Pension & Benefits News Change in vacation plan did not deprive employees of earned vacation time
Friday, August 28, 2020

Change in vacation plan did not deprive employees of earned vacation time

By Pension and Benefits Editorial Staff

Four employees failed to establish that their employer deprived them of earned vacation time when it changed its vacation policy to eliminate an advance accrual system, ruled a Tennessee appeals court in affirming a trial court’s grant of summary judgment against their claim. An essential element of the employees’ claim was that the compensation in question was actually earned during 2014. However, there was no evidence that they earned 2015’s vacation time by working in 2014. Rather, they received their 2015 vacation time/paid time off (PTO) as it accrued incrementally throughout 2015.

Vacation plan change. On July 1, 2014, Consolidated Nuclear Security (CNS) contracted with the Department of Energy to direct operations at a nuclear facility, replacing the former contractor, Babcock & Wilcox. The employees in this action worked at the facility for several years before the transition. A Babcock & Wilcox vacation plan governed the employees’ 2014 vacation rights. Section B of the plan gave salaried employees with a service date before January 1, 1996, the right to receive their vacation time upfront at the start of each year. The four employees in this case began their employment before January 1, 1996. Because vacation time vested on December 31 of each year, the employees had the ability to use their vacation time during the first week of the calendar year. However, employees hired after 1996 did not have this vacation benefit and were required to accrue vacation time incrementally throughout the calendar year.

From early March 2014 through June 2014, CNS provided prospective employees with information about the transition from Babcock & Wilcox to CNS, including information about its plan to change from vacation time to a PTO system beginning in 2015. CNS created a benefit summary and held informational sessions to explain the upcoming changes. The benefit summary also was mailed to prospective employees in June 2014. Three of the employees attended an informational session during which the employer’s HR manager stated that the employer was discontinuing the practice of advancing vacation time. CNS mailed offers of employment to prospective employees starting on June 2, 2014. All four employees accepted the offer, which provided that they also accepted the terms and conditions of employment, including their status as at-will employees.

CNS initially continued the existing vacation plan without change, but on December 11, 2014, it formally issued a standing order that eliminated Section B of the vacation plan. The standing order was issued to reconcile the vacation plan with the new PTO policy. The employer explained that as of December 31, 2014, up to a maximum of 240 hours would be carried over to employees’ PTO account.

Lawsuit. On April 11, 2018, the employees filed the current action claiming that the standing order eliminated the vacation benefits that they earned by working in 2014. After the parties conducted discovery, the employees moved for class certification, and the employer moved for summary judgment. The trial court denied the motion for class certification and granted the employer’s motion for summary judgment, finding that the employees were not deprived of any earned or vested vacation when the employer issued the standing order.

Accrual of vacation. To prevail, the employees had to establish that the employer deprived its employees of earned vacation compensation when it eliminated Section B of the vacation plan. An essential element of their claim was that the compensation in question was actually earned during 2014. Thus, the employees had to demonstrate that under Section B and past practices, employees did in fact earn their 2015 vacation time by working during 2014.

CNS argued that the standing order did not eliminate the employees’ vacation time; it only changed the timeline under which they received their 2015 PTO. According to CNS, the advance accrual system of Section B gave the employees access to all the coming year’s vacation time before that calendar year actually started (it was always awarded on December 31). Thus, according to the employer, eliminating Section B only ended the advance accrual system. Employees hired before 1996 did not actually earn vacation time by working throughout the previous calendar year. Instead, the former employer advanced their vacation time without requiring them to first earn that vacation.

Employees’ interpretation. The employees claim that the standing order unexpectedly eliminated vacation benefits that they had earned by working in 2014. They argued that Section B did not create an advance accrual system, and that vacation time in any given calendar year was always earned by working throughout the previous year. Under this interpretation of the plan, an employee earns vacation time by working for an entire year, the vacation time is collectively awarded on December 31of that year (the year in which it was allegedly earned) but cannot be used until the following calendar year. The appeals court observed that the employees’ argument was based on their interpretation of the vacation plan, rather than the plain language of Section B and corresponding documents.

The appeals court concluded that the employer never deprived the employees of any earned vacation compensation because there was no evidence that they earned 2015’s vacation time by working in 2014. They received their 2015 vacation time/PTO as it accrued incrementally throughout 2015. In fact, the employer notified the employees that the advance accrual system would end, it mailed letters explaining these changes, and it encouraged them to send in questions via email. In light of these facts, the employees had no reason to believe that they would still receive an advance accrual of their 2015 vacation time on December 31, 2014, the appeals court found. Accordingly, the judgment of the trial court was affirmed.

SOURCE: Michelhaugh v. Consolidated Nuclear Security, LLC,, (Tenn. App.), No. E2019-00361-COA-R3-CV. August 11, 2020.

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