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What Happens to An Employee's Banked Vacation Time if He or She is Fired?

Termination of employer-employee relationships can be contentious, to say the least. Whether the relationship ends because of the words “You’re terminated,” “I’m quitting,” or somewhere in between, there are many questions that may arise regarding the legal consequences of employee departures, especially if he or she is fired.

These questions are likely relevant for many employers as it is a common practice in the workplace for employees to “bank” vacation time so that they have an opportunity to take considerable time off in the future.

What if, though, an employee is terminated prior to using his or her earned paid-time off? He or she may not be entitled to his or her earned benefits, despite what’s written in the law.

Employers may not be required to pay out banked vacation time

At first glance, MCL 408.473 seems to entitle employees to all earned benefits set forth in a contract in the event of termination. The law states, “An employer shall pay fringe benefits to or on behalf of an employee in accordance with the terms set forth in the written contract or written policy.”

However, the actual effect of this law may be different in application than it appears at first glance. This is because MCL 408.473 states the employer must only pay fringe benefits “in accordance with the terms of the written contract.”

Consequently, if the terms of a written contract make the receiving of benefits dependent upon an action, an employee may not be entitled to them in an event of termination. In other words, if an employee must take action to use the paid-time-off, it may be that termination of the employer-employee relationship deprives them of the ability to use the benefits “in accordance with the terms set forth in the written contract” as required in MCL 408.473.

For example, if a longtime employee has earned an extra week of paid vacation time the following year and the contract also states to take the vacation time the employee must provide written notice 60 days prior to taking the time off, then the use of the paid-time-off is dependent upon the employee providing that notice.

If the employee is terminated prior to being able to take the required action to use the paid-time-off, then the employer may be able to deny the employee the benefits because they are not being asked for “in accordance with the terms set forth in the written contract.”

Help is available

The business attorneys at O’Reilly Rancilio are available to answer your questions regarding employment law. For information, call 586-726-1000 or visit our website.

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