Unfortunately, some employers have failed to pay wages to employees, particularly those who receive low wages. To combat what is perceived as a growing trend of unscrupulous employers, several states, including Maryland, have enacted laws to assist employees to recover wages to which they are entitled. Thus, effective October 1, 2013, employees in Maryland now have a simple mechanism to enforce collection of unpaid wages from their employers by creating a lien on the employer’s assets. But, the new “Lien for Unpaid Wages” law [SB 758] raises many questions and some alarming possibilities for Maryland employers.

The essential statutory procedures of SB 758 seem crisp and clear:

  • To initiate a lien for unpaid wages, an employee serves written notice on the employer.
  • If (a) the employer fails to dispute the claim by filing a complaint within 30 days after service of the notice or (b) a Maryland circuit court so orders after review (and such judicial determination is mandated within 45 days of the employer’s complaint filing date), the lien is established.
  • If the employer files a complaint within the 30 day period, either party may request an evidentiary hearing at which the employee has the burden of proof to establish the basis for the lien by a preponderance of the evidence.
  • If the court determines the employee has met the burden of proof, the employee is entitled to court costs and reasonable attorneys’ fees from the employer in addition to the lien; if the court determines the employee’s attempt to establish a lien was “frivolous or made in bad faith.” the court may award court costs and reasonable attorneys’ fees to the employer.
  • If the lien is established, the employee has 180 days to file a wage lien statement against the real or personal property of the employer.
  • The lien for unpaid wages has a 12 year statute of limitations for enforcement.

As with many legislative short-comings, the devil is often in the details. Employers should consider these primary concerns when facing a claim for unpaid wages:

  1. The 30 day abbreviated response time for an employer, although helpful to an employee seeking unpaid wages, is burdensome; the same is true for the circuit court in rendering a determination within 45 days of an employer’s filing a complaint.
  2. The definition of “employer” under SB 758 is broad and “includes a person who acts directly or indirectly in the interest of another employer with an employee.” (Emphasis added.) The broad definition leaves open the possibility that principals of an employer or other responsible persons within the organization (e.g., financial officers) may face personal liability for a wage lien. For example, in a recent Maryland decision, the Court of Special Appeals, in examining a similarly broad statutory definition (one nearly identical to the definition of “employer” in SB 758), held that an individual must benefit from his or her position with the organization or exert sufficient “control” over the organization to be deemed an “employer.” Thus, given that circumstances could establish a stronger case for control or benefit by an individual over an employer which fails to pay wages, he or she could have a lien asserted against personal assets for the unpaid wages of an employee.
  3. While providing an easy means for unpaid employees with valid cases to obtain rapid justice, some employees may abuse the expedited procedures and broad definitions of the statute despite the law’s safeguards against frivolous and bad faith suits. This so-called safeguard against frivolous and bad faith claims, namely the possible award of court costs and attorneys’ fees, could provide an uphill battle for an employer who must prove an employee failed to follow highly subjective concepts such as reasonableness and standards of care in bringing a claim.
  4. The statute provides that a contract may not condition payment of wages on an employee’s waiver of the right to establish a lien for unpaid wages and any contract including such a waiver is void as against the public policy of Maryland. Thus, employers must be careful in insisting that employees enter into employment agreements that could result in such waivers.

After October 1st, Maryland employers are well-advised to act quickly in the event they are served with notice of a claim for a lien on unpaid wages by filing a complaint promptly within the 30 day period or seeking settlement with the asserting employee (even if such claim is not meritorious, the costs of defending it may not be worth the fight). Failure to act quickly could jeopardize the employer’s assets (and perhaps even those of a corporate officer).