Nebraska Supreme Court Finds Unused PTO Must Be Paid To Employees Upon Separation

by Steve Bogue

Bogue, A. Stevenson
(402) 341-3070

Under the terms of the Nebraska Wage Payment and Collection Act all “wages” must be paid to employees upon their separation from employment. A specific section of that Act provides that wages include fringe benefits. By virtue of a 2007 amendment to that Act, paid leave, other than earned but unused vacation leave, is not to be included in wages due and payable at the time of separation, unless the employer and employee have specifically agreed otherwise.

The issue in the two related cases (Fisher and Norton) decided by the Nebraska Supreme Court was whether PTO (paid time off), which includes elements of vacation, sick leave and personal leave, must be paid under the terms of the Wage Payment and Collection Act.

Although the legislative history contained strong language which would indicate that the introducers of the 2007 amendment believed PTO to be separate and apart from vacation and thus not payable, the Supreme Court refused to look at the legislative history, finding that the wording of the statute was clear on its face. More specifically, it concluded that even though the employer’s PTO contained an element of sick pay, the employee could also use the entire allocation of PTO for the same purposes as vacation. In other words, its use was not conditioned upon anything. The Court then contrasted vacation leave with sick leave and found that sick leave was contingent upon an occurrence of illness or injury, while vacation leave was not.

Interestingly enough, the Court couched its opinion in terms of effectuating the “legislative intent” of the statute. At the same time, it did so based upon its reading of the statute alone and it refused to determine the legislative intent behind the amendment by looking at the actual words spoken by the introducers.

While four judges joined in the majority opinion, three dissented. The dissent pointed out that by treating all accrued PTO as vacation, the majority had broadened the category of paid leave payable upon separation to include other forms of leave, contrary to the Legislature’s intent when it amended the statute. It was pointed out that the amended statute was ambiguous because it does not define “vacation leave.” The dissent concluded that the legislative intent of the 2007 amendment was to mandate payment for vacation only, and that, as the statute provided, all other forms of paid leave, including PTO, need not be paid.

It is interesting that the majority opinion concluded that the language of the statute was unambiguous and required the payment of PTO, while the dissent found that the same language was unambiguous, but that PTO should not be paid as vacation.

Although a motion for rehearing has been submitted, but not yet decided, until such time as the Court grants the motion or the Legislature revisits the issue, the holding in Fisher and Norton is clear and employers should either begin paying PTO to departing employees, or, if it has a PTO structure, consider converting such structure to separate “accounts” for vacation leave and sick leave.

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