Must tribal employers pay employees for unused vacation or paid time off (PTO) upon termination? The answer depends on the answer to another question: Has the tribal employer promised to pay employees for unused vacation or PTO? If the answer to that second question is yes…the tribal employer should fulfill the promise. If the answer to that question is no, there is less risk in denying a request to cash out. The assumption in that response is state employment laws do not apply to the tribal employer.
Vacation or PTO is given to employees by employers and since these discretionary benefits are given to employees as part of an employment arrangement (written or not) employers can define the terms of the arrangement. Employers can therefore include a promise to pay employees for unused vacation and PTO or choose not to make that promise. Because employers have a moral obligation of clarity in defining the terms and conditions of employment, tribal employers should clearly define these rules and manage employee expectations. In clearly defining these rules, the tribal employer should declare in writing whether unused vacation and PTO will be paid upon termination or not paid upon termination.
The next related question to the question addressed above is:
Can a tribal employer modify these cash-out policies after employees have accumulated significant banked hours?
The answer is yes but there are a couple methods to consider in evaluating the tribe’s risk tolerance in making the policy change.
The least risky method is for the tribal employer to satisfy their obligations to employees under the old policy before converting employees to the new policy. For example, if the tribal employer intends to implement a new policy which caps the number of carry-over PTO hours from year to year to a maximum of 240 hours, and there is an employee with 500 banked hours, the least risky option is to pay the employee an equivalent of 260 hours (500 minus 240 equals 260) at the time of transition from the old policy (no cap on carry-over) to the new policy (cap of 240 hours).
Method 2 uses the same fact scenario as Method 1 wherein an employee has accrued 500 PTO hours and the employer announces its intention to change the carry-over policy from no limit to a new limit of 240 hours one year from the date of the announcement. With the one year notice, employees with banked hours exceeding the cap will have a year to use those excess hours and avoid losing them when the policy takes effect (one year into the future). For any new employees the 240 cap goes into effect immediately from the new employee’s first day of employment. The risk in Method 2 is the argument that employees, given their job responsibilities, will not have sufficient time to use the hours accrued in excess of 240 plus the hours they are accruing during the year.
Method 3 utilizes the same fact scenario as Methods 1 & 2. The employer could change the policy and depending on the time of year the change is implemented, employees will lose the accrued hours in excess of 240 hours. The employer using Method 3 will defend the policy by arguing that since the employer gave the benefit to employees, the employer can take away the benefit. Method 3 generates the most potential liability and the best opportunity to alienate employees which have banked large number of hours which may be lost.
Recommendation: Before drafting or modifying policy in connection with these issues, consider both the tribal employers liability and its risk in alienating employees. The legal and policy arguments may provide options to the tribal employer but those options should be viewed from the fundamental fairness perspective that when benefits are provided to employees, scaling back those benefits will inevitably generate some discord in the workplace.