In a recent decision, Electronic Data Sys. Corp. v. Attorney General, the Massachusetts Supreme Judicial Court held that employers must pay an involuntarily terminated employee any unused vacation time even where the employer has a written policy that states otherwise. The court upheld a determination by the Massachusetts Attorney General that unpaid vacation pay is considered earned “wages” which an employer is required to pay to an involuntarily discharged employee.

Francis Tessicini was an employee of Electronic Data Systems (EDS) whose position was eliminated in 2005. EDS had a written policy providing that “vacation time is not earned and does not accrue. If you leave EDS, whether voluntarily or involuntarily, you will not be paid for unused vacation time (unless otherwise required by state law).” At the time of his discharge, Tessicini had only taken one day of the five weeks of vacation time he was entitled to in the calendar year 2005. EDS refused to pay Tessicini for his unused vacation pay.

Tessicini filed a complaint with the state attorney general’s office, alleging that EDS was required to pay him for his unused vacation time. The attorney general agreed and ordered EDS to pay Tessicini accrued unpaid vacation pay. The superior court affirmed the attorney general’s decision. On review, the state supreme court examined EDS’s policy and found that “paid vacation is earned” under the policy because it linked the amount of vacation pay for which an employee was eligible to the number of years an employee had worked. The court also analyzed the Massachusetts Wage Act (Massachusetts Chapter 149, Section 148) which requires that “any employee discharged from such employment shall be paid in full on the day of his discharge.” As a result, the court found that the Wage Act “would have little value if employers could exempt themselves simply by drafting contracts that place compensation outside its bounds – as EDS attempted to do, when it stated that ‘vacation time is not earned.’” Notably, the Massachusetts Supreme Judicial Court recognized the validity of “use-it or lose-it” vacation policies and explicitly declined to decide whether an employee who leaves a job voluntarily, with earned but unused vacation time, must be paid for such time.