Do employees have rights to vacation pay under Minnesota law?

Minnesota law does not provide employees with rights with regard to vacation pay. An employee may contract for the terms under which it is eligible for vacation pay so long as the contract terms are not prohibited by, or do not conflict with, Minnesota statutes.

Further Explanation:

Minnesota law does not provide an employee with rights with regard to vacation pay. Instead, Minnesota allows an employer to choose whether to provide its employees with vacation pay.  Further, as Minnesota statutes do not require an employer to provide vacation pay to its employees, an employer’s liability in regard to vacation pay for its employees has been determined to be wholly contractual. For that reason, an employer has considerable discretion in determining whether to provide its employees with a right to vacation pay as well as the circumstances under which its employees have a right to vacation pay if such a benefit is provided. Consequently, an employer and its employees are essentially allowed to contract for the terms under which the employees are eligible for vacation pay so long as the contract terms are not prohibited by, or do not conflict with, Minnesota statutes.

Notably, even if an employment contract provides an employee with a right to vacation pay, the employee still does not have a substantive right to vacation pay or a direct, monetary payment in lieu of vacation pay. Whether an employee actually earns its right to vacation pay is still a matter of the terms of the applicable employment contract.

Case Study:

For instance, in 2007 the Minnesota Supreme Court addressed whether an employee has a substantive right with regard to vacation pay in Lee v. Fresenius Medical Care, Inc. In Lee, an employee that was terminated by its employer for misconduct argued that a provision of the employment contract was invalid due to the employee’s substantive right to vacation pay under a Minnesota statute.  At the time of termination, the employee had earned—but not yet used—vacation pay under the terms of the employment contract. Yet, the contract applied the following conditions to the employee’s right to vacation pay:

An employee who gives proper notice . . . is eligible to be paid for earned but unused [vacation pay].  Unless otherwise required by state law, if you do not give acceptable notice, you may not be paid for earned but unused [vacation pay] . . . .  In addition, if your employment is terminated for misconduct, you will not be eligible for pay in lieu of notice or payment of earned but unused [vacation pay] unless required by state law.

Considering that it terminated its employee for misconduct, the employer maintained that the employee did not have a right to its earned, but unused, vacation pay under the terms of the contract. Yet, by acknowledging that its employer did not violate the terms of the contract, the employee effectually put forth a statutory, rather than contractual, argument. Accordingly, the court was presented with the issue of whether the employee had a substantive right to earned, but unused, vacation pay in the form of a direct, monetary payment.

Minnesota statute states that an employee has a right to wages “actually earned” upon termination by its employer. To the extent that it had not conclusively said so in prior cases, the court declared that vacation pay qualifies as wages. Therefore, the employee argued that it had a statutory right to earned, although unused, vacation pay.

However, the court disagreed with this argument that employees have a substantive right to vacation pay. Instead, the court concluded that the relevant Minnesota statute is to be strictly construed as a timing statute that determines when an employer must pay a discharged employee for wages actually earned—the wages that are “actually earned and unpaid at the time of the discharge are immediately due and payable upon demand of the employee.” In doing so, the court concluded that what wages are actually earned by an employee, such as vacation pay, are ultimately defined by the applicable employment contract and cannot be determined through such a claim.

In sum, Lee describes employees’ rights with regard to vacation pay under Minnesota law.  First, an employer is not required to offer vacation pay to its employees. Further, employees do not have a substantive right to vacation pay under Minnesota statute and finally, employees’ rights with regard to vacation pay are wholly contractual.