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December 20, 2007
Vacation Pay Lawsuits on the Rise
Employee-initiated lawsuits based on allegations that employers are cheating them out of vacation pay are on the rise, according to an article in The National Law Journal, a newspaper for the legal profession. One area of conflict regards employer "use it or lose it policies" which often result in an employer's refusal to pay a departing employee for unused vacation time.

Some recent large class action settlements are sure to catch the attention of employers ... and have certainly already caught the eye of plaintiffs' attorneys:

  • In 2005, Denny's Corp. settled a lawsuit for nearly $7.8 million over vacation time accrual practices in California
  • In 2006, Adecco USA Inc., a staffing agency, settled two vacation pay class actions for more than $3 million "over claims that it wrongfully denied more than 15,000 employees compensation for vacation benefits."

Adecco USA is again facing a pending class action suit in Illinois based on similar allegations, and AutoNation, Inc is facing one in Washington. The pending class action against AutoNation alleges that it "engaged in a scheme that caused more than 550 employees to lose one year's worth of vacation time."

One employee-rights attorney interviewed for the article noted that there is a "trend" among employers "to finding a number of different ways to cut corners" and that one way they try to do so is to "take away vacation pay" of their employees.

The attorney, Daniel Feinberg of Lewis, Feinberg, Lee, Renaker & Jackson, explained that vacation pay violations often come to light when employees initially come to lawyers with claims related to wage-and-hour issues, and then the lawyers discover that employers were also violating state laws regarding vacation pay. Feinberg told The National Law Journal that in the past few years he has handled at least a dozen vacation pay class action suits.

The article explains that while providing vacation is voluntary, employers don't necessarily have the "wide discretion over how and when it's paid" that they might expect. While there are no federal or state laws that mandate paid vacations, the article notes, "if employers do choose to offer such benefits, they have to follow certain state laws regulating vacation pay."

The article identified 10 states that require employers to pay out accrued vacation benefits to employees at the time of their departure as California, Illinois, Iowa, Louisiana, Maine, Massachusetts, North Carolina, Oregon, Rhode Island and Tennessee.

The article also notes that some states differ in terms of whether an employer can deny payment of vacation benefits to employees if the employer has a policy in place that stipulates employees would forfeit their vacation pay under certain conditions.

This year in Maryland, for example, a state court struck down an employer's policy that stipulated that an employee who failed to give 2 weeks' notice of resignation would forfeit their vacation pay. But the Minnesota State Supreme Court ruled in November upheld an employer policy that stipulated that an employee fired for misconduct would forfeit vacation pay.

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