Defending Employers’ Right to Set Vacation Pay Policies
This case asked whether the Massachusetts Payment of Wages Act requires an employer to pay employees for unused vacation time upon termination, even when the employer’s written vacation policy expressly disclaims any such payments. The Superior Court had held that former EDS employee Robert Hutchins’s unused vacation time constituted “wages” earned under the Wage Act, notwithstanding EDS’s published policy to the contrary.
In its amicus brief on behalf of EDS and representing the Associated Industries of Massachusetts and the Retailers Association of Massachusetts, NELF argued to the Supreme Judicial Court that the lower court decision was inconsistent with the plain language of the Wage Act, which posits the employment agreement as the controlling authority on the subject of vacation benefits. The Wage Act merely enforces an employer’s contractual obligation to pay an employee’s regular compensation during an authorized vacation leave. Requiring an employer to pay for unused vacation time when the employment agreement disavows any such payments would violate the Wage Act and impose an unpredictable financial burden on the employer that would be contrary to the bargain between the parties. Moreover, courts from many other jurisdictions applying similar state wage laws have reached the same conclusion: a terminated employee has no right to receive payment for unused vacation time unless the employment agreement so provides.
The SJC affirmed the Superior Court’s judgment, but on narrow factual grounds. The high court chose to interpret the words “if you leave the company...” to apply only to employees who voluntarily leave EDS and not to employees who, like Hutchins, are involuntarily terminated. Since the forfeiture provision did not apply, the court said, Hutchins was entitled to payment under the wage Act for his eligible vacation time. The Court expressly reserved for another day the issue whether a contract provision forfeiting vacation pay upon an employee’s voluntary or involuntary departure would violate the Wage Act.
This case asked whether the Massachusetts Payment of Wages Act requires an employer to pay employees for unused vacation time upon termination, even when the employer’s written vacation policy expressly disclaims any such payments. The Superior Court had held that former EDS employee Robert Hutchins’s unused vacation time constituted “wages” earned under the Wage Act, notwithstanding EDS’s published policy to the contrary.
In its amicus brief on behalf of EDS and representing the Associated Industries of Massachusetts and the Retailers Association of Massachusetts, NELF argued to the Supreme Judicial Court that the lower court decision was inconsistent with the plain language of the Wage Act, which posits the employment agreement as the controlling authority on the subject of vacation benefits. The Wage Act merely enforces an employer’s contractual obligation to pay an employee’s regular compensation during an authorized vacation leave. Requiring an employer to pay for unused vacation time when the employment agreement disavows any such payments would violate the Wage Act and impose an unpredictable financial burden on the employer that would be contrary to the bargain between the parties. Moreover, courts from many other jurisdictions applying similar state wage laws have reached the same conclusion: a terminated employee has no right to receive payment for unused vacation time unless the employment agreement so provides.
The SJC affirmed the Superior Court’s judgment, but on narrow factual grounds. The high court chose to interpret the words “if you leave the company...” to apply only to employees who voluntarily leave EDS and not to employees who, like Hutchins, are involuntarily terminated. Since the forfeiture provision did not apply, the court said, Hutchins was entitled to payment under the wage Act for his eligible vacation time. The Court expressly reserved for another day the issue whether a contract provision forfeiting vacation pay upon an employee’s voluntary or involuntary departure would violate the Wage Act.
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