In a number of recent matters, our clients have been surprised by claims from separated executives for payment of large amounts of accrued but unused vacation or paid time-off. These claims often arise from executive employment agreements that reference general handbook or other policies and procedures governing employee use and payment of accrued vacation. For executives, many employers do not use the same payroll or other tracking procedures in place for vacation use by hourly employees. Thus, when the executive claims that he did not use his vacation allotment, and should be paid this amount upon separation from employment, the company has little evidence to dispute these claims.
While few employers begrudge their executives’ use of vacation time, many consider that benefit to be subject to the needs of the business, and not in the same strict accounting sense used for other employees. In order to avoid these disputes, executive employment agreements should contain vacation/PTO provisions that specifically set forth the executive’s right to use and payment.
For North and South Carolina employers, these agreements could provide that (1) accrued but unused vacation will not be paid upon separation from employment; (2) vacation/PTO does not carry over from one year to the next; and (3) vacation/PTO will not be cashed out in lieu of use. A few states such as California restrict the employer’s ability to require forfeiture of such accrued benefits.
For highly paid executives, even a few weeks of accrued vacation time can amount to tens of thousands of dollars in separation benefit claims. Employers should address these issues up front in the employment agreement with the executive, as well as by tracking all employees’ (including executives’) use of vacation/PTO time.