Vacation pay, PTO (Paid Time off) days, personal days, sick days. All of these benefits may or may not be paid out when employees leave their employment, whether such departures are voluntarily or not. Part of this answer depends on state law and part depends on the employer’s policy. A recent $1.5 million settlement ending a class action lodged against Manpower Inc. franchisee Kane County Personnel Incorporated illustrates these principles. The settlement covers a class of thousands in a case entitled Romo et al. v. Manpower Incorporated, filed in federal court in the Northern District of Illinois
The plaintiffs’ theory was that the company policy of only providing vacation pay after a minimum number of hours of work violated state law. The Complaint alleged that if the workers ceased their employment prior to the reaching the minimum hours level, they forfeited their accrued vacation pay The claim was that the Illinois Wage Payment and Collection Act mandated that if vacation time vested, the employees were due a proportionate share of their accrued but unused time and the state law forbade a forfeiture.
The court had certified a class that covered employees employed over a seven-year period. The members of the class were those who worked for the company and did not receive their vacation pay, after they incurred a break in service of 90 days or more.
When employers draft policies relating to paid time off, any kind of paid time off (e.g. sick days, personal days, vacation) they must be careful to account for what will happen to that time (i.e. paid out or not) when a separation occurs. In drafting, the employer may also differentiate between separations that are voluntary and those which are not and in the latter case, may build in forfeiture provisions, meaning that if the employee is fired (or even quits without sufficient notice) the employee loses the accrued time.
But, and this is a big “but,” the employer must research any vagaries or requirements of state wage payment law (and/or precedent) that may not permit forfeiture provisions, such as in California, where such provisions are illegal. Melding the desire to save payouts of accrued time in certain circumstances and state law requirements often can be a difficult task and it is probably better to err on the side of conservatism in these matters (i.e. allowing payout) than risk a class action where the costs of defending and the possible costs of paying the plaintiffs’ legal fees will geometrically increase the payouts that otherwise would have been mandated.