Vacation Pay and the Massachusetts Wage Act

Private employers do not have to provide paid vacation, but many do as an employment benefit. When an employer chooses to offer paid vacation time to their employees, any earned vacation time is the equivalent of “earned wages” under the Massachusetts Wage Act. As a result, if an employee is involuntarily discharged from their employment, a Massachusetts employer is required to pay the earned but unused vacation time remaining at the time of discharge.

The Massachusetts Wage Act states, “Every person having employees in his service shall pay weekly or bi-weekly wages earned to him.” The law further describes “wages” as being “any holiday or vacation payment due an employee under an oral or written agreement.” The Wage Act also requires that any employee discharged from employment shall be paid in full all wages earned up until the day of termination. Since the Wage Act defines wages as including paid vacation time, employees must be compensated for earned and outstanding vacation time on the day of discharge.

The Wage Act also prohibits any person from “entering into a special contract with an employee” that exempts the employer from paying earned vacation time or where the employee forfeits their right to vacation time. According to the AG vacation-advisory regarding the Wage Act’s treatment of employer’s vacation policies, examples of this include vacation policies that condition the payment of vacation time on continuous employment or that require employees to provide notices to quit. The Attorney General’s opinion states that employees who have worked and leave or are fired are entitled to the pay for all the time worked until the termination of employment, including any earned and unused vacation time payments.

The courts are not bound by the opinions letters of the Attorney General, but in the case of Electronic Data Systems v. Attorney General, 545 Mass. 63 (2009), the Supreme Judicial Court analyzed the vacation pay rules under the Wage Act.

Although employers may not contractually eliminate their obligation to pay an employee paid vacation time, they are able to condition vacation payments. For example, employers can cap the amount of vacation time an employee may accrue or earn. An employer can state that after accruing a certain amount of vacation, the employee must begin to use some of it before earning more vacation time. Employers can also set “use it or lose it” conditions. Under such a policy, employees must use all their vacation time before a certain date or else they lose all or part of it. However, if an employer chooses to condition paid vacation requirements, they must provide adequate prior notice to the employee and must ensure that their employees have a reasonable opportunity to use that vacation time before losing it. Finally, unless another schedule is specified in the agreement, vacation time is earned according to the period in time when the employee actually works. For example, if the employee expects to receive twelve paid vacation days in one year and only works ten months, the employee would be entitled to ten vacation days.

All in all, an employee may lose the right to their paid vacation through non use, but if an employer interferes with the employee’s ability to use it, for example by discharging the employee, the employer must pay the value of the earned vacation upon termination.

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