To Pay or Not to Pay: Unused PTO

There are few things employees like more than paid time off.  Across the country groups are fighting for laws guaranteeing employees paid time off.  Most of these laws are aimed at securing paid time off to address sickness for the employee or a close family member, or for time to obtain restraining orders or seek treatment for abuse.  Previous Tips of the Week have addressed this movement and described the framework and the successes which have been widespread including in states like California, Massachusetts, New York, and Washington, among others, and as well as cities, including New York, Chicago, Minneapolis, St. Paul and Washington D.C. 

Even in the states and municipalities where the accrual or availability of paid leave is mandatory, many of these laws do not speak to the disposition of the accrued paid time off upon termination of the employment relationship.  Some of the laws/ordinances are silent on the issue and some affirmatively make it clear that the accrued balance does not need to be paid upon termination. In most states where the law is unclear the legal issue tends to be a question as to whether paid time off is the equivalent of "wages" under the state wage laws.  In some states it is and in others it is not.  Employers seeking to not pay out unused paid time off need to understand their state's wage and hour laws to make certain courts and the legislature do not equate paid time off banks with wages.  Where courts have determined such leave banks to  be equivalent to wages, employers have been required to pay the money out per the normal rules of paying terminated employees. 

In the past week a court in Massachusetts delivered a nice win for employers on this issue.  In a case before the Supreme Judicial Court, the Massachusetts Port Authority refused to pay one of its electricians his accrued sick time bank on the same schedule as he was paid his final wages.  In its ruling, the Supreme Judicial Court decided that the Massachusetts Wage Act did not mention sick pay and, therefore, an accrued sick leave bank is not the same as wages.  In so ruling the Massachusetts court reiterated its position that employers could impose use-it-or-lose-it rules around sick leave without running afoul of the Wage Act.      

Employers need to understand how the states in which they have employees treat paid time off.  Contact Thompson Coe for assistance with understanding your state rules in this area. 

 
 
Thompson Coe’s Tips of the Week are not intended as a solicitation, do not constitute legal advice and do not establish an attorney-client relationship.