Defending Employers’ Vacation Policies
In this case the Massachusetts Attorney General (“AG”) claimed that EDS violated the Massachusetts Payment of Wages Act, G. L. c. 149, § 148 (“Act”) when it refused to pay a terminated employee for accrued but unused vacation time, despite the fact that EDS’s vacation policy expressly stated that a departing employee would not be entitled to payment for outstanding accrued vacation time. While, by its terms, the Act does not require employers to provide paid vacations for their employees, it does require that a terminated employee shall be paid all wages due on the day of discharge, and it defines wages as “includ[ing] any holiday or vacation payments due an employee under an oral or written agreement . . . .” (Emphasis added.) The Act also provides that “[n]o person shall by a special contract with an employee or by any other means exempt himself from this section . . . .” The AG argued that, once an employer chooses to provide for paid vacation time, this payment constitutes “wages” under the Act and the employer therefore must pay any departing employee for any earned but unused vacation time. According to the AG, EDS’s policy denying payment to a terminated employee for accrued but unused vacation time violated the Act and constituted a “special contract” by which the employer attempted to exempt itself from the payment of wages.
The SJC took the case on direct appellate review and NELF, together with co-amici Associated Industries of Massachusetts and the Retailers Association of Massachusetts, filed an amicus brief in support of EDS. NELF argued that the AG’s argument was contradicted by the Act’s express language, which only requires a payment for unused vacation time when such payment is provided for “under an oral or written agreement.” G. L. c. 149, § 148. Based on this language, NELF argued that where, as in this case, an employer’s vacation policy did not provide for payment for unused vacation time, the Act was not violated and the former employee had no claim for unpaid wages under the Act. NELF also expressed concern with both the economic impact of the AG’s interpretation on employers seeking to control the costs of their vacation policies and the possibility that the AG’s view might in fact cause employers to curtail or even eliminate paid vacations.
Disagreeing with NELF, the SJC held that the Act entitles an involuntarily terminated employee to payment for earned but unused vacation time, notwithstanding an employer’s express policy to the contrary. The Court deferred to the AG’s statutory authority to interpret the Wage Act (here the AG's 1999 advisory interpreting "vacation payments"), while acknowledging that “[t]he Attorney General's interpretation is not the only meaning that could be attached to the [statutory] phrase ‘vacation payments due ... under an [employment] agreement.’” The Court expressly preserved for a future occasion the issue whether an employee who voluntarily quits his or her job would also be entitled to payment for unused vacation time irrespective of the employer’s vacation policy.
In this case the Massachusetts Attorney General (“AG”) claimed that EDS violated the Massachusetts Payment of Wages Act, G. L. c. 149, § 148 (“Act”) when it refused to pay a terminated employee for accrued but unused vacation time, despite the fact that EDS’s vacation policy expressly stated that a departing employee would not be entitled to payment for outstanding accrued vacation time. While, by its terms, the Act does not require employers to provide paid vacations for their employees, it does require that a terminated employee shall be paid all wages due on the day of discharge, and it defines wages as “includ[ing] any holiday or vacation payments due an employee under an oral or written agreement . . . .” (Emphasis added.) The Act also provides that “[n]o person shall by a special contract with an employee or by any other means exempt himself from this section . . . .” The AG argued that, once an employer chooses to provide for paid vacation time, this payment constitutes “wages” under the Act and the employer therefore must pay any departing employee for any earned but unused vacation time. According to the AG, EDS’s policy denying payment to a terminated employee for accrued but unused vacation time violated the Act and constituted a “special contract” by which the employer attempted to exempt itself from the payment of wages.
The SJC took the case on direct appellate review and NELF, together with co-amici Associated Industries of Massachusetts and the Retailers Association of Massachusetts, filed an amicus brief in support of EDS. NELF argued that the AG’s argument was contradicted by the Act’s express language, which only requires a payment for unused vacation time when such payment is provided for “under an oral or written agreement.” G. L. c. 149, § 148. Based on this language, NELF argued that where, as in this case, an employer’s vacation policy did not provide for payment for unused vacation time, the Act was not violated and the former employee had no claim for unpaid wages under the Act. NELF also expressed concern with both the economic impact of the AG’s interpretation on employers seeking to control the costs of their vacation policies and the possibility that the AG’s view might in fact cause employers to curtail or even eliminate paid vacations.
Disagreeing with NELF, the SJC held that the Act entitles an involuntarily terminated employee to payment for earned but unused vacation time, notwithstanding an employer’s express policy to the contrary. The Court deferred to the AG’s statutory authority to interpret the Wage Act (here the AG's 1999 advisory interpreting "vacation payments"), while acknowledging that “[t]he Attorney General's interpretation is not the only meaning that could be attached to the [statutory] phrase ‘vacation payments due ... under an [employment] agreement.’” The Court expressly preserved for a future occasion the issue whether an employee who voluntarily quits his or her job would also be entitled to payment for unused vacation time irrespective of the employer’s vacation policy.
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