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Employers Generally Not Required to Pay Employees for Unused Vacation Upon Termination of Employment

This week, the Hawaii Supreme Court ruled that an employer is generally not required to pay an employee for unused vacation upon the termination of the employee’s employment. In its decision, the court explained that unused vacation time did not constitutes “wages” that must be paid out upon termination of employment.

The court also ruled, however, that an employer is required to pay unused vacation to terminated employees where (1) there is an express agreement to do so or (2) a uniform custom to do so.

In Hawaii, many employers have a policy of paying unused vacation to terminated employees. As a tip to employers, if you no longer wish to pay out unused vacation time to employees upon the termination of their employment, you should let the employees know the policy will be changed. Any unused vacation up until that point, however, should be paid out upon termination of employment.

The text of the court’s decision can be read here: Casumpang v. ILWU Local 142.