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Employee vacation benefits at termination

Employer Duty to Pay Vacation Benefits When Employees Exit

When employment ends, there are certain sums of money that are due to the employee on the next regularly occurring pay date. Most employers are aware that they must pay employees all "wages" earned at the time of termination.  Many employers, though, fail to acknowledge the obligation to pay other accrued benefits including vacation.  Accrued benefits such as vacation can be "wages" under Maryland law.

There are various forms of compensation that are included in the definition of "wages".  Some examples of compensation that might be payable, depending upon the circumstances, are vacation time, sick time, bonuses, commissions, and future wages pursuant to an employment contract.

Until recently, the Maryland Department of Labor Licensing and Regulation had declared that vacation time was considered wages.  Notwithstanding, an employer could have a written policy stating that an employee forfeited his or her vacation time upon termination to avoid the obligation.  This guidance has since changed.  The Maryland Department of Labor Licensing and Regulation’s regulatory guidance now states that “when an employee has earned or accrued his or her leave in exchange for work, an employee has a right to be compensated for unused leave upon the termination of his or her employment regardless of the employer's policy or language in the employee handbook.”  This guidance appears to be in direct response to a recent court decision. 

In an unreported Court of Special Appeals opinion, Catapult Technology LTD. v. Wolfe, the court  held vacation time is payable upon termination.  In the Wolfe case, the employer, Catapult Technology, had an Employee Handbook which stated that if an employee did not provide two weeks notice prior to resignation, the employee would forfeit all rights he or she had in universal leave which had accrued.  Wolfe resigned from his employment without giving the two weeks notice as required and Catapult, therefore, failed to pay Wolfe his accrued vacation time.   Wolfe filed a complaint for violation of Maryland’s wage payment laws.   The Court held that since employees “earn” unused and accrued vacation time in exchange for work, vacation time is considered a wage that must be paid upon termination.  Any policy which states otherwise is invalid.  This court cited other cases from the Maryland Court of Appeals related to other employment fringe benefits, such as incentive payment, as precedent. 

While unpublished opinions in Maryland may not be used as precedent or as persuasive authority, the opinion in Wolfe indicates the trend of the Maryland courts related to employment fringe benefits and whether they are payable upon termination.  Therefore, employers must be aware that failure to pay vacation time earned may lead to employee lawsuits.



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