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Last Day of Employment? It Better Include A Cash-Out For Unused Vacation Time

Employers beware; gratuitous severance payments to former employees do not permit employers to deny separating employees their wages for accrued and unused vacation time. In Dixon v. City of Malden, a recent decision by the Massachusetts Supreme Judicial Court, the Court ruled that a violation of the Wage Act results in damages regardless of the employer's remedial payments to the Plaintiff and windfall by the Plaintiff.

In Massachusetts, employers do not have to provide employees paid vacation time. However, if an employer provides employees with the benefit of paid vacation time then Massachusetts' law classifies paid vacation time as a wage and separating employees are entitled to monetary payments on their last day of work for unused and accrued vacation time regardless of the reason for their separation.

In the Dixon case, the Plaintiff Dixon worked for the City of Malden as an administrator of a nursing home. In 2007, Malden terminated Dixon for cause. When Dixon was terminated the city failed to pay him for his accrued, unused vacation days because it had a policy of not paying out vacation time to employees terminated "for cause." Instead, Malden paid Dixon a three-month salary severance. Malden and Dixon never entered into a separation agreement and never had Dixon execute a release in exchange for the severance payments. Upon receiving his final severance payment, Dixon filed a civil action against Malden seeking damages in excess of $13,000.00 in unpaid vacation time. Malden denied that it owed Dixon anything since the gratuitous severance it provided to Dixon amounted to over $20,000.00 in payments to Dixon. The trial court agreed with Malden ruling that Dixon profited $6,000.00 over and above what was owed to him in unused vacation time. Dixon appealed the decision to the Massachusetts Supreme Judicial Court.

In an unanimous decision, the SJC overturned the trial court's decision. The Court held that:

The plaintiff's receipt of salary and benefits after his termination does not diminish the fact that the plaintiff was not paid for his accrued vacation time on the day of his discharge. No provision of the statute allows an employer, after terminating an employee with or without cause, to claim that later payments, in the form of salary and other benefits, compensate for earned and unused vacation time...We conclude that the failure to pay unpaid wages, as defined by G.L. c. 149, ยง 148, cannot be mitigated by gratuitous, after-the-fact payments...

As a result, the Court ordered Malden to pay Dixon the additional $13,000.00, along with the costs and fees associated with bringing his lawsuit. The Court could have awarded Dixon triple damages if it found that Malden's actions were outrageous, but the Court issued no such finding.

The Dixon case is a reminder to Massachusetts employers to compensate separating employees with all wages including a cash-out for accrued and unused vacation time on their last day of employment. Additionally, employers who offer employees severance packages should, in consideration of said severance, receive an executed release of clams from the employee. Employers should periodically review their vacation accrual polices and encourage employees to use vacation time to avoid large lump sum payouts when and if the employee departs.

Finally, the Dixon case serves as a reminder to separating employees to make sure you leave with all your wages. Your employer must provide you on your last day of employment with a cash-out for all benefits classified as wages including unused and accrued vacation time.

Contact Attorney Richard Mucci, an experienced employment lawyer, if you have questions regarding employee separation procedures or wage claims.

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