Blood v. Columbus US, Inc.

HEADNOTE: Brian Blood v. Columbus US, Inc., No. 1962, September Term, 2016.
Opinion by Wright, Alexander.
LABOR AND EMPLOYMENT – WHAT ARE WAGES IN GENERAL
Employee’s right to receive compensation from a non-compete clause was not
compensation for work performed prior to termination under the Wage Payment and
Collection Law; non-compete was a disqualifying quid pro quo. Accordingly, the circuit
court did not err in its judgment.
In the Circuit Court for Frederick County
Case #10-C-16-001404
REPORTED
IN THE COURT OF SPECIAL APPEALS
OF MARYLAND
No. 1962
September Term, 2016
BRIAN BLOOD
v.
COLUMBUS US, INC.
Wright,
Reed,
Eyler, James R.
(Senior Judge, Specially Assigned),
JJ.
Opinion by Wright, J.
Filed: April 30, 2018
This appeal follows denial of Brian Blood’s (“Blood”) Claim of Lien for Unpaid
Wages in the Circuit Court for Frederick County.1 After an evidentiary hearing, the
circuit court extinguished Blood’s Claim of Lien against Columbus US, Inc.,
(“Columbus”), appellee, and granted Columbus’s request for an order denying the Claim
of Lien. Blood now appeals to this Court, and presents the following question for our
review, which we have reworded for clarity:2
Did the circuit court err in ruling that Blood’s contractual remuneration
compensation did not qualify as “wages” under the Maryland Wage
Payment and Collection Act?
For reasons to follow, we answer this question in the negative and affirm the
judgment.
1
See Md. Code (1991, 2016 Repl. Vol.), Labor and Employment Article (“L&E”)
§ 3-1104. Establishing lien.
A lien for unpaid wages is established:
(1) after a circuit court issues an order to establish a lien for unpaid wages;
or
(2) if no complaint disputing the lien for unpaid wages is filed, within 30
days after a notice is served under § 3-1102 of this subtitle.
2
Blood presented his question as follows:
Did the Circuit Court err in ruling that Appellee’s contractual remuneration
compensation does not qualify as “wages” under the Maryland Lien for
Unpaid Wages Law or the Maryland Wage Payment and Collection Act?
1
BACKGROUND
The present case arises from a contractual dispute between Blood and his former
employer, Columbus. Blood was the joint owner of an IT3 business, in which Columbus
purchased an interest during the late 1990’s and which Columbus purchased in full, in
2004. On January 4, 2004, Blood entered into a Vice President Contract (“VP Contract”)
with Columbus. At issue in this dispute is Blood’s and Columbus’s interpretation of
Section 10 of the VP Contract, which describes the Non-Competition Clause. Section 10
states in relevant part:
10.4 In exchange for clause 10.1 excluding 10.1a limitation[4] (ref.
Appendix 2), the Company shall pay remunerations equal to 100% of the
VP’s fixed salary, as stated in Appendix 2, upon the Company’s
termination of the [VP’s] Contract. The remuneration shall be paid in equal
monthly installments over the period in which the non-competition clause
applies.
10.4a In exchange for clause 10.1 incl. 10.1a (ref. Appendix 2), the
Company shall pay remunerations equal to 50% of the VP’s fixed salary, as
stated in Appendix 2, upon the Company’s termination of the [VP’s]
Contract. The remuneration shall be paid in equal monthly installments
over the period in which the non-competition clause applies.
10.5 Where the VP violates [the non-compete] the VP shall be obliged to
pay liquidated damages equal to six monthly fixed salary installments.
When this clause is violated, one infringement is equal to each calendar
month or part thereof in which violation takes place. Where the Company
of Columbus’s loss exceeds the liquidated damages, the VP shall be held
liable for damages.
3
Information Technology.
4
On January 1, 2004, Blood signed and agreed to excluding the limitation clause
10.1a in Appendix 2 of the VP Contract, thereby binding himself to a 100% remuneration
for his agreement not to compete with Columbus. The VP Contract continued to roll over
year to year.
2
10.8 The Company may waive its rights under this non-competition
clause, and thus its obligation to pay remuneration, by written notice to the
VP. The notice shall be given no more than 14 days after the Company has
notified the VP of the termination of his employment, or has received the
VP’s notice of resignation.
(Emphasis added).
On June 1, 2015, Blood provided Columbus with six months’ notice of his
resignation, and he resigned from his position on December 1, 2015.5 At the end of that
month, Blood wrote to the Managing Director of Columbus that, because “Columbus did
not notify [him] within 14-days of [his] notice of resignation that [it] was waiving the
non-competition clause,” he was entitled to receive 100% of his fixed salary pursuant to
Section 10.4 of the VP Contract. In January of 2016, counsel for Blood and Columbus
exchanged letters regarding their interpretation of Section 10.4 of the VP Contract.
Columbus argued that Section 10.4 only applied to Columbus’s termination of Blood, not
Blood’s voluntary termination.6 Conversely, Blood maintained that he was entitled to the
non-compete remuneration.7
On April 19, 2016, Blood sent Columbus a Notice to Employer of Intent to Claim
Lien for Unpaid Wages alleging that Columbus did not timely and regularly pay him
5
Columbus had 14 days to provide Blood with written notice that it was waiving
its non-compete after notice of his resignation.
6
Columbus made this contention in two letters dated January 15, 2016, and
January 29, 2016, but does not advance this contention on appeal.
Blood’s counsel made this contention in a letter to the Managing Director of
7
Columbus dated January 15, 2016. Blood’s counsel sent this letter to Columbus before
Blood was in receipt of Columbus’s January 13, 2016 letter.
3
wages due and owed under Section 10.4 of the VP Contract through April 1, 2016.8
Blood claimed that Columbus owed him at least $53,333.32 in unpaid wages.9 On May
16, 2016, Columbus filed a complaint for an order denying Blood’s Claim of Lien for
Unpaid Wages arguing that, because Blood’s remuneration was conditioned on a
covenant not to compete, it was not recoverable under the Wage Payment Act.10
On June 20, 2016, Blood responded to Columbus’s complaint, arguing that
“[Section] 10.8 of the contract clearly contemplate[d] that the payments [were] payable
even after [Blood’s] resignation,” and that the payments were akin to those at issue in
Aronson & Co. v. Fetridge, 181 Md. App. 650 (2008). On or about July 1, 2016, Blood
8
L&E § 3-1102. Notice required; contents.
To establish a lien for unpaid wages under § 3-1104 of this subtitle, an
employee shall first provide written notice to an employer that:
(1) is served on the employer within the statute of limitations period under
§ 5-101 of the Courts Article;
(2) is personally served in accordance with Maryland Rule 2-121; and
(3) contains the information required by the Commissioner under § 3-1110
of this subtitle to provide the employer with adequate notice of the wages
claimed and the property against which the lien for unpaid wages is sought.
9
Blood claimed that Columbus should have paid these wages on January 1, 2016;
February 1, 2016; March 1, 2016; and April 1, 2016.
10
Columbus also claimed that Maryland courts did not have jurisdiction over this
contractual dispute because the contract mandates that contractual disputes will be
governed by the laws of the State of Delaware. However, § 3-1107 of the Wage Payment
Act provides that “[a] contract between an employee and an employer may not waive or
require the employee to waive the right to seek the establishment of a lien for unpaid
wages[. ]” Columbus has not made the choice of law arguments on appeal.
4
sent Columbus a second Notice to Employer of Intent to Claim a Lien for Unpaid Wages
that were allegedly due on May 1, 2016, and June 1, 2016. Columbus failed to file a
complaint in the circuit court within the mandatory 30 days.11 On August 15, 2016,
Blood recorded the wage lien against Columbus pursuant to Md. Code (1991, 2016 Repl.
Vol.), Labor and Employment Article (“L&E”) § 3-1103(b)(1). After Columbus became
aware of the recorded wage lien, it filed a Petition to Extinguish a Recorded Wage Lien
on August 19, 2016, which was later amended to a Complaint to Extinguish Recorded
Wage Lien.
The case came before the circuit court on September 2, 2016, for an evidentiary
hearing on Columbus’s Complaint Requesting an Order Denying Defendant’s Claim for a
Lien for Unpaid Wages. At the hearing, Blood’s counsel maintained that because the VP
Contract did not state that Blood’s remunerations would cease if he violated the non-
compete, it did not constitute a quid pro quo, and fell within the scope of the Wage
Payment Act. Conversely, Columbus’s counsel maintained that Section 10 of the VP
Contract was a quid pro quo because it conditioned payment on Blood’s non-
competition. Thus, Columbus argued, Blood’s reliance on our decision in Aronson was
misplaced because in that case the employee’s deferred compensation was not
conditioned on a non-compete since the employer determined the compensation every
year.
11
L&E § 3-1103(b)(1) provides that an employer may dispute a lien for unpaid
wages “within 30 days after notice is served on the employer.”
5
In making its findings, the circuit court addressed whether Blood’s remuneration
fell within the scope of the Wage Payment Act and found it did not.12 In reviewing
whether Blood’s remuneration was similar to the remuneration in Stevenson v. Branch
Banking and Trust Corp., 159 Md. App. 620 (2004), or Aronson, the court determined
that the language of “in exchange for” contained in the VP Contract rendered it a quid
pro quo. The case was distinguishable from the compensation agreement in Aronson
because “the compensation owed was for the employee’s services completed prior to
termination.” (Emphasis added). The court also contrasted Blood’s compensation from
the disputed compensation in Medex v. McCabe, 372 Md. 28 (2002), because Blood’s
remuneration was tied to his non-competition for a period of time following termination,
and therefore, was not a “wage.” The circuit court held that the prevailing Maryland case
law dictated that Blood’s remunerations were not “wages,” and it denied Blood’s claim
for a Wage Lien and extinguished his Wage Lien.13
Additional facts will be added as they become relevant to our analysis.
STANDARD OF REVIEW
Where an order appealed from “involves an interpretation and application of
Maryland statutory and case law, [we] must determine whether the [circuit court’s]
12
L&E § 3-1103(d)(2) provides that, “the circuit court shall determine whether to
issue an order establishing a lien for unpaid wages . . . based on a preponderance of the
evidence in which the employee has the burden of proof to establish the lien for unpaid
wages.”
13
The record indicates that a Wage Lien was filed against Columbus, when it did
not timely respond to Blood’s Notice of Lien, but does not contain a filing date.
6
conclusions are ‘legally correct’ under a de novo standard of review.” Walter v. Gunter,
367 Md. 386, 392 (2002). Additionally, the interpretation of contracts is a question of
law for the court. Calomiris v. Woods, 353 Md. 425, 434 (1999).
Generally, on appeal of an action tried without a jury, such as here, we are bound
by the circuit court’s findings of fact unless they are clearly erroneous. Md. Rule 8-
131(c); see also Cunningham v. Feinberg, 441 Md. 310, 321-22 (2015). We typically
afford no deference to the circuit court’s legal determinations and conclusions of law,
reviewing them de novo. See Shih Ping Li v. Tzu Lee, 437 Md. 47, 57 (2014). These
legal determinations and conclusions of law also apply to the interpretation of contracts.
Sy-Lene of Washington, Inc. v. Starwood Urban Retail, 376 Md. 157, 163 (2003). As the
circuit court’s determination of whether Blood’s remuneration compensation was a
“wage” was conditioned on the interpretation of the Wage Payment Act by Maryland’s
appellate courts, we review its decision de novo.
DISCUSSION
I.
The Applicability of the Maryland Wage Payment Act
to the Non-Compete Provision
The crux of Blood’s argument was, and is, that his remuneration compensation
under the VP Contract qualified either as a “fringe benefit” or “any other remuneration
promised for service.” Blood argues that his VP Contract was the same as the non-
compete compensation we held were “wages” under the Wage Payment Act in Aronson.
7
Conversely, Columbus contends that Blood’s remuneration compensation is a quid pro
quo, similar to the severance package at issue in Stevenson.
While the Maryland Lien for Unpaid Wages Law does not define “wage,” the
Maryland Wage Payment and Collection Act provides further guidance.14 The Maryland
Wage Payment and Collection Act was intended “to provide a vehicle for employees to
collect, and an incentive for employers to pay, back wages.” Medex v. McCabe, 372 Md.
28, 39 (2002). The Wage Law, in L&E § 3-501(c)(1), defines the term “[w]age” to mean
“all compensation that is due to an employee for employment.” L&E § 3-501(c)(2) adds
that a “[w]age” includes: (i) a bonus; (ii) a commission; (iii) a fringe benefit; or (iv) any
other remuneration promised for service.” This right to compensation vests only when an
employee “ha[s] performed all the work necessary to earn the [compensation] before
termination.” Medex, 372 Md. at 37; see also Whiting-Turner v. Fitzpatrick, 366 Md.
295, 304-05 (2001) (emphasis added). The Court of Appeals has established a bright line
test, stating that once a “bonus, commission or fringe benefit has been promised as part of
the compensation for service, the employee would be entitled to its enforcement as
wages.” Whiting & Turner, 366 Md. at 305. And “it is the exchange of remuneration for
the employee’s work that is crucial to the determination” of whether that compensation is
a “wage.” Medex, 372 Md. at 36 (emphasis added). Thus, if Blood’s remuneration was
in “exchange” for work performed before termination, or as a result of employment, it
L&E § 3-1101(d) states only that the term “‘wages’ does not include
14
commissions.”
8
will fall under the scope of the Act. See Whiting-Turner, 366 Md. at 303; Stevenson, 159
Md. App. at 644.
We begin our analysis of this issue by examining two cases the parties rely on to
support their positions. Although the parties are misguided in arguing that this case fits
neatly with either Stevenson or Aronson, the interpretation of “wages” and the Wage
Payment Act in both cases necessarily frames our analysis.
In Stevenson, we considered whether an employee could recover wages from a
Termination Compensation provision under the Wage Payment Act when an employment
agreement explicitly conditioned Compensation on a non-compete covenant. Stevenson,
159 Md. App. at 645-47. The Employment Agreement stated, “if Employee breaches
[the non-compete in] section 4(a) of this Agreement during the period [s]he is receiving
Termination Compensation, Employee will not be entitled to receive any further
Termination Compensation [.]” Id. While we found that a severance benefit, based on
the length or nature of an employee’s service, and promised upon termination, might be
recoverable under the Act, we concluded that Stevenson’s Termination Compensation
compensated her for two years that she would not be working with her employer. Id. at
644-45. Specifically, the Employment Agreement stipulated that if Stevenson competed
with her employer, she would not be entitled to receive any further Termination
Compensation, creating an explicit quid pro quo. Id. at 646.
In Aronson, we considered whether an employee who had involuntarily terminated
could recover wages from a Terminating Employee Compensation (“TEC”) under the
9
Wage Payment Act. 181 Md. App. at 668-72. Section 9(a) of the Employment
Agreement stated, “[p]ursuant to this Agreement, whenever [Fetridge] shall be entitled to
receive [TEC], he . . . shall be entitled to receive payment of an amount equal to [his]
Deferred Compensation Account[.]” Id. at 658. Although the Agreement contained a
covenant not to compete for a period of three years, we found that the remunerations
were not like the quid pro quo in Stevenson. Fetridge’s employer argued that the TEC
was conditioned on Fetridge’s compliance with the covenant not to compete. Id. at 666.
Aronson cited Stevenson, arguing that “a payment conditioned on a covenant not to
compete is not recoverable under the Wage Law,” even if the employee did not violate
the covenant. Aronson was asserting that Fetridge’s Agreement was like that in
Stevenson because the TEC was “subject to a setoff right.” Id. Aronson believed that its
right to setoff converted the TEC into post-termination compensation, rendering it
beyond the scope of the Wage Law. Id. at 666-67. We found that argument
unpersuasive.
We concluded that Fetridge’s TEC vested upon his termination and was tied to his
Deferred Compensation Account, which began during his employment. Id. at 678-80.
Unlike the severance compensation at issue in Stevenson, Fetridge’s Agreement did not
explicitly state that the TEC would end if Fetridge competed with Aronson. We
determined that Aronson’s “right to offset” functioned the way a traditional setoff would,
establishing Aronson’s right to reduce the amount of termination compensation owed to
Fetridge under the TEC. Id. at 668. Thus, whether or not he violated the covenant not to
10
compete, Fetridge was entitled to continue receiving the TEC, which we found not to be a
disqualifying quid pro quo. Id.
Blood argues that our holding in Aronson governs the disposition of this case.
Blood avers that his remuneration vested in December of 2004 when he signed his
contract, and that the “in exchange for” language creates two options that Blood could
elect to exercise: (1) bind himself to a non-compete to receive 100% of his VP fixed
salary, an oppressive option or (2) bind himself to a non-compete for 50% remuneration.
Blood urges us to read the VP Contract broadly, taking into consideration the inclusion of
the remuneration compensation in the definition of “salary” in Section 4.2; the inclusion
of the non-competition selection in Appendix 2;15 and the inclusion of “fringe benefit” in
the definition of wages in the Wage Payment Act.
Columbus responded that Stevenson is the controlling case law. Columbus
asserted that “Blood’s post-employment compensation is not ‘deferred compensation for
work performed during employment’ or ‘based on the length or nature of [Blood’s]
service.’” Stevenson, 159 Md. App. at 644. Columbus avers that, contrary to Blood’s
contention, Section 10.5 is not an offset – if Blood violates the non-compete, Columbus
is excused from paying Blood the remuneration pursuant to Section 10.4.
In Stevenson, we found that a quid pro quo existed because the terms of the
employment contract made it clear that Stevenson’s termination compensation was
15
Appendix 2 outlined the Compensation for Blood. Blood’s Non-Competition
provision is nested under Appendix 2, and he signed to exclude the MBS limitation
clause 10.1a.
11
explicitly tied to her duty not to compete with her employer. The relevant provision is as
follows:
[Section 6(c)]: . . . Notwithstanding anything in this Agreement to the
contrary, if Employee breaches [the non-compete provisions in] section
4(a) of this Agreement during the period that [s]he is receiving Termination
Compensation, Employee will not be entitled to receive any further
Termination Compensation[.]
Stevenson, 159 Md. at 645 (emphasis added).
There is no such explicit clause in Blood’s agreement. But notwithstanding the
above, Blood’s employment agreement established that his non-compete compensation is
“remuneration promised for [Blood’s] services” in refraining from competing with
Columbus and is not a wage “due for work that [Blood] performed before the termination
of [his] employment[.]”16 As the Court of Appeals emphasized in Whiting-Turner and
16
L&E § 3-505. Payment on termination of employment; accrued leave.
(a) In general. – Except as provided in subsection (b) of this section, each
employer shall pay an employee or the authorized representative of an
employee all wages due for work that the employee performed before the
termination of employment, on or before the day on which the employee
would have been paid the wages if the employment had not been
terminated.
(b) Payment of accrued leave. – An employer is not required to pay accrued
leave to an employee if:
(1) the employer has a written policy that limits the compensation of
accrued leave to employees;
(2) the employer notified the employee of the employer’s leave benefits in
accordance with § 3-504(a)(1) of this subtitle; and
(3) the employee is not entitled to payment for accrued leave at termination
under the terms of the employer’s written policy.
12
Medex, “an employee’s right to compensation vests [only] when the employee does
everything required to earn the wages,” and the Wage Payment Act affords relief only
when the employee “ha[s] performed all the work necessary to earn [compensation]
before termination.” Medex, 372 Md. at 37; see also Whiting-Turner, 366 Md. at 304-05;
(emphasis added).
Blood relies heavily upon our decision in Aronson, which is distinguishable from
the case sub judice. In Aronson, the language of the employment agreement provides that
the employee, Fetridge, would continue receiving his TEC, even if he violated the
covenant not to compete. Specifically, Fetridge’s employee agreement stated “whenever
[Fetridge] shall be entitled to receive ‘Terminating Employee Compensation,’ he . . .
shall be entitled to receive payment of an amount equal to [his] Deferred Compensation
Account . . . .” Aronson, 181 Md. at 658. The Deferred Compensation Account was
determined annually in May of every year that Aronson employed Fetridge. Id. at 659.
Fetridge’s compensation was a “wage” because it was tied to a TEC that vested during
his employment. There exists no comparable Deferred Compensation Account that
would have vested in this case that was created contemporaneously with Blood’s promise
not to compete. 17 In fact, section 9 of the VP Contract governs restrictions on
17
Blood, pursuant to sections 10.4 and 10.4a, had the option to receive
remunerations equal to 100% or 50% of the VP’s fixed salary depending on the scope of
the non-competition clause. Blood could have decided to take “door number three”
whereupon he would not be burdened with a non-competition clause and thereupon
provided no “remunerations” at all as he was not obligated to promise not to compete.
13
involvement in other businesses during employment. If Columbus intended to create a
Deferred Compensation Account to compensate Blood for adhering to a non-compete, it
could have created it as compensation in section 9 – it did not.18 On its face, and given
its contractual language, specifically the phrase “in exchange for,” it is clear that this was
not compensation that vested during Blood’s employment, but only vested and accrued
after employment and, accordingly, is not a “wage.” Although in this case there is an
arrangement under which Blood would be obligated for liquidated damages had he
violated the non-compete agreement, that alone is not dispositive when the remuneration
was not promised as part of compensation for service. See Aronson, 181 Md. 667-68.
As we have stated, this case does not fit neatly under either Stevenson or Aronson,
but following the dictates of both, we hold that Blood does not have a Wage Payment Act
claim with respect to Columbus’s refusal to pay him for the non-competition clause of the
VP Contract because (1) L&E § 3-507.1 may be invoked only when the employer “fails
18
Section 9 of the VP Contract governs restrictions on involvement in other
businesses during employment and states that the VP shall not:
(01) During his employment under this Contract carry on or be directly or
indirectly concerned, engaged or interested (whether as a principal,
shareholder, partner, employee, agent, consultant, adviser or otherwise) in
any trade or business which competes with the business of the Company or
Columbus; or
(02) Carry on or be concerned, engaged or interested in any other trade or
business without the previous consent of the Board evidenced in writing
(which may be given subject to certain terms or conditions the breach of
which shall be deemed a breach under this Contract).
(03) Disclosure of current concerned, engagement or interests are stated in
Appendix 3.
14
to pay an employee in accordance with § 3-505,” (2) L&E § 3-505 applies only to
employers who do not promptly pay all “wages due for work that the employee
performed before the termination of employment[,]” and (3) Blood’s Non-Competition
Clause Compensation, when tied with the quid pro quo promise not to compete as
verified in Appendix 2, is not payment “for work [Blood] performed before the
termination of employment.”
II.
Treble Damages and Attorney’s Fees
Under the Wage Payment Act, a court can award triple treble damages if it
determines that there is not a “bona fide dispute.” However, if the court determines a
“bona fide dispute” exists, it cannot award triple treble damages. An employer bears the
burden of producing evidence that a “bona fide dispute” existed. The Court of Appeals
has defined a “bona fide dispute” as “a dispute . . . in which the employer resisting the
employee’s claim . . . ‘has a good faith basis for doing so,’ where there is a ‘legitimate
dispute over the validity of the claim”’ or the amount owed. Admiral Mortg., Inc. v.
Cooper, 357 Md. 533, 543 (2000). Generally, these disputes “depend on the
circumstances” and are considered a matter for the jury. Cooper, 357 Md. at 533, 541;
see Medex, 372 Md. at 44.
At the heart of both Blood’s and Columbus’s arguments is whether or not the
remuneration constituted a “wage” for the purposes of the Wage Payment Act.
Columbus proffered in its briefs and the evidentiary hearing that a “bona fide dispute”
existed because it has a “good faith basis” for rejecting Blood’s claim to the remuneration
15
compensation. We have ruled in Columbus’s favor and that forecloses an award for
treble damages as wages are not owed to Blood.
CONCLUSION
Our reading of Maryland case law regarding “wages” under the Wage Payment
Act and our interpretation of the VP Contract leads us to conclude that Blood’s
remuneration payments were not “wages” for the purposes of the Act and constituted a
quid pro quo. Accordingly, we affirm the circuit court’s judgment.
JUDGMENT OF THE CIRCUIT COURT
FOR FREDERICK COUNTY AFFIRMED.
COSTS TO BE PAID BY APPELLANT.
16