Without a Policy, Administering It Can Be Anything but a Vacation!
By George Skogstrom, Esquire
We frequently receive calls concerning employee claims to vacation pay -- usually, these calls arise when an employee quits or gets fired and claims they are entitled to vacation pay. The first question we ask, whether it is an employer or employee that is calling, is "What is the vacation policy". All too often the answer we get is that there is no written policy and that the "understood" policy is . . . well, not understood by the employer and employee in quite the same way.
Even where there is a written policy, unless it should be clear and concise. In 2002, the Massachusetts Supreme Judicial Court affirmed the assessment of civil penalties against an employer that failed to pay unused vacation time to a terminated employee. The court decided that the employer's written vacation policy was ambiguously drafted, and found that the employee should have been paid for his unused vacation time.
The Massachusetts Payment of Wages Statute, M.G.L. c.149, §148, requires prompt payment of wages to employees. This statute includes in the definition of wages, "any holiday or vacation payments due an employee under an oral or written agreement". Failing to pay an employee for accrued but unused vacation time at the time of separation (whether by quit, layoff or termination for cause) could result in an assessment of civil damages, or even criminal penalties. The bottom line is that all employers should know the legal requirements relating to the administration of vacation policies and should put their policies in writing.
Employers are not required to provide vacation time to their employees, however, once you agree to do so, you should adopt unambiguous vacation policies which make it clear exactly when vacation time accrues. For example, policies which grant employees two weeks of vacation "per year", or "every six months", or "on their anniversary date" are not considered sufficient by the Attorney General as they are unclear as to when an employee's vacation time accrues.
A clear vacation policy would be one in which one day of vacation time accrues on the last day of each month, or a vacation policy by which one week of vacation accrues on January 2nd and the second week accrues on July 2nd. Under these types of policies, it is easy to determine exactly how much accrued unused vacation time a departing employee is due, no matter when during the year the employee leaves.
Employers who combine sick leave, personal leave, and vacation leave and other types of leave into a combined "time-off" bank must clearly designate the amount of hours or days of leave which are considered vacation time, as opposed to other types of leave. Employers are also not permitted to enter into agreements with employees whereby employees agree to forfeit either earned wages or accrued vacation time.
Employers can regulate employee vacations in a number of ways.
* Employers can determine how much vacation, if any, employees receive.
* Employers may also establish requirements concerning the scheduling of vacations.
* Employers can require employees to provide prior notice of intent to take vacation.
* Employers can cap the amount of vacation time an employee may accrue.
* "Use it or lose it" policies are permitted, provided the employer gives notice of the policy.
The Payment of Wages Law requires employers to pay discharged employees their wages in full on the date of discharge. Employees who voluntarily depart may be paid on the next regular payday. Again, wages include accrued unused vacation pay. The requirement that employees be paid their wages in full upon the date of termination poses some interpretation issues with respect to vacation pay. If the employer's practice or agreement is to accrue vacation entitlement based on a certain number of days of vacation per period of service, the vacation entitlement vests gradually, and upon termination the employee is entitled to his or her accrued vacation pay. Sometimes, however, employer policies provide for cliff-vesting of vacation entitlement. For example, the employer may provide that after one year's service, the employee is entitled to a week's vacation, but only after successfully completing a full year of service. Such a requirement would appear to comply with the literal wording of the statute, and an employee who is terminated prior to the vesting date would not be entitled to prorated vacation pay.
There is a presumption in favor of a gradual accrual system, so that if the employer wants to impose a cliff-vesting scheme of the type referred to above, but is ambiguous in describing the arrangement, the Attorney General will treat the arrangement as one calling for gradual accrual. The example given is that if the employer provides 12 days of vacation "per year" or "on the employee's anniversary date" or "every 12 months," and the employee quits after 10 months, the presumption will be that the employee is entitled to 10 days vacation or pay in lieu of that on termination. Employers with workers in other states obviously need to consult the law of the place of employment, because some states have a much more stringent position and forbid forfeiture on a " use or lose it" model.
The Attorney General has taken a firm position that employers may not evade the basic rule that accrued vacation entitlement is a form of wages by imposing forfeiture rules, such as rules barring employees who quit without notice or who are fired for cause from receiving vacation pay upon termination. Similarly, employers may not retroactively deny employees the benefit of accrued vacation benefits by imposing caps on accrual and the like, but they may make prospective changes, so long as the employee has the opportunity to enjoy the benefit of vacation time or pay already " banked."
We know that vacation pay can be and often is a contentious issue at separation. The best way to avoid that issue is to have an unambiguous written policy. As always, if we can answer any questions or help you with a policy you would like reviewed or implemented, please call us.