Q&A: PTO payout obligations when employees go part-time

Question

A Louisiana employer’s staffing needs fluctuate based on customer demand. The decision on which employees are moved to part-time is based on performance reviews. Employees with a consistent pattern of poor performance may either be temporarily reclassified as part-time until bed occupancy increases or, in some cases, are terminated. As a result, employees impacted by these cutbacks lose access to paid time off (PTO) and other benefits.

The employer offers accrued PTO to full-time employees only. It does pay out PTO for employees who are terminated under the same circumstances. But there is no language in the handbook or separate policy communicating that this can happen.

Is the employer obligated to pay out accrued PTO to employees who are reclassified as part-time, given that the change is driven by business needs rather than employee choice—even if performance is a factor in the decision?

Answer

Under the Louisiana Wage Payment Act, vacation pay is considered “wages” and, once vacation time has accumulated, it is the property of the employee. Thus, accrued, but unused, vacation time must be paid at termination on or before the terminating or resigning employee’s next regular payday or no later than fifteen days following the date of separation, whichever occurs first. La. Rev. Stat. §§ 23:631; Beard v. Summit Institute of Pulmonary Medicine, 707 So.2d 1233 (La. Sup. Ct. 1998). Only compensation that is earned during a pay period will be considered wages. Id. Accrued, but unused, vacation time will be considered an amount due only if, in accordance with a stated employment agreement or employer policy, both of the following apply:

• The employee is deemed eligible for and has accrued the right to take vacation time with pay.
• The employee has not taken or been compensated for vacation time as of the date of discharge or resignation. (La. Rev. Stat. § 23:631(D).)

An employer cannot require any of its employees to sign an employment agreement or employer policy by which an employee forfeits their wages if they are discharged or resigns. A terminated employee’s last payroll check must include any accrued vacation pay the employee has earned, even if the employee is discharged for misconduct.

As Louisiana considers vacation pay to be wages earned, your client will likely need to either pay out this accrued time or allow affected employees to use the paid time off as they would have if they had not been reclassified.

Additionally, employers must notify employees at the time of hire what wages they will be paid, the method in which they will be paid, and the frequency of payment. Employees also must be notified of any changes to these items before the changes are made (LA Rev. Stat. Sec. 23:633 (A)).

If an employee’s hours are reduced so that they are no longer eligible for benefits, under federal COBRA, this will constitute a qualifying event. Therefore, your client will need to provide COBRA notice. Further information about COBRA notices are available on HR Hero®. If there are other benefits that the employer offers for which impacted employees will no longer be eligible, your client should consult the benefit plan documents and/or consult with their insurer to determine if notice needs to be provided.

While no Louisiana law requires private employers to provide employees with paid or unpaid sick leave, an employer’s contracts, practices, policies, or statements may still rise to the level of creating a “promise” of sick leave, and that employer may create a binding legal obligation to provide sick leave even when state law would not otherwise require it to do so. Accordingly, if these employees have sick leave separate and apart from other PTO, they may want to notify them as to how their sick leave will change as a best practice.

Note that there is no requirement that sick leave be paid out upon termination if an employer makes it clear that such time is not considered wages and will not be paid out upon termination (See Calamia v. Core Labs, LP, 249 So. 3d 1038 (5th Cir. 2018). It is recommended that if an employer does have a separate sick bank and does not pay it out upon termination, that they make this clear in a written policy that employees acknowledge receiving.

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