January 20, 2020
Mark A. Fahleson, Rembolt Ludtke LLP
> > > > > > > > > > > Nebraska employers are oftenconfused about what state law requires when it comes to an employee’sentitlement to unused vacation and paid time off (PTO) when the employee isfired or quits. > A recent Nebraska courtdecision further muddies the water.
> > > > > > > > > > > In Drought v. Marsh , 304 Neb.860 (Jan. 17, 2020), plaintiffs Kevin Drought and Kyle Fessler were employed byLongwells in Lincoln as its general manager and head chef respectively. Bothwere required to sign a “Longwells Employee Agreement” that, according to thecourt’s opinion, appears to have been drafted by Longwells without theassistance of legal counsel and was based on a sample used by a technologycompany, not a bar/restaurant like Longwells. >The sole reason Longwells wanted the plaintiffs to sign the agreementwas for the noncompetition provision it contained.
> > > > > > > > > > > The employee agreement contained aprovision that provided in part that “you will be expected to work a minimum of40 hours per week other than paid time off which is addressed below.” The“Termination” provision of the agreement stated that “if, at any point, 60 dayspass with you billing no hours to a client, this agreement will be consideredterminated.” > The “Compensation” sectionof the employee agreement included provisions that were clearly not intendedfor restaurant workers, such as:
> > > > > > > > > > > The PTO section employee agreement specifiedthat PTO included vacation, sick days, and holidays. A table showed that whenthe “Employment Anniversary” is “[l]ess than 2 years,” an employee would earn 4hours of PTO “per 40 hour+ week billed.” Once the employment anniversaryreached 2 years, the amount of PTO earned increased to 5 hours.
> > > > > > > > > > > The plaintiffs were salariedemployees, were not required to record hours worked, and did not have clientsor billable hours. > After separating fromemployment with Longwells the plaintiffs demanded payment for accrued, unusedPTO and, when they were not paid, they filed a lawsuit under the Nebraska WagePayment and Collection Act (“NWPCA”). > TheNWPCA requires a covered employer to pay “unpaid wages” to an employee who separatesfrom the payroll. It defines “[w]ages” to include “fringe benefits, whenpreviously agreed to and conditions stipulated have been met by the employee.” TheNWPCA further provides that “[p]aid leave, other than earned but unusedvacation leave, provided as a fringe benefit by the employer shall not beincluded in the wages due and payable at the time of separation, unless theemployer and the employee or the employer and the collective-bargainingrepresentative have specifically agreed otherwise.” > Based on a 2013 Nebraska Supreme Courtdecision, unused PTO is to be treated the same as earned but unused vacation,meaning it must be paid out upon separation from employment.
> > > > > > > > > > > The trial court granted Longwells’motion for summary judgment and dismissed the case, concluding that becauseplaintiffs did not bill any hours to clients, they could not have earned anyPTO under the employee agreement.
> > > > > > > > > > > On appeal, the Nebraska SupremeCourt agreed and upheld the dismissal of the employees’ lawsuit and relied onlong-forgotten language of the NWPCA. >Specifically, the Court noted that the NWPCA imposes three requirementsfor a “wage” claim to be valid:
> > > > > > > > > > > Relyingon the third prong of Section 48-1229 of the NWPCA, the Court concluded thatbecause the plaintiffs did not bill clients, all of the conditions of the PTOpolicy in the employee agreement had not been met and therefore the PTO was nota “wage” for purposes of the NWPCA. >
> > > > > > > > > > > Confused? > So are we.
> > > > > > > > > > > Priorto the Court’s decision in 2013 giving a broad reading of the NWPCA, many Nebraskaemployers included conditions in their policies that had to be satisfied beforea departing employee could receive payment for unused accrued vacation or PTO. > One common example is that the employee couldnot be terminated for “cause,” such as when an employee embezzled from theemployer prior to being caught and fired. >Another common condition was that the employee had to give 2-weeks’notice prior to resigning as a condition to being eligible to be paid forunused accrued vacation/PTO. > Mostemployers have jettisoned conditions like these given the Court’s liberalinterpretation of the NWPCA. >
> > > > > > > > > > > Doesthe Drought decision breathe new life into the statutory requirementthat “all the conditions stipulated have been met” before an employee can getpaid for unused vacation? > Can employersnow add conditions to their vacation and PTO policies to incent employees to leaveon good terms if they wish to get paid for any unused vacation/PTO? >
> > > > > > > > > > > Thesimple answer is we don’t know yet. >Employers should exercise caution in making any changes to theirpolicies that institute preconditions to payment of unused vacation/PTO todeparting employees. > The NebraskaLegislature is in session and could amend the NWPCA to address the Drought decision and other lingering issues. > Orthere could soon be another court case that tests the limits of the Drought decision. >
> > > > > > > > > > > Staytuned.
Fahlesonis an attorney with the law firm of Rembolt Ludtke LLP and may be reached at(402) 475-5100 or mfahleson@remboltlawfirm.com . > This articleis provided for general information purposes only and should not be construedas legal advice. Those requiring legal advice are encouraged to consult withtheir attorney. 4844-2306-7826, v. 1
