Tennessee Business Litigation Law Blog

The Tennessee Attorney General recently took on the Tennessee Department of Labor (TDOL) by opining that employers may follow their own vacation pay policies, pursuant to the Tennessee Wage Payment Act. The law, which applies to private employers employing five or more employees, provides that “final wages” paid to an employee who quits or is terminated “shall include any vacation pay or other compensatory time that is owed to the employee by virtue of company policy.” The last year or so has seen a drastic shift in how TDOL interpreted the law, which is that these commonly employed “use it or lose” it vacation policies providing that accrued leave is forfeited upon termination, are illegal. TDOL says that these policies in employment handbooks are unenforceable unless the handbook is presented by the employer as a binding contract, which they most often are not. In fact, most employers include a disclaimer in the handbook that its contents do not create a contract.

Keep in mind that Tennessee employers are not required to provide employees with vacation pay or other paid leave. The Attorney General disagreed with TDOL in its opinion that an employer is not required to pay a separating employee for accrued leave unless its leave policy or a labor agreement specifically requires such payment, as long as the policy is clearly written and applied consistently. Remember that an Attorney General opinion is not law that agencies or courts are bound to follow, but it seems likely that TDOL will do so or openly challenge it. Read the AG’s opinion here.