Paying Former Employees for Unused Sick Leave

It all depends on a church’s employee manual.

The problem. Sarah is a church employee who leaves her job to accept other employment. Before leaving, she asks the church treasurer if she will be paid for any portion of the unused sick leave that she has accumulated on the job. How should the treasurer respond? As more and more churches provide employees with sick leave, this question is being asked with increasing frequency. A recent court ruling in Texas addressed this question.

A recent case. A county employee worked for five years before resigning to accept other employment. The county had a personnel manual specifying that employees with at least five years of service would be paid, upon termination of their employment, the value of one-half day’s wages for each day of accrued but unused sick leave. However, the county amended its personnel manual a year before the employee resigned. Under the revised manual the right to be paid for unused sick leave was restricted to employees who retired.

On the date of his resignation the employee would have received $4,000 under the original sick leave policy. But, since he resigned rather than retired, he was paid nothing under the terms of the revised policy. The employee sued the county. He insisted that his rights to sick leave were to be determined by the original policy that existed on the date he was hired.

The court’s decision. A state appeals court rejected the employee’s claim. The court based its ruling on the following considerations:

  • An employee manual does not constitute a binding contract with regard to any of its policies or fringe benefits unless it uses language clearly indicating an intent to do so.
  • The county’s personnel manual contained no language indicating an intent to make its policies and fringe benefits contractually binding. Quite to the contrary, the manual states that it can be unilaterally changed by the county. Such a provision “does not clearly express an intent to vest contractual or property rights,” the court concluded.
  • There is no applicable state law that creates a legal entitlement to fringe benefits described in a personnel manual.

The court concluded:

In an employment-at-will relationship [one in which an employee is hired for an indefinite term] either party may modify the employment terms as a condition of continued employment. When the employer notifies an employee of changes in employment terms, the employee must accept the new terms or quit. If the employee continues working with knowledge of the changes, he accepts the modified terms as a matter of law and gives up any right to claim anything other than that provided by the new terms. [The employee in this case] continued working for the county after the personnel manual had been changed to eliminate the right to payment for unused sick leave. He therefore gave up any right to claim benefits under the [earlier] manual.

Relevance to church treasurers. Many church treasurers have wondered if they are obligated to pay employees for any unused sick leave upon their termination. This case provides some helpful guidance in answering that question. Here are some points to consider: (1) Does your church have a personnel or policy manual? (2) If so, does it provide for the payment to terminating employees of the value of their unused sick leave? (3) If so, does the manual contain language indicating that its terms are contractual in nature? Or, does it contain language disclaiming any contractual significance, and permitting the church to modify the manual at will? (4) Is there a statue in your state that confers upon terminating employees any legal right to unused sick leave? (5) If you have a personnel or policy manual, have you modified those provisions addressing unused sick leave? If so, were the changes communicated to your employees? Can you document that they were communicated? Of course, before making a final decision regarding the payment of unused sick leave to terminating employees, we recommend that you consult with a local attorney. Gamble v. Gregg County, 932 S.W.2d 253 (Tex. App. 1996).

This article originally appeared in Church Treasurer Alert, June 1997.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

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