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Court Holds That Vacation Pay Is “Wholly Contractual”

Published by on November 21, 2007

In an opinion dated November 15, 2007, the Minnesota Supreme Court held that employer liability for vacation pay upon termination is “wholly contractual.”    The court stated that “when employers choose to offer paid time off as a benefit, employers and employees can contract for the circumstances under which employees are entitled to paid time off and […]

In an opinion dated November 15, 2007, the Minnesota Supreme Court held that employer liability for vacation pay upon termination is “wholly contractual.”    The court stated that “when employers choose to offer paid time off as a benefit, employers and employees can contract for the circumstances under which employees are entitled to paid time off and payment in lieu of paid time off, so long as the contract provisions are not prohibited by or otherwise in conflict with a statute.”

The court specifically held that Minnesota Statutes section 181.13(a) was a “timing” statute, which determines when an employer must pay a discharged employee earned wages, and not a statutory entitlement to vacation pay, and also that an employee has not earned the right to payment in lieu of paid time off when she has failed to or cannot meet the conditions in the employment contract entitling her to that payment.  Lee v. Fresenius Medical Care, Inc., No. A05-1887 (Minn. Nov. 15, 2007).  The employee handbook provided that an employee who resigned without giving proper notice or was terminated for misconduct was not eligible for payment of earned but unused paid time off.

This case highlights the need for human resources professionals dealing with multi-state operations to ask labor counsel to specifically review PTO policies and practices for compliance with each state’s law.

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