Discharged Employees Must Be Paid Unused Vacation Time Regardless of Written Policy

Posted in on March 14, 2014

The Massachusetts Supreme Judicial Court (“SJC”) held in Electronic Data Systems Corp. v. Attorney General that it is a violation of the Massachusetts Wage Act (M.G.L. c. 149, �148) to fail to pay unused vacation time to involuntarily terminated employees. In this matter the employer, Electronic Data Systems (“EDS”) had a written vacation policy which expressly provided that “If you leave EDS, whether voluntarily or involuntarily, you will not be paid for unused vacation time.” An employee of EDS, Francis Tessicini, had only used one day out of his five allotted weeks of vacation when his employment was terminated by EDS. EDS, pursuant to its written policy, refused to pay Mr. Tessicini for his unused vacation time. Mr. Tessicini filed a complaint with the Attorneys General’s office, which resulted in the Attorney General issuing a citation to EDS for violation of the Massachusetts Wage Act. EDS appealed the decision to the Superior Court, which affirmed the Attorney General’s determination. EDS then appealed to the SJC.

The Massachusetts Wage Act provides that “the word ‘wages’ shall include any holiday or vacation payments due an employee under oral or written contract.” The Wage Act further states that “no person shall by special contract with an employee or by other means exempt himself from this section”. On appeal EDS argued that because the Wage Act defines wages as including only vacation payments due under an employment agreement, such employment agreement may limit or restrict the right to payment upon termination. The Court disagreed.

In reaching its decision, the SJC analyzed the Wage Act and relied on the 1999 Attorney General Advisory concerning vacation policies, which specifically provided, in relevant part, that �Employers who choose to provide paid vacation to their employees must treat those payments like any other wages under [the Wage Act].” The Attorney General’s Advisory also states that “an employer may not enter into an agreement with an employee under which the employee forfeits earned wages, including vacation payments….”

In EDS, the SJC held that if an employee is discharged, the Wage Act requires payment of vacation benefits earned through that date regardless of the terms of the employer’s written vacation policy.

Employers should have experienced counsel review their vacation policies to ensure that their policy is consistent with this decision and take steps necessary to minimize the risk of violating the Massachusetts Wage Act. Failure to pay accrued vacation time may have serious consequences for an employer because violations of the Massachusetts Wage Act carries significant penalties, including mandatory treble damages and attorney fees.