Holds Decision To Payout Vacation Is Governed By Company Policy

The Tennessee Wage Payment Statute includes provisions that address the payment of a separated employee’s final paycheck. The statute requires that: “the final wages of an employee who quits or is discharged shall include any vacation pay or other compensatory time that is owed to the employee by virtue of company policy or labor agreement.” The Tennessee Department of Labor and Workforce Development is responsible for enforcing the Wage Payment Statute.

Until last year, the Department had followed the language of the statute. Specifically, the Department had agreed that if a company’s written policy provided that an employee who was discharged forfeited any accrued vacation, then that policy controlled and the employee was not entitled to payment of any vacation pay in their final paycheck. Last year, Labor Commissioner James Neeley changed the Department’s interpretation of the statute, finding that in the absence of a collective bargaining agreement or other employment contract, employees are entitled to vacation pay upon termination of their employment. Specifically, a vacation policy in an employee handbook that contains a contractual disclaimer could not, according to the Commissioner, be used to refuse to pay a discharged employee accrued vacation.

Recently, the Tennessee Attorney General’s office issued an opinion that expressly disagrees with the Commis-sioner’s interpretation and finds that the statute means what it says. According to the Attorney General’s opinion, under the statute, if the employer’s policy calls for an employee to forfeit vacation pay when he or she is discharged, then the policy controls, even if it is in an employee handbook with a contractual disclaimer.

Note: This article was published in the Dec/Jan 2007 issue of the Tennessee eAuthority.

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