This Illinois case illustrates how complicated lawyers and courts can make a seemingly simple question: here whether an employee is entitled to vacation pay upon termination, and if so, how much.
In People ex rel. Department of Labor v. General Electric Co., No. 1-02-3372 (Ill. App. 1st Dist. 3/9/04), the Illinois Court of Appeals held that employees were entitled upon termination to payments not only for unused vacation that was to be taken during the current year, but also for a pro rata share of the vacation they would have been entitled to take the following year.
This outcome was based on analysis of a particular Illinois statute and the regulations and case law applying it. It is potentially of broader interest, however, for several points.
First, and most fundamentally, entitlement to vacation pay consists of two conceptually distinct aspects: unused vacation for the current year, and pro rata vacation being earned for the next year. Many employers give no consideration to the issue faced by General Electric in this case — whether there is an obligation to pay the latter aspect of vacation pay upon termination. Depending on state law and the employer’s policies and practices, as well as any applicable collective bargaining agreement, there may not be any such obligation, but it can be a significant issue, as General Electric discovered in Illinois.
Second, it matters how a vacation policy is worded. I have too often seen employee handbooks with carelessly thrown together and ambiguous vacation policies.
Third, entitlement to vacation pay is a matter of state law, and there is some variation among states on this issue. Employers with multi-state operations should either be acquainted with each state’s law on this and comply with it or take a least-common-denominator approach, adopting the most generous possible interpretation in order to have a single nationwide policy that complies with all states’ laws. Otherwise, there is a risk of trouble in an employee-friendly state such as Illinois.
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