With summer ending, most employees would likely have used a good portion of their paid time off by now. There are always at least some employees who seemingly never take paid time off, opting instead to save it to get a monetary payout at the end of the year or upon the termination of their employment.

In New Jersey, like in many other states, employees’ entitlement to a payout for accrued but unused paid time off, including vacation and sick time, is a matter of contract. In the absence of an employment agreement or collective bargaining agreement that states otherwise, employees are generally not entitled to be paid for unused vacation and sick time, whether it be at the end of a year or upon termination of employment. As such, an employer may have a “use it or lose it” policy. If, however, an employer maintains a policy or practice that entitles employees to payment for accrued but unused paid time off, then the employer is obligated to abide by its policy or else face a potential claim for unpaid wages.

This principle was once again confirmed in a recent case. In Barrett v. Walgreens Inc., the District Court of New Jersey recently dismissed a former employee’s claim for unpaid wages in the form of payment for unused sick time. The Court awarded Walgreens summary judgment on this claim since, as the employee admitted, Walgreens had a policy and practice of not paying employees for unused sick time.

Based on the above, employers should have a consistently-enforced written policy clearly setting forth under what circumstances, if any, employees are entitled to payment for unused paid time off.