Vacation as Wages?
By: ANNE M. RADOLINSKI
September 2006
The Minnesota Court of Appeals has recently issued a decision that may have significant consequences for the handling of vacation pay. In the recent decision, Susan Lee v. Fresenius Medical Care, Inc., the appeals court determined that an employee must be paid for her accrued and unused vacation pay upon termination of employment, despite a vacation pay policy that would not allow for payment.
The employer’s vacation pay policy provided in part that an employee who leaves employment will be paid for earned but unused vacation time if the employee provides proper notice. The policy also provided that an employee will not be paid for earned but unused vacation time if the employee is terminated for misconduct. In a decision which is surprising practitioners, the Court of Appeals ruled that the employee, who was in fact terminated for misconduct, must nevertheless be paid for her vacation time. The court reasoned that vacation, despite the policy provisions, constitutes wages under Minnesota law and must be paid upon termination. The decision also, surprisingly, appears to reference the vacation policy as part of the “employment contract.” If the decision is appealed, the Minnesota Supreme Court may take a different approach. Nevertheless, in light of this decision, it is important that employers have their counsel review current vacation pay policies, and also current employee handbooks in general if an overall review has not been conducted recently.