Many employers offer paid vacation time as a benefit to their employees. There is no Pennsylvania law requiring the payout of unused paid leave time, such as vacation; instead, this is governed by the employer’s policy or practice. In Kahler v. Alpha Packaging, the employer’s policy provided that during employees’ second and subsequent calendar years of employment, employees earn two weeks of vacation on January 1 upon working a minimum of 1900 hours in the previous year. Pursuant to the policy, vacation did not carry over into the next calendar year; employees who resigned and provided two weeks’ notice were entitled to payment for earned and unused vacation time for the calendar year.

The Plaintiff worked for the employer for about three years.  At the time he left employment, Plaintiff was entitled to two weeks’ vacation to be used by the end of 2014, pursuant to the employer’s policy.  Plaintiff provided two weeks’ notice of his resignation and was compensated for these two weeks.  However, Plaintiff claimed that he was also entitled to payment for vacation time earned in 2014 (which, according to the employer’s policy, would have been available for use in 2015).

The Court found that under the Employer’s policy, an employee earns vacation time, which becomes available in Year B, by working 1900 hours in Year A. An employee who submitted the requisite notice and resigned during Year B was entitled to any vacation hours which became available in Year B but had either gone unused or uncompensated. By contrast, an employee who worked 1900 hours in Year B but resigned prior to vacation time becoming available in Year C would not be entitled to payment for unused or uncompensated vacation time, as the employer’s policy provided that such an employee would only receive payment for “earned and unused vacation time for that calendar year.” In applying this hypothetical scenario to Plaintiff, the Court found that Plaintiff had received payment for all of the vacation time he was eligible for at the time he left employment and entered judgment in favor of the employer.

As noted above, while there is no law in Pennsylvania requiring an employer to payout unused vacation time, employers should ensure that their policy or practice is clearly stated to avoid any confusion or unnecessary litigation.