Hello, Federal: Can Out-of-State Employers Contract Around Maryland’s Wage Payment Law?
An earlier generation of Baltimore lawyers used to say that the outcome of a case should not depend on which side of Calvert Street it was filed. This made sense when the federal court was on the east side of Calvert and the state court on the west. The statement was a colloquial expression of the Erie doctrine, which requires federal courts to apply state law when federal jurisdiction depends on diversity of the parties’ citizenship.
The Erie doctrine requires federal judges to figure out how state judges would rule in certain matters. You might imagine a federal judge strolling across Calvert Street to ask for some advice. But that’s not how state and federal judges speak to one another (and not just because the federal court long ago moved to a dismal building on Lombard Street).
Instead, federal judges read the published judicial decisions from the state whose law applies. Under Erie, federal judges are required to follow the holding of decisions from the state’s highest court. They are not required to follow “dicta” – statements in a judicial opinion that are not necessary to the outcome. In many cases, the state’s highest court has not ruled on the particular legal question at issue. In that event, the federal court must predict how the state court would rule based on other sources of state law. One of those sources is “considered dicta” (or well-reasoned dicta) from the decisions of the state’s highest court.
That brings us to the peculiar case of Cunningham v. Feinberg, which we can think of as an oversized banner unfurled from the windows of the state courthouse, facing east across Calvert Street. The case begins modestly. Matthew Feinberg, a lawyer licensed in Maryland, sues his employer for $1,974.20 in unpaid wages. He files the suit in Maryland’s district court, which handles small matters. Mr. Feinberg includes a claim for a violation of Maryland’s Wage Payment and Collection Law (MWPCL), which permits treble damages and attorney’s fees for some failures to pay wages.
The defendant law firm, Cunningham & Associates P.L.C., argues that the MWPCL does not apply because the firm is based in Virginia. The facts suggest that although Feinberg was required to “spend the vast majority of his time” in Cunningham’s Virginia office, he in fact was hired to serve as a Maryland lawyer, and that is where he represented clients. The parties entered into a written contract describing Feinberg as an “independent contractor” (Feinberg contended he was an employee), but mysteriously omitting any clear description of his pay or employment responsibilities. The contract was apparently signed (or entered into) in Virginia, but it did not include a choice-of-state-law provision. Under these facts, a Maryland court typically would apply the rule of lex loci contractus, which means that the contract is governed by the law of the place of the contract; i.e, Virginia. The lex loci doctrine does not apply if the contract includes an express choice-of-law provision, or if application of another state’s law would violate a strong public policy of Maryland.
Cunningham convinces the district court judge that Virginia law applies, and because Virginia does not have a claim like the MWPCL, the court dismisses the case. Feinberg appeals to the circuit (trial level) court, which reverses and remands. The circuit judge agrees that Virginia law applies, but it construes an earlier Maryland case to mean that a Maryland worker can still file a claim under the MWCPL.
Maryland’s highest court agrees to review this $2000 dispute, probably to decide whether the MWPCL is a “strong public policy” and therefore an exception to the doctrine of lex loci contractus. Most of the cases that present this issue are adjudicated in federal court, and the federal courts have been predicting that Maryland’s highest court would not apply the exception. But the court concludes it cannot answer the critical question under the facts presented.
Writing for the majority, Judge Harrell finds that lex loci contractus is not applicable because the parties’ contract does not include any provision addressing Feinberg’s wages. Therefore, the court concludes, there is nothing in the parties’ contract to interpret or enforce. The court rejects Cunningham’s argument that the contract implicitly incorporated Virginia’s wage-payment law, which is not as expansive as Maryland’s. “Instead, the doctrine of lex loci contractus should be understood properly to apply only to the express terms of a contract, not implied ones.” Moreover, the court explains, the Virginia wage-payment law is “essentially one of remedies, but under the choice of law principle lex fori, we look to the law of the forum in determining the remedy available to a plaintiff in a contract-related action, not lex loci contractus.” (Each of these statements could probably launch a law review article.) Free of the lex loci doctrine, the court endorses an earlier lower court decision that “employees working for employers located in Virginia are not limited to the remedies available under Virginia’s wage payment laws, but may, in certain circumstances, be answerable to claims under the MWPCL in Maryland courts.”
In a normal case, the court would have stopped there. But the court has a message to deliver across our figurative Calvert Street, and it did so in fifteen pages of dicta. The court observed that many federal decisions had concluded that the MWPCL did not evidence a “strong public policy” of Maryland, and therefore employers could avoid the MWPCL’s trebling of damages and other remedies by expressly choosing the law of another state in employment contracts. Judge Harrell’s opinion persuasively demonstrates that the federal decisions are wrongly decided, and indeed the court seems puzzled that the federal decisions failed to appreciate clear expressions of Maryland’s public policy in the legislative history of the MWPCL and its amendments. He is particularly perplexed by a recent decision of the Court of Appeals for the Fourth Circuit, whose law will control the decisions of the federal district court in Maryland, where most significant wage disputes between Maryland residents and out-of-state employers will be decided. In case no one gets the hint, Judge Harrell expressly describes his own opinion, twice, as “considered dicta.” But Judge Harrell also acknowledges that the court has not decided the issue, instead “encourag[ing] a future Maryland Court to hold . . . that the MWPCL represents strong Maryland public policy.”
So: imagine yourself as a young plaintiffs’ lawyer representing a Maryland employee of a Virginia employer. You are standing before the Battle Monument, which sits on an island in the middle of Calvert Street between the state and federal courts (assume the federal court has not moved). You’ve drafted a terrific complaint seeking treble damages and attorney’s fees under the MWPCL. Which way do you turn?