I. INTRODUCTION
Due to a recent Nebraska Supreme Court Decision, the Nebraska Wage Payment and Collection Act, specifically Neb.Rev.Stat. § 48-1229(4) was amended by the legislature during 2007. The Roseland v. Strategic Staff Management decision prompted the legislature to revise the Nebraska Wage Payment and Collection Act, hereinafter “the Act.”
II. DISCUSSION
The Nebraska Supreme Court held in Roseland that “accrued vacation time,” which is part of an employment agreement, is due and payable as “wages” upon termination of employment. In Roseland, following the voluntary resignation of four employees, the employees demanded payment of their accrued vacation pay. The employees argued that they were entitled to pay because the unused vacation time constituted wages as defined in the Act. The employer’s handbook provided for paid vacation based upon the length of employment, with increases in the amount of vacation earned after two and five years.
Relying on its employee handbook, the company refused to make payment to the employees following their resignation, citing provisions stating that “Upon termination, employees will not be paid for unused vacation time.”
In ruling in favor of the former employees, the court noted the provisions of the Nebraska Wage Payment and Collection Act requiring employers to pay unpaid “wages” to their employees. The Wage Act defines “wages” broadly to include all “compensation for labor or services rendered by an employee, including fringe benefits. . .,” specifically including sick and vacation pay within the definition of “wages” and “fringe benefits.” The Supreme Court concluded that provisions in the employee handbook “stating that employees shall not be paid for unused vacation leave upon termination conflicts with state law and is void.”
III. LEGISLATIVE RESPONSE
In response to Roseland the Nebraska legislature, through LB 255 (2007), amended the Act to state that paid leave, other than earned but unused vacation leave, provided as a fringe benefit by the employee shall not be included as wages due at the time of separation of an employee unless the employer and the employee have specifically agreed otherwise. Clearly now earned but unused vacation must be paid at the time of separation, regardless of any agreement to the contrary by the employer and employee. Other types of paid leave, such as sick leave and personal leave are not payable upon termination of an employee, unless specifically agreed upon.
Some employers have used a fringe benefit of personal time off/PTO as a “catch all,” to replace sick leave, personal leave and vacation pay, collectively. The issue posed with the use of PTO plans is whether including vacation pay taints the plan so that all PTO must be paid to the employee at the time of separation. After the Legislature’s action in amending the Act with the passage of LB 255, PTO plans included as part of a bank’s employment policy should be reviewed by legal counsel.
IV. SUBSEQUENT COURT DECISIONS
Subsequent to the passage of LB 255, the District Court of Lancaster County, Lincoln, Nebraska, had occasion to visit the issue of PTO. In the case of Galantine v. B & R Stores, Inc, the District Court held that while PTO constitutes wages under the Act, it does not represent vacation leave, and therefore, PTO is not includable in wages due and payable to employees at the time of separation, unless otherwise agreed upon.
In Galantine, the plaintiff resigned from his place of employment, having accrued 45 hours of PTO, equaling $765. The employment manual provided in part that “no accrued and unused paid time off will be paid to any associate who (1) fails to give two weeks[‘] notice upon resignation…” The plaintiff had failed to give the required two weeks’ notice prior to his resignation. In ruling for the employer, the court held that PTO is a “hybrid benefit program” and that “PTO is not vacation leave.” Because the plaintiff had not given two weeks’ notice at the time of his resignation, he was not entitled to be paid for his accrued and unused PTO.
While not controlling precedent, the Lancaster District Court decision reflects the recognition by a Nebraska court that Roseland and LB 255 should have a narrow scope.