Nebraska employers know that unused vacation time must be paid out to an employee within two weeks of termination, or on the net regular payday, whichever is sooner. In 2008, a judge of the Lancaster County Court applied that payout requirement to paid time off (PTO) as well, but the decision was overturned on appeal to the District Court. The issue is being tested again, this time in Douglas County by a judge who ruled that PTO is the same as vacation time and must be paid out.

The roots of the dispute are in the Nebraska Supreme Court’s interpretation of the Wage Payment and Collection Act (Neb. Rev. Stat. § 48-1228, et seq.).  In Roseland v. Strategic Staff Management, 272 Neb. 434 (Oct. 2006) the Court held that vacation time was an earned benefit that could not be forfeited, regardless of company policy.  Seeking to prevent the spread of that analysis to other types of paid leave, the Legislature passed a bill in 2007 amending the Nebraska Wage Payment and Collection Act to say that:

 “[p]aid leave, other than earned but unused vacation leave, provided as a fringe benefit by the employer shall not be included in the wages due and payable at the time of separation, unless the employer and the employee or the employer and the collective-bargaining representative have specifically agreed otherwise.”

In Gallentine v. B&R Stores, Inc. (Case No. CI 07-4892, June 18, 2008) the District Court of Lancaster County overruled the county court and held that, because of the amendment, an employer could determine by its policy whether accrued but unused PTO would be paid out on separation, and the policy said it would not be.  In doing so, the court relied on statements in the legislative record of the 2007 amendments by Senator Abbie Cornett stating that PTO time was not intended to be considered vacation pay.

Earlier this month, a judge of the Douglas County Court again addressed the issue and held that an employer’s refusal to pay out PTO on separation deprives employees of an earned benefit, which the judge believed was contrary to the intent of the 2007 amendments and the Act. Norton v. Payflex Systems USA, Inc., Cas No. CI 10-22919 (Sept. 7, 2011).

An appeal to district court will certainly follow in the Norton case, but employers with PTO policies are encouraged to re-examine those policies and stay tuned for further developments.