Issue: Must unused vacation time always be paid when employees leave?
Risk: An unclear vacation policy could allow terminated employees to sue your organization and collect additional pay.
Action: Make sure you keep a crystal-clear written policy on file that defines every situation in which an employee "leaves" your organization.
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 describe whether your policy applies to all cases of separation or only some (i.e., voluntary or involuntary) situations. 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' of unused vacation time. It cited a written policy, which was organized in a Q & A format. The policy 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 (AG) claiming a wage violation. The AG's office agreed.
EDS fought that ruling in court, arguing that the term "leave the company" referred to any type of separation, voluntary or involuntary, so the policy should block payment of unused vacation time. But the state supreme court disagreed. The policy's wording was too ambiguous about whether the rule applied to firings as well as resignations. (Electronic Data Systems Corp. v. Attorney General, No. SJC-08927, Mass. Sup. Jud. Ct., 2003)