March 1, 2021 Article

Court Upholds Maine Employers' Discretion Not to Pay for Unused Vacation Time

In January, the First Circuit issued an opinion upholding a lower court's decision that rejected a former employee's attempt to get paid for unused vacation time following his resignation from employment. See White v. Hewlett Packard Enterprise Company, No. 19-1696 (1st Cir. Jan. 13, 2021). The former employee argued that under Maine law, accrued vacation time should have been treated as earned wages and paid in full upon his resignation. The employee pointed to 26 M.R.S.A. § 626, which states: "An employee leaving employment must be paid in full no later than the employee's next established payday" and "[w]henever the terms of employment or the employer's established practice includes provisions for paid vacations, vacation pay on cessation of employment has the same status as wages earned."

The First Circuit rejected this argument, looking to Maine Law Court decisions holding that section 626 does not modify or supersede terms set forth in an employment agreement or create a statutory right for former employees to seek payment for unused vacation time when their employment ends. The First Circuit concluded that Maine Law is clear on this subject—"section 626 does no create substantive employment rights" and "the terms of [the employer's] vacation policy control."

Thus, it continues to be the case that Maine employers have discretion to determine under what circumstances, if any, employees will be paid for unused vacation time at separation. Maine employers should make clear in their policies whether or not unused vacation time will be paid out at termination. If unused vacation time will be paid out, any eligibility factors should also be outlined. For example, will employees who leave employment voluntarily be treated differently than employees who are terminated involuntarily? Will the employer cap the amount of vacation time that can be paid out? Will there be a notice requirement? A written policy setting forth all rules and procedures for vacation time, including how unused vacation time will be treated in the event of termination, should be maintained and communicated to staff. It is always wise to have employees sign an acknowledgement that they received the information and understand the policy.

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