employee handbookToday’s post is from Sarah Macdissi, an associate in our Litigation Department.

On Friday, May 3, 2013, the Nebraska Supreme Court, in Fisher v. Payflex Systems USA, ruled that Nebraska’s Wage Payment and Collection Act requires an employer to pay an employee for his or her earned but unused Paid Time Off (“PTO”) hours, upon separation of employment. This is true even if there is a provision in the employee manual that the employer will not pay for accrued PTO if the employee is terminated.

Prior to this decision, upon separation of employment, Nebraska’s Wage Payment Act only required an employer to pay earned but unused vacation leave to an employee.  The Act did not require an employer to pay an employee for his or her unused sick leave. This is because paid sick leave was contingent upon an occurrence (i.e., sickness) and no contingencies existed for the use of vacation time.   An employee was allowed to use paid vacation time for any purpose – provided the employer approved the timing of its use.

Now, under the Court’s new holding in Fisher, earned PTO hours are treated no differently from earned vacation time and must be paid to an employee upon separation of employment.  The Fisher Court found persuasive the fact that PTO hours were nearly identical to vacation hours as employees could use both vacation and PTO hours for any purpose, and, like vacation time, the only stipulated condition of accrual for PTO was the rendering of services by the employee.  Notably, Fisher did not change the parameters for reimbursement of sick leave – an employer is still not required to pay an employee for unused sick leave upon separation of employment.

If you have a PTO policy in your employee handbook, you may have to revise it to make clear that employees will be paid their accrued PTO upon termination.