Workers around the United States ultimately "will leave an average of three days unused — totaling more than 439 million in 2007," according to the "Vacation Deprivation" survey conducted by the online travel agent Expedia.com. In most cases this means that employees will accrue vacation time to be taken or paid at a later date.
However, how employees are compensated for accrued vacation, if they are compensated at all, varies from company to company. Some companies have policies in place that allow for unlimited vacation accrual, some have caps so that vacation time can only be accrued until employees reach a predetermined number of hours, and others have "use it or lose it" policies whereby employees forfeit vacation pay if they do not use it by a certain date. It is the latter of these vacation policies that has recently landed several employers in court battling class action lawsuits.
Although "use it or lose it" policies are typically used as a means to cut ever-soaring labor costs, many employees view this time as earned wages and are willing to go to court to prove it. On the other hand, management-side attorneys argue that the absence of federal laws mandating a set number of vacation days means that vacation compensation is left to employers' discretion, even going so far as to say that they have the right to withhold pay altogether if they so choose.
Two companies currently facing similar class actions in relation to "use it or lose it" policies are AutoNation Inc. and the staffing agency Adecco USA Inc. The former company is facing accusations in a Washington courtroom that it acted in a manner that resulted in 550 employees losing out on one year's worth of accrued vacation. Adecco is in an Illinois court facing charges that it denied employees vacation benefits.
In addition to ongoing lawsuits, some companies have already settled such matters out of court. Two years ago, Denny's Corp. averted trial when it agreed to a $7.8 million settlement with employees who were unhappy with the company's vacation accrual policy. Last year, Adecco USA was in court yet again fighting two class actions involving vacation time pay. The company eventually settled with the 15,000 employees who claimed the company denied them compensation.
However, not all legal outcomes have swayed in the plaintiff's favor. A recent Minnesota case resulted in a company's vacation pay policy being upheld. The employee who was suing claimed that he should be paid for his accrued vacation time. According to company policy, though, employees who are terminated as a result of misconduct are not compensated for accrued vacation time. The plaintiff was terminated for such a reason. On the other hand, in a similar case that was heard in Maryland, it was found that such policies are not valid. This only serves to further complicate the matter.
Even though no federal mandate exists, some state governments do have laws that impact how employees are compensated for vacation time if their employers choose to offer it. Ten states, including California, Illinois, Massachusetts, and Tennessee, have laws which explicitly state that employers must pay employees their accrued vacation money when they leave regardless of the reason for their departure.
Interestingly, the recent rise in vacation time pay lawsuits is directly related to wage and hour disputes. Looking to find legal reimbursement for wage and hour offenses, plaintiffs' attorneys have discovered additional employer violations in the form of vacation pay issues when building their cases.
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