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Clarify your vacation policy or cough up extra pay

by on
in Firing,Human Resources

Issue: Must you always pay employees for their unused vacation time when they depart your organization?

Risk: An unclear vacation policy could allow terminated employees to sue you and collect additional pay.

Action: Make sure your vacation policy is crystal clear and defines every situation in which an employee "leaves."

Now's a good time to carefully review your policy on whether employees receive pay for unused vacation time when they depart your organization.

Pay special attention to describing whether your policy applies to all cases of separation (i.e., firing, resignation, layoff) or just certain situations. As a recent case shows, if your policy appears ambiguous, courts will likely interpret the policy in favor of employees.

Recent case: When EDS fired Robert Hutchins, the company refused to pay him for his four weeks' worth of unused vacation time. It cited a written Q &A policy that read: "What if I leave EDS? Can I get paid for any unused vacation?" The answer: "If you leave the company, you do not receive vacation pay for unused vacation time."

Hutchins filed a complaint with the Massachusetts attorney general claiming he should be paid for the unused vacation time. The attorney general's office agreed.

EDS fought that ruling in court, arguing that the term "leave the company" referred to any type of separation (firing or resignation), so the policy should block payment of unused vacation time. But Hutchins said employees believed the policy only referred to voluntary resignations, not firings.

The state supreme court sided with Hutchins, saying the policy was too vague. (Electronic Data Systems Corp. v. Attorney General, No. SJC-08927, Mass. Sup. Jud. Ct., 2003)

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