Massachusetts High Court Rules that Terminated Employees Must be Paid for Unused Vacation, Regardless of Employer's Written Vacation Policy

On June 11, 2009, the Massachusetts Supreme Judicial Court held in Electronic Data Systems Corporation v. Attorney General, that the employer’s written vacation pay policy violated the Massachusetts Wage Act. The vacation pay policy at issue provided that any employee leaving the company, whether voluntarily or involuntarily, would not be paid for unused vacation time. According to the court, the policy impermissibly deprived employees of earned wages due upon termination under the terms of the Wage Act.

The Wage Act defines “wages” to include “vacation payments due an employee under an oral or written agreement.” Because the written agreement at issue in the case did not allow for payments of unused vacation, the employer argued that such vacation pay was not “due” under the terms of the agreement and, therefore, not “wages.”

The Massachusetts Attorney General argued that the unused vacation pay became “due” as soon as it accrued and, therefore, constituted earned wages that must be paid upon termination. In its opinion, the court emphasized that the vacation pay at issue was “earned” because it accrued according to days and years worked. The court also afforded “substantial deference” to an advisory issued in 1999 by the Massachusetts Attorney General’s Office stating that “[e]mployees who have performed work and leave or are fired, whether for cause or not, are entitled to pay for all the time worked up to the termination of their employment, including any earned, unused vacation time payments.”

It remains an open question whether the court’s reasoning applies to payments for vacation time accrued by employees who voluntarily leave their jobs. Because the employee at issue in the case was involuntarily discharged, the court declined to address the question of voluntary departures. However, the Attorney General’s Advisory and statutory text upon which the court relied do not appear to draw a distinction between vacation pay due upon involuntary termination and that due upon voluntary termination.

This blog entry was authored by Amy Mendenhall.

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.