E-Alert Case Updates

Maryland District Court Holds That Severance Payments Are Considered Wages Under the Maryland Wage Payment and Collection Law

Ronald Piacquadio v. Vertis, Inc.
Civil No. JKB-12-245 (D. Md. July 12, 2012)
by Natalie Scurto, Summer Associate
Semmes, Bowen & Semmes (www.semmes.com)

In this case, Ronald Piacquadio (“Piacquadio”) brought suit against his former employer, Vertis, Inc. (“Vertis”), alleging breach of contract and violation of the Maryland Wage Payment and Collection Law (“WCPL”).  The U.S. District Court of Maryland denied Vertis’ Motion for Judgment on the Pleadings.  In doing so, the Court established that severance payments not conditioned on post-employment obligations are considered “wages” under the WCPL.

Piacquadio began working for Vertis as an account executive in 2002.  In 2008, on the verge of bankruptcy, Vertis began offering special severance pay packages to select employees, one being Piacquadio, as an incentive for them to stick with the company during its financial difficulties.  This package included a document called the “Key Employee Agreement” (“KEA”) that employees were required to sign.  The KEA listed specific conditions to be met before employees would be entitled to the severance payments upon termination.  Under this agreement, if an employee was terminated for cause he would not be entitled to the fifty-two (52) weeks of severance pay.

Piacquadio signed the agreement in 2008; and shortly thereafter, Vertis filed for Chapter 11 bankruptcy.  Piacquadio continued with the company, and Vertis filed for bankruptcy once again in 2010, at which point Vertis was forced to downsize several divisions.  In February of 2011, Vertis terminated Piacquadio’s employment, allegedly due to poor performance.  Vertis then asserted that because Piacquadio was terminated for cause, he was not entitled to the severance pay.  Piacquadio alleged that the “poor performance” rationale was fabricated for the sole purpose of avoiding the $140,000 of severance pay owed to Piacquadio under the KEA.  Piacquadio then sued Vertis for breach of contract and violation of the WPCL.

Vertis argued that one of the KEA provisions required an employee to sign a Business Responsibilities Agreement.  The Business Responsibilities Agreement contained post-employment obligations to be fulfilled by the employee; and therefore, Vertis asserted, the payments could not be considered wages.

For purposes of determining whether a given payment is considered a “wage” under the WPCL, Maryland courts apply a two-part test.  The payment must “have been promised as part of the compensation for the employment arrangement,” and, second, “all conditions agreed to in advance” for earning the compensation must have been fulfilled.  Catalyst Health Solutions, Inc. v. Magill, 995 A.2d 960, 969 (Md. 2010).  Maryland’s highest court established in Stevenson v. Branch Banking and Trust Corp., 861 A.2d 735, 749 (Md. 2004), that severance pay could be considered a wage if it “represented deferred compensation for work performed during employment,” but not if it was “explicitly a quid pro quid” for a non-compete agreement.

Upon analysis of the KEA, the U.S. District Court disagreed with Vertis. Under the KEA, Piacquadio was only required to sign the Business Responsibilities Agreement before becoming entitled to the severance payments.  The provisions in the Business Responsibilities Agreement were irrelevant to the enforcement of the KEA.  To remove compensation from the “wages” category, the compensation must be conditioned on the employee’s actual performance of the post-employment obligations, not just an agreement to them in the first instance.  Moreover, this was not a quid pro quid for a non-compete agreement.  Vertis specifically offered severance pay to Piacquadio to induce him to continue his employment.

The Court concluded that the severance pay offered to Piacquadio by Vertis was, in fact, a “wage.”  Piacquadio stated a claim under the WPCL, thus Vertis’ Motion for Judgment on the Pleadings was denied.