General Practice, Solo & Small Firm DivisionMagazine
Time Off from Work
Legal Rights and Obligations
BY H. MARK ADAMS, MARY ELLEN JORDAN, AND JENNIFER L. ANDERSON
H. Mark Adams is partner-in-charge of the labor and employment law section of New Orleans-based Jones, Walker, Waechter, Poitevent, Carrère & Denègre. Mary Ellen Jordan is special counsel and Jennifer L. Anderson is an associate in the firm’s labor and employment law section.
Time off from work may seem, at first blush, to be a simple concept, uncomplicated by legal issues. Employers and employees alike take vacation, personal leave, holidays and sick pay for granted. But employers and employees often have vastly different ideas about their rights and obligations with respect to offering and taking time off from work.
Often obscure and divergent state laws regulate time off from work and how (or whether) employers pay for it. Add in the Family and Medical Leave Act, a hugely complicated law that Congress gave us in 1993, and you have a recipe for misunderstanding and miscommunication, leading to some serious legal headaches.
No law requires an employer to permit its employees to take vacations in the absence of an express provision in an employment contract or collective bargaining agreement. But when an employer adopts a policy or practice of allowing employees to take paid time off for purposes of vacation, or when vacation time is required under an employment contract or collective bargaining agreement, several legal questions are raised.
• Can employees take vacation at their convenience, or is the scheduling of vacation subject to the control of their employer?
• What happens if employees don’t take all of their vacation; does it make a difference whether the employer prevented the employee from taking vacation or whether it was the employee’s choice?
• Can an employer adopt a “use-it-or-lose-it” policy, or must an employer allow employees to carry over unused vacation into the next year?
• Can an employer cap or limit the amount of vacation an employee can accrue?
• What happens when an employee quits or is fired; must the employer pay the employee for any unused vacation?
• Can employees be made to forfeit their vacation under certain circumstances?
• If an employer gives an employee a vacation advance, can the employer recoup the advance if the employee quits or is fired before the vacation is fully earned?
It is universally agreed that employers have the right to control the scheduling of vacation time by employees. Therefore, most employer vacation policies require employees to schedule vacation time in advance and to obtain management or supervisor approval prior to taking vacation. Some employers, such as certain retail establishments and manufacturing facilities, prohibit the taking of vacation during certain peak times of year when the scheduling of vacations might cause the employer an undue hardship or disrupt the employer’s operations. Other employers simply close down during slow times and require all employees to use their vacation during the period of closure. These types of policies are perfectly legal, but what if an employee chooses not to take a vacation or is prevented from taking vacation by her work schedule or by an employer’s refusal to authorize a vacation request?
In that case, some employers allow employees to carry over their unused vacation to the next year when it can be taken more conveniently. Others simply pay their employees, sometimes at a discounted rate, for any unused vacation remaining at the end of the year. But some employers require employees to use all their vacation in the year in which the vacation is earned, or lose it. These so-called “use-it-or-lose-it” policies are legal in most states. Even states (such as California) that prohibit strict “use-it-or-lose-it” policies allow employers to establish policies under which the accrual of vacation benefits is limited to a certain level. Other states (such as Colorado) permit employers to establish contracts or policies that preclude employees from redeeming unlimited accumulated vacation credits upon the termination of their employment.
The legal question most often associated with the payment of vacation pay is what happens to an employee’s unused earned vacation credits upon the termination of employment. Nearly all states classify vacation as “wages,” which, if owed to an employee, must be paid at the time of termination or within a certain specified period of time (usually a matter of a few days or even hours) following an employee’s resignation or discharge. Nearly all states, however, are in agreement that all conditions to earning paid vacation must be met in order for vacation to be deemed “wages” that are due an employee upon the termination of employment.
Conversely, nearly all states strictly prohibit employer policies or practices under which employees are required to forfeit their earned vacation upon the termination of their employment for whatever reason. A policy under which earned vacation is forfeited due to an employee’s failure to provide advance notice of resignation or if the employee is fired for certain work rule violations likewise generally is unenforceable and can subject an employer to civil liability and even criminal penalties. South Carolina is a notable exception—state law allows the forfeiture of an employee’s wages in the case of a breach of the employee’s “duty of loyalty and fidelity” to his employer by soliciting the employer’s customers for a competitor while still on the employer’s payroll. However, this is the rare exception, and any employer should consult its legal counsel before attempting to enforce any kind of “wage forfeiture” policy.
The conditions precedent to earning vacation usually involve a certain period of employment or continuous service by the employee. However, even when the employer’s policy requires an employee to work a certain period of time (say, a year) before becoming eligible to take paid vacation, the law of some states (such as California) provides that vacation vests on a pro-rata basis and cannot be forfeited if an employee does not reach the anniversary date when she otherwise would become eligible to take paid vacation. Under such a rule, an employee who quit or was fired after working nine months would be entitled to be paid, upon termination, for two-thirds of the vacation she would have been eligible for had the employment continued for a full year.
Other states (such as Louisiana) require an employee both to have accrued the vacation and to be eligible to take vacation at the time of termination in order to receive vacation pay. Under this rule, if an employer’s policy requires an employee to work a full year before becoming eligible for two weeks of vacation in year two of the employee’s employment, the employee would not be entitled to any vacation pay if he quit or was discharged before the first anniversary date of his employment. Most states are in agreement, however, that when an employer’s policy provides for paid vacation, and an employee is terminated without having used vested vacation time, all vested vacation time must be paid to the employee as wages upon the termination of her employment.
A related issue arises when an employer has an accrual-based vacation policy under which employees accrue a certain number of vacation days per month up to a maximum number of vacation days per year. Under this kind of policy, employers invariably advance vacation to their employees (i.e., they permit their employees to use more paid vacation days than they have accrued at the time of their vacation). For example, the policy of ABC Company allows its employees to accrue one and a half vacation days per month up to a maximum of 15 vacation days per year. An employee asks to schedule a ski vacation in February, or maybe the employee wants to dig out of the snow and go to the beach. Trouble is, under ABC Company’s policy, the employee has accrued only one and a half days of vacation. “No problem,” says ABC, “under our policy, we’ll advance you the vacation you want, and you can work it off when you return.” The employee takes a two-week vacation and quits a month later. Can ABC Company require the employee to pay back the unearned vacation it advanced its employee?
In most states, the answer is an unequivocal yes. Many states expressly allow employers to set off the amount of unearned vacation previously paid to an employee against the wages or salary earned by the employee through her termination date. Some states, however, prohibit employers from withholding or offsetting any amounts from wages due to a separated employee even when it’s clear the employee owes the employer. So, in our example, it would behoove ABC Company to consult its lawyer to determine whether the applicable state law permits a setoff. This is especially so because most states impose strict penalties when an employer fails to pay an employee all “wages” or other compensation due upon the termination of employment.
It is critical that employers keep accurate records of the amount of vacation both earned and taken by their employees. Because nearly all states consider unused earned vacation pay to be wages due an employee upon the termination of employment, an employer’s failure to include vacation pay in an employee’s final paycheck could result in strict legal liability as well as unexpected legal bills. The maximum penalties that can be imposed vary from state to state. Delaware and New Hampshire limit the penalty to the lesser of 10 percent of the unpaid amount for each business day of noncompliance or an amount equal to the unpaid “wages.” Colorado caps the penalty at ten days of pay. California and North Dakota cap it at 30 days of pay. Arizona and South Carolina allow employees to recover “treble damages” (i.e. , an amount equal to three times the amount of unpaid vacation due).
Under Louisiana law, the penalty is one day of pay for each day of noncompliance up to 90 days; that’s equal to about four and a half months of pay! In Kansas, corporate officers can be held personally liable for the penalty if they’re found to be responsible for denying an employee any part of his earned pay upon termination. Massachusetts, Texas, and Wisconsin subject employers and their agents to criminal penalties and even imprisonment for nonpayment of the full amount due an employee upon termination. Nearly all states also require the employer to pay the employee’s attorney fees and litigation expenses if a lawsuit is required to collect unpaid wages, including unpaid vacation. The point is, for a small mistake, an employer can be made to pay a big price.
Some employers allow what they call paid “personal leave” in addition to vacation, or sometimes in lieu of vacation and/or paid sick leave. When personal leave is available for any purpose, including leisure activities, and is subject only to scheduling or approval by the employer, it is the equivalent of vacation, and therefore is subject to all the same legal requirements as vacation pay. However, if paid personal leave is available only for certain limited purposes—for example, as a substitute for paid sick leave or for absences due to illness, injury, or medical appointments of family members, or to transact necessary personal business (i.e., not for leisure purposes)—such leave time generally is treated as a benefit, as opposed to “wages.” This type of leave is payable only upon the occurrence of one of the circumstances specified in the employer’s policy, and therefore is not payable upon the termination of employment.
The legal issues associated with holiday pay are somewhat similar to those connected with vacation and personal leave, but there are several important differences. As is the case with vacation, there is no legal requirement that employers allow employees a certain number of paid holidays per year. There also is no legal requirement that employers allow employees time off for any specific holidays, even without pay.
Unless an employer agrees to allow time off for holidays in a written contract of employment or collective bargaining agreement, employees have no right to demand time off or to refuse to work on a holiday. The very narrow exception is when working on a particular holiday would violate the employee’s genuinely held religious principles and the employer cannot accommodate the employee’s request for time off without incurring an undue hardship. (Religious accommodations are a “whole other story” that we won’t even attempt to cover in this article.)
Likewise, if, because of an employer’s special needs, an employee is required to work on a holiday for which other employees are allowed time off with pay, the employee has no legal right to receive holiday pay (or any other form of premium or extra pay) in addition to pay for actual time worked, unless the employee’s contract, the employer’s policy, or a collective bargaining agreement provides otherwise.
If an employer has a policy or practice of paying employees for holidays, most states include holiday pay within the definition of “wages.” Some, like Massachusetts, South Carolina, and Wisconsin, even go so far as to include holiday pay in their statutory definitions of wages for purposes of determining the amount of compensation due an employee upon termination. Generally, however, employees must meet the conditions of their employer’s holiday pay policy in order to be eligible for holiday pay.
In other words, if the employer allows time off with pay for a holiday, an employee must be employed at the time the holiday occurs in order to receive holiday pay. Some employers require employees to be physically at work the day before and the day after a holiday in order to be paid for a holiday, and these policies are perfectly legal. Other employers have similar rules but make exceptions for approved vacations and authorized sick leave. However, these policy issues are left to each individual employer.
Now let’s talk about something called the “floating holiday.” The nature of some employers’ businesses is that they must remain open when others are closed due to a holiday. Sometimes, too, circumstances arise that require an employer to be open on a holiday when its employees otherwise would be off work with holiday pay. As an accommodation (or a reward) to their employees, some of these employers have adopted so-called “floating holiday” policies under which employees are allowed to schedule an extra day off, or “floating holiday,” if they are required to work on a recognized holiday. Under such a policy, the floating holiday, once earned, becomes the equivalent of an extra day of vacation. Thus, if an employee resigns or is discharged prior to taking a floating holiday that the employee has earned pursuant to the employer’s policy, the employee would have to be paid for the floating holiday along with any other earned, but unused, vacation.
Under the type of floating holiday policy described above, employees become eligible for and earn floating holiday pay only after working on a recognized holiday (i.e., one for which they would have received holiday pay had they not worked). Another not-too-uncommon example of a floating holiday policy is one under which an employer allows its employees one or more floating holidays in recognition of an employee’s birthday, wedding anniversary, anniversary date with the company, or some other specific event. If the employer allows its employees to schedule floating holidays at any time throughout the year, floating holiday pay for any floating holidays not taken must be paid to an employee upon the termination of her employment even though the termination may occur before the dates to which the floating holidays are tied. However, if the employer’s policy allows an employee to schedule a floating holiday only on or after the date to which the floating holiday is tied, and the employee terminates before that date, no floating holiday pay would be due.
Why include sick leave in a discussion of the legal aspects of leisure time? Many employees consider sick leave to be a form of entitlement, and much to the chagrin of their employers, get away with using sick leave for reasons other than sickness, including as a supplement to vacation (only because their employers can’t afford or are unwilling to hire an army of private detectives to follow them around). Just ask any employer how many employees year in and year out can be counted on to use every single day of paid sick leave. Many of these employees use all their sick leave to run errands and goof off, then come to work when they’re really ill and infect other employees who then legitimately have to take their sick leave.
Paid sick days, however, like personal leave that’s available only for certain specified purposes, generally are not considered “wages” that must be paid to employees upon the termination of their employment. Most states, therefore, treat paid sick leave as a benefit payable only in the event of an employee’s absence from work due to illness or injury. Employers generally are not required to pay employees for unused sick leave at the end of a year or to allow their employees to carry over and accumulate sick leave from year to year.
Under the Fair Labor Standards Act (FLSA), the federal minimum wage and overtime law, employers must pay what are called “nonexempt” employees overtime pay for all hours worked in excess of 40 in a workweek. “Non-exempt” employees generally are those who do not qualify for the “executive,” “professional,” or “administrative” employee exemptions to the overtime rule. (Which employees qualify for these exemptions is another “whole other story” that requires its own article.)
Employers are required to pay overtime only when an eligible employee actually works more than 40 hours in a workweek. Thus, if an employee who normally is scheduled to work eight hours per day Monday through Friday works 30 hours (i.e. , ten hours per day) Monday through Wednesday, then takes vacation on Thursday and Friday, the employer is not required to pay the employee overtime. This is the case even though, under the employer’s policy, the employee would be paid for 46 hours—30 hours of work time on Monday through Wednesday plus 16 hours of vacation for Thursday and Friday. The employee in this scenario would not be entitled to overtime because he or she actually worked only 30 hours. Many employers include time taken as vacation, personal leave, holidays, or sick leave in the computation of overtime (i.e., they count paid time off as worked time), but there is no requirement under the FLSA to do so.
Family and Medical Leave
Pages upon pages, indeed volumes upon volumes, have been published by scores of public and private sources in an attempt to explain all the ins, outs, and intricacies of the Family and Medical Leave Act (FMLA). An introduction into the basic provisions and requirements of the FMLA will help explain how the FMLA interacts with an employer’s “leisure time” policies.
The FMLA covers all employers with 50 or more employees at all locations “for each working day during each of twenty or more calendar work weeks in the current or preceding calendar year.” All employees that appear on the payroll for the week are counted without regard to whether they are receiving compensation for that week. Thus, employees on unpaid leave or serving disciplinary suspensions must be counted as long as there is a reasonable expectation that they will return to work. Temporary or leased employees also must be counted. Thus, if an employer has only 40 permanent employees, but leases another ten from a temporary agency, the employer is covered. Part-time employees are counted just like full-time employees, but employees on layoff status are not counted.
An employee is eligible for FMLA leave if she has been employed for at least 12 months (which don’t have to be consecutive), and has worked at least 1,250 hours during the 12-month period immediately preceding commencement of the leave. To be eligible, an employee also must work at a work site where there are at least 50 employees or the employer employs at least 50 employees within 75 miles of the employee’s work site. Thus, even though an employer may be covered by the FMLA because it has more than 50 employees at all locations, if fewer than 50 employees are employed at one of the locations and there is no other work site within 75 miles, the employees at that location are not eligible.
Assuming coverage and eligibility, the FMLA requires employers to allow up to 12 weeks of leave during any 12-month period for any of the following reasons:
• If a serious health condition renders the employee unable to perform the functions of her job;
• For the birth of or to care for the employee’s newborn child;
• For the adoption of a child by the employee or the placement of a foster child in the employee’s home; and
• To care for the employee’s spouse, child, or parent who has a serious health condition.
The 12-month period during which the 12 weeks of FMLA leave must be allowed can be a calendar year, any other 12-month period such as a fiscal year or one based on the employee’s start date with the company, or what the FMLA calls a “rolling” 12-month period measured backward from the date an employee uses any FMLA leave. The “rolling” method ensures that employees may never take more than 12 weeks of FMLA leave during any 12-month period. Basing FMLA leave on a fixed 12-month period such as a calendar year, however, could result in a situation in which an employee is entitled to 12 weeks at the end of one 12-month period and another 12 weeks at the beginning of the next 12-month period for a total of 24 consecutive weeks.
It should be noted that leave associated with an employee’s own serious health condition or to care for the employee’s spouse, child, or parent who has a serious health condition must be medically necessary, and the employer has the right to require employees to provide certification of medical necessity. Leave for the birth or adoption of the employee’s child or for the placement of a foster child in the employee’s home, however, do not require medical necessity. Thus, a mother may remain out on leave for the full 12 weeks following the birth of her child, even though her doctor may have released her to return to work several weeks earlier.
But if a mother is unable to return to work at the end of the 12-week period, some states require employers to grant additional leave for maternity- and childbirth-related conditions if medically necessary. Louisiana, for example, requires employers to allow a maternity leave of up to four months if medically necessary. Since the FMLA is an “equal opportunity law,” fathers also may take leave under the FMLA to care for their newborn, adopted, or foster children. However, if both the mother and father work for the same employer, they may take no more than 12 weeks between them for these purposes.
The FMLA also allows employees to take covered leave on an “intermittent” basis or pursuant to a “reduced leave schedule.” An example of a condition that might justify leave on such a basis would be a medical condition that requires the employee to obtain treatment or therapy on an intermittent or scheduled basis but that otherwise does not prevent the employee from being at work. An employer may deny a request for this type of leave if it would cause an undue hardship.
When the need for FMLA leave is foreseeable, employees generally must give their employers at least 30 days’ advance notice. If an employee fails to do so, the employer may deny the leave pending 30 days’ notice. When the need for leave is not foreseeable, an employee must give notice as soon as possible. Under normal circumstances, this means notice should be given within one to two business days.
During an FMLA-covered leave, an employer must maintain an employee’s coverage under the employer’s group health plan on the same basis as if the employee were actively at work. This means that if an employee pays for part of the health insurance premiums through payroll deductions, the employee must continue to pay her share during an FMLA leave. However, if an employee chooses not to pay her share of premiums and thereby loses health insurance coverage during an FMLA leave, the employee still must be restored to the same benefits upon returning to work without a qualifying period, physical examination, or exclusion of preexisting conditions. If an employee does not return to work following FMLA leave or returns for less than 30 calendar days, an employer may recover its share of health plan premiums paid during the FMLA leave as long as the employee’s failure to return to work was not due to a continuation or reoccurrence of a serious health condition or other circumstances beyond the employee’s control.
The FMLA requires that returning employees be reinstated to the same position they held when the leave commenced if that position is still available. If the employee’s previous position is not available, he must be given an equivalent position with equivalent pay, benefits, and terms and conditions of employment. If an employee is what the FMLA defines as a “key employee,” the employer is not obligated to reinstate the employee if it will cause “substantial and grievous economical injury” to the employer’s operations. A “key employee” must be salaried and among the highest paid 10 percent of all employees within 75 miles of the work site.
Although FMLA leave is without pay, an employer may require its employees to use any available paid leave for which they are eligible under the employer’s policies on a parallel track with their FMLA leave. Here’s where an employer’s “leisure time” and other paid leave policies come into play with the FMLA. If an employee takes FMLA leave due to her own serious health condition, the employer may require the employee to use any available paid sick time concurrently with the FMLA leave. If a mother takes FMLA leave for the birth of her child, the employer similarly may require the mother to use any available paid sick leave, at least for the portion of the leave in which the mother is unable to work due to her own medical condition.
Likewise, if the employer’s paid sick leave policy permits employees to use paid sick days to care for a sick family member, the employer may require an employee to use all available paid sick leave concurrently with FMLA leave taken for the purpose of caring for the employee’s spouse, child, or parent with a serious health condition. Once all paid sick leave is exhausted, and the employee is still unable to return to work, the employer may require the employee to use any available personal leave or vacation until that leave is exhausted. Similarly, if an employee takes FMLA leave for any purpose not covered by the employer’s paid sick leave policy, the employer may require the employee to use any available personal and/or vacation leave concurrently with the FMLA leave.
By requiring employees to use available paid leave under the employer’s policies on a parallel track with their FMLA leave, an employer does not extend the employee’s FMLA leave. Rather, the employee is limited to the maximum 12 weeks required under the FMLA, but part of the leave will be paid and the remainder of the leave after exhausting available paid leave will be unpaid. By way of example, ABC Company allows its employees one week of paid sick leave, one week of paid personal leave, and two weeks of paid vacation per year. An employee takes FMLA leave for a serious health condition that requires the employee to be absent for the full 12 weeks provided under the FMLA. In this scenario, the first four weeks of the employee’s FMLA leave will be with pay, and the remaining eight weeks will be without pay.
Employers also may allow employees the option of using paid leave during an FMLA- covered leave, but they may not prohibit employees from using paid leave during an FMLA-covered leave. Under this scenario, if an employee chooses not to use paid leave during an FMLA-covered leave, the employee’s FMLA leave will have no affect on the amount of paid leave available to the employee under the employer’s policies should the employee desire to use such leave later, perhaps after exhausting the FMLA leave.
This discussion of the FMLA is by no means exhaustive and only touches the surface of the various intricacies of this very complex statutory scheme. For more information about the FMLA, consult detailed publications that deal specifically with the FMLA. CL
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