Employment attorneys are commonly asked whether a company is required to pay employees for unused vacation days when the workers leave. The answer is a definite “maybe.” It may depend upon how carefully an employer has thought about the issue in advance.
A frequent scenario is that an employee resigns employment or is terminated without having used all of his or her annual vacation. The employee, understandably, would like to be paid for the unused benefit. Sometimes an employer, for reasons that may relate to cash flow or the circumstances of the particular termination, may not want to pay it.
Who is right?
The answer varies from state to state, with some states having specific laws on the issue. Ohio, however, does not have a specific statute applicable in the private sector. Instead, the matter is left to the courts to decide.
In the absence of a company policy, most Ohio courts rule that unused vacation is an earned benefit that must be paid to the departed employee. But if the employer has communicated a clear policy stating that unused vacation will be forfeited or limited upon termination, courts will generally enforce that policy and decline to award vacation pay.
Employers should consider carefully whether to have a blanket policy denying all vacation pay at termination. In light of such a policy, some employees who are planning to quit, aware that they will lose vacation pay, may simply take their vacation and resign without notice before returning to work.
Some employers find a middle ground, adopting a policy that vacation pay, or a portion of it, will be paid to employees who terminate employment upon proper notice. But, if an employee quits without notice or is terminated for cause, the employer will reserve the right not to pay vacation pay. Such a policy, if enforced in a nondiscriminatory manner, will generally be enforceable in court.
So Ohio employers should be aware: it is in their interest to adopt and communicate a policy, through an employee handbook or otherwise, that spells out the circumstances in which unused vacation will be paid upon termination. In the absence of such a policy, employers may be stuck writing a check for vacation pay, whether they intended to or not. Employers should ask their counsel to help draft a policy that suits their particular workplace. A nickel of prevention may be worth a dollar of cure.