• Louisiana Supreme Court Upholds Use-It or Lose-It Vacation Policy
  • August 19, 2003
  • Law Firm: Fisher & Phillips LLP - New Orleans Office
  • A recent decision by the Louisiana Supreme Court has answered a previously unresolved issue involving Louisiana's wage-payment statute. Specifically, in Wyatt v. Avoyelles Parish School Board, the court was asked to determine whether a "use it or lose it" vacation policy was barred by La. R.S. 23:631 or La. R.S. 23:634. The court upheld the employer's policy.

    La. R.S. 23:631 provides in pertinent part that upon separation of employment, "it shall be the duty of the person employing such laborer or other employee to pay the amount then due under the terms of employment . . . on or before the next regular payday or no later than fifteen days following the date of resignation, whichever occurs first."

    With regard to vacation pay, it also provides that:

    vacation pay will be considered an amount then due only if, in accordance with the stated vacation policy of the person employing such laborer or other employee, both of the following apply:

    (a) the laborer or other employee is deemed eligible for and has accrued the right to take vacation time with pay; and

    (b) the laborer or other employee has not taken or been compensated for the vacation time as of the date of the discharge or resignation.

    The provisions of this Subsection shall not be interpreted to allow the forfeiture of any vacation pay actually earned by an employee pursuant to an employer's policy.

    Similarly, La. R.S. 23:634 prohibits employers from requiring employees "to sign contracts by which the employees shall forfeit their wages if discharged before the contract is completed or if the employees resign their employment before the contract is completed . . . ."

    In the Wyatt case, eighteen retired employees of the Avoyelles Parish School Board alleged that they had not been compensated for annual leave they accumulated but did not use. The vacation-pay policy in question was a "use it or lose it" policy wherein annual leave was earned in one year and required to be taken in the next year or it was lost.

    The former employees alleged that the policy required the forfeiture of an earned wage in violation of La. R.S. 22:631 and La. R.S. 23:634. Assessing the former employees' arguments with respect to La. R.S. 23:631, the state Supreme Court started from the premise that nothing "prevents an employer from restricting an employee's right to accrue annual leave or vacation pay." Rather, La. R.S. 23:631 merely requires an employer to "compensate an employee upon his resignation for any unused vacation pay that the employer's stated vacation policy has allowed him to accrue."

    Applying that to the facts of the case, since the school board vacation policy did not allow employees to accrue vacation pay following the passage of a year, it had no obligation to compensate the employees for that lost vacation pay.

    Next, the court considered whether the board's failure to compensate the plaintiffs for their unused annual leave was prohibited by La. R.S. 23:634. Again the court noted that nothing in this provision "prevents an employer from restricting an employee's right to accrue wages, or vacation time." More to the point, the court concluded that a "use it or lose it policy" is violative of La. R.S. 23:634 "only if it requires the forfeiture of accrued vacation time upon resignation or discharge."

    Thus, the court concluded that a "use it or lose it" vacation policy does not violate the state's wage-payment statutes. That said, the court made it equally clear that an employer utilizing such a policy still has an obligation to compensate employees for the vacation pay that accrued pursuant to the policy, i.e., unused annual leave earned but not yet lost under the terms of the policy. Failure to do this will almost undoubtedly result in an award of penalty wages and attorney fees pursuant to the wage-payment statute should the matter be litigated.