Verbal Contract Law NY: Business Pay Terminated Worker Unused Vacation

Under the New York Labor Law, employers must “notify . . . employees in writing or by publicly posting the employer’s policy on sick leave, vacation, personal leave, holidays and hours.”  N.Y. Labor Law § 195, 195(5).  In New York State, “An employee’s entitlement to receive payment for accrued, unused paid time off upon termination of employment is governed by the terms of the employer’s publicized policy.”  Kolesnikow v. Hudson Valley Hosp. Ctr., 622 F. Supp.2d 98, 120 (S.D.N.Y. 2009).

In other words, with regard to a terminated worker’s earned but unused vacation days, “All that is required by section 198-c [of the New York Labor Law] is that an employer abide by the terms of his agreement to provide benefits.”  Glenville Gage Co. v. Industrial Bd. of Appeals, 70 A.D.2d 283, 286 (3rd Dep’t 1979), aff’d, 52 N.Y.2d 777 (N.Y. 1980).

Thus, employers in New York State who have established a policy to provide their employees with a specific wage supplement are required by Article 6 of the New York Labor Law to abide by their agreement to pay the promised benefit.  Wage supplements include vacation, separation, or holiday pay, paid sick leave, reimbursement for expenses, and items of a like nature.  See N.Y. Labor Law § 198-c(2).  So even if a worker is fired before he utilizes the vacation days that he has earned, the employer must pay the worker for his unused vacation days if the employer’s publicized policy so provides.

However, employers need not abide by their publicized policies to pay earned but unused vacation days, or other specific wage supplements, with respect to any worker employed “in a bona fide executive, administrative, or professional capacity whose earnings are in excess of nine hundred dollars per week.”  See N.Y. Labor Law § 198-c(3).

Further, employers in Manhattan may lawfully establish policies that provide for forfeiture of earned but unused vacation pay upon termination of employment.

Likewise, employers in Manhattan may implement vacation forfeiture policies which condition payment for accrued but unused vacation days on the employee giving the employer a prescribed period of notice (for example, two weeks) before resigning, or on the employee not engaging in willful misconduct.  See, e.g., Mahoney v. Olean General Hosp., 277 A.D.2d 1046, 716 N.Y.S.2d 174 (4th Dep’t 2000) (approving hospital’s policy under which employees forfeit their earned but unused vacation and holiday pay if they are terminated for falsifying patient records).

In sum, while Manhattan permits companies to establish policies under which all departing employees forfeits their earned but unused vacation pay, companies should carefully consider whether gains in employee morale might be worth the cost of less severe vacation forfeiture policies. Further, regardless of what policy a company elects to establish regarding payments to terminated workers for unused vacation days, the company must disseminate or publicly post the policy, the policy must be clear, and the policy must plainly set forth the circumstances under which earned vacation will be lost.

If your company needs assistance or guidance on a labor or employment law issue and your company is located in the borough of Manhattan area, call Attorney David S. Rich at (347) 941-0760.