B. Exceptions to at-will employment

1. Employment contracts. An employee cannot be fired if firing is contrary to express terms of an employment contract. For example, if the contract is for a specified time and the employee is fired (and not under a special contract provision allowing such firing) before the contract time, the employee may seek the balance of wages due from the time of job termination to the time of contract termination. Likewise, if a contract (and an employee handbook may evidence an implied contract) calls for progressive discipline and progressive discipline is not used prior to a termination, an action may lie. Importantly, some recent Maryland case law has held that where an employment contract allows termination of employment "for cause," the existence of cause is not a jury question; if the employer had a good faith belief that there was cause, that is sufficient even if a jury could find that the belief was ill-founded.
2. Discrimination (coverage). Most (but not all) of the federal, state and local discrimination laws apply only to employers who have a specified threshold number of employees. In general, the federal and Maryland thresholds are 15 or more employees, except the (federal) Age Discrimination in Employment Act is 20. The Equal Pay Act and 42 U.S.C. § 1981 applies to all employers. Montgomery County's discrimination law covers all employers.
3. Discrimination (criteria). Between Maryland and federal law, discrimination is prohibited on the basis of race, color, religion, sex, age, national origin, marital status, sexual orientation, genetic information, or disability unrelated in nature and extent so as to reasonably preclude the performance of the employment, or because of the individual's refusal to submit to a genetic test or make available the results of a genetic test. The District of Columbia's Human Rights Act adds some additional protected categories, such as personal appearance, family responsibilities, matriculation, and political affiliation.
4. Retaliation. Most federal, state and local workplace laws prohibit retaliation against employees for exercising rights under those laws. In general, a claim lies even if the employee has gotten nowhere in a prior complaint or claim based on discrimination.
5. Public policy. A termination which violates a clear mandate of (state) public policy, usually a policy expressed in statute, is abusive (wrongful). This is a relatively narrow exception to the at-will doctrine. Although some whistleblowing claims are statutory (i.e., the statute states an explicit right to relief on a claim that adverse employment action was taken because of a report of wrongdoing under the statue), other whistleblowing claims have successfully been made under a public policy theory relying on a statute as the source of the public policy.
6. Returning Veterans. The U.S. Department of Labor recently issued regulations governing the duty under USERRA to re-employ individuals returning from military service. In sum, qualifying returning veterans are entitled to reinstatement
7. Garnishments and bankruptcies. Federal and Maryland laws prohibit employers from firing employee for a single garnishment. The federal Bankruptcy Code prohibits employment discrimination against debtors.

C. Protected leave

1. Family and Medical Leave (FMLA). This law entitles eligible employees to take up to 12 weeks unpaid leave in 12-month period when employee has serious health condition; when employee needs to care for serious health condition of family member; or when employee has newborn or adopts child. The employer must continue health insurance coverage during leave and, on expiration of leave, must re-employ employee in same or equivalent job. However, the law applies to employers with 50 or more employees working within a 75-mile radius of the employee's work site. The employee must have been employed for at least a year; and have worked at least 1250 hours. [Department of Labor Web Site on FMLA]
2. Military leave (USERRA). Federal law protects the jobs of persons ordered to active military service, unless the employee's discharge from service is dishonorable, is for bad conduct, or is under less than honorable conditions. The employee must apply for re-employment within specified time limits, depending on the length of military service. [Department of Labor Web Site on USERRA]
3. Jury duty, witness in court, attendance in court as victim. Federal law protects jobs of employees who are serving as jurors in federal court. Maryland law protects jobs of employees who are serving as jurors in state court, who are witnesses, or who are attending court under Maryland's victims' rights law.
4. Election day leave. Maryland requires employers to give any employee who is a registered voter up to two hours off with pay on election day to vote if the employee would otherwise not have two hours of free time while polls are open.

D. Final paycheck (see related article on Wages)

1. When due. In Maryland a final paycheck is due on the date employee would have been paid but for termination, i.e. next regular payday.
2. Bonuses and commissions. "Wage" includes bonuses, commissions, fringe benefits, and any other remuneration promised for service. Once a commission or bonus is earned (i.e. employee has done everything he/she needed to do to generate the commission or bonus), employer cannot condition payment on employee's continued employment.
3. Cashing out accrued leave. This is an uncertain area. We advise our employer clients to cash out accrued leave on termination unless they have an established and announced policy of not cashing out accrued leave in general or of not cashing out under certain conditions (e.g. termination for cause or quitting without 2-weeks' notice).
4. Penalties. Maryland's wage payment act provides for a private right of action for unpaid past wages. Unless the wages were withheld as a result of a bona fide dispute (which is an issue of fact for the jury), the employee may recover treble damages and attorneys' fees. This multiplier does not apply to prospective wages awarded in breach of contract action.

E. Severance packages and releases

1. Severance pay is not generally required. In general, employer has no obligation to pay severance to laid off employee. Contractual or employee handbook provisions may impose obligation. If the employer wants a release of claims, or to impose new contractual obligations at time of termination such as a non-compete agreement, the departing employees commitment (to release or not compete) must be supported by consideration; a severance agreement can furnish this consideration.
2. Special requirements applicable to release of Age Discrimination in Employment Act. For a release of an ADEA claim to be effective, the employee must be advised in writing to consult with an attorney before signing the release, and must be given at least 21 days to consider the release before signing it and an additional 7-day rescission period after signing it. If the release is offered to a group of employees (for example, as part of an early retirement program) the consideration period is longer and other strictures apply.

F. Health insurance continuation

In general, employers of more than 20 persons must afford federal COBRA benefits to severed employees. In Maryland, health insurance contracts with employers offering employees group health insurance coverage must include a commitment for continuation coverage which can last for up to 18 months. In the District, an employee of an under-20 employer operatino may secure extended covergae for up to three months. Under both COBRA and state law, the severed employee must affirmatively elect coverage and must pay the entire cost of coverage (employer and employee portions). A company's insurance agent should be consulted for up-to-date rules regarding notification and election in the event of a termination.

G. References

In the absence of an established and enforced policy, an employer risks defamation and discrimination/retaliation claims when it gives references to prospective employers. It also may expose itself to tort claims by a new employer who is disappointed with the employee's work. An employer acting in good faith (which is presumed in the absence of clear and convincing evidence of actual malice or recklessness) is not liable for a defamatory reference.

An Additional Resource

U.S. D.O.L. Employment Law Resource Center

We provide legal advice and work with experienced human resources professionals to assist businesses in developing comprehensive solutions for the future and in addressing immediate human resources problems.

Contact us on your human resource needs

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Bethesda, MD 20817
PHONE: (301) 469-8590
FAX: (301) 469-8120

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