Accrued Sick Leave

Use it or lose it, court says.

Background. Many churches have adopted "sick leave" policies that provide employees with a specified number of "sick days" each year. Most employees do not use all of their available sick days, and so a question often arises as to the correct treatment of accumulated but unused sick leave. Do employees have a legal right to be paid for accrued but unused sick days, or do sick days represent a fringe benefit that is lost if not used? An Indiana court addressed this important issue in a recent case.

Facts of the case. A city adopted a sick leave policy for its firefighters that read:

Sick leave is time off work with pay due to the illness or injury of the employee. Sick leave is a privilege to assure the employee some continuity of compensation in times of illness or incapacity. If an employee is absent from work more than three days consecutively due to illness, a doctor's certification may be required. A supervisor can request such certification at any time if sick leave abuse is suspected. Sick leave is to be used only due to illness of the employee, non-job related injury, [or] an illness in the immediate family or the employee ….

Sick leave will be accumulated at the rate of one day per month not to exceed a total of sixty days accumulative leave. This will be retroactive to the date of employment of each individual officer.

Three firefighters voluntarily resigned from their employment. At the time of their resignations, they had each accumulated about 1,500 hours of unused sick leave. They asked the city to compensate them for all of these hours at their hourly rate of pay. The city refused to do so, and the firefighters filed a lawsuit asking a court to order the city to pay them for their unused sick leave. In particular, they argued that accumulated sick leave is actually "deferred compensation" to which employees are entitled when they terminate their employment.

The court's ruling. A trial court rejected the firefighters' argument, and ruled that they were not entitled to any compensation for their accrued but unused sick leave. It noted:

Sick leave, while defined … as wages, may only be received under the policy of the city when ill, injured, or when immediate family is ill or injured. Although sick leave is accumulated at one day per month and up to sixty days can be accumulated, it is payable only upon illness or injury …. One may accumulate it only for future illness or injury and you can receive it only if you are ill or injured or off work due to illness or injury.

Therefore, since [the three firefighters] terminated their employment and as such they can no longer satisfy the requirement of sick leave benefits, they forfeit the accumulated sick leave. There is no loss to them since they were paid for every day that they worked and every day they were off sick or injured. Vacation days are for idleness and to which an employee is entitled without regard to any other conditions.

The firefighters appealed, and a state appeals court agreed with the trial court and ruled that the city did not have to pay any compensation for the accrued but unused sick days. On appeal, the firefighters argued that sick leave benefits should be treated the same as vacation benefits. They cited other cases in which courts had ruled that employees are entitled to compensation for all accumulated and vested vacation benefits. The court conceded that employees have a right to compensation for accrued vacation benefits at the time of termination, but it refused to apply this principle to sick leave. It concluded:

[The firefighters] argue that sick leave benefits are analogous to vacation benefits. We disagree and are unwilling to [apply vacation benefits cases] to cases involving accumulated sick pay. There is an obvious difference between accumulated vacation pay and accumulated sick pay. Vacation time can be taken by an employee without any conditions after that benefit is earned. However, an employee may take sick leave only when that employee is ill or meets other conditions. [The city's] policy is clear that sick leave is payable only when an employee must take time off work for specific reasons. While employees may accumulate sick leave days under the city's policy, they may only use those days for a limited purpose. An employee must use be sick or other conditions must be present before an employee has right to use sick leave. As such, sick leave is not a benefit which automatically vests when earned. Absent some personnel policy language to the contrary, employees are not entitled to compensation for sick leave which has been accumulated but not used when the employee terminates employment.

Relevance to church treasurers. What is the relevance of this case to church treasurers? Consider the following points:

No vested right

The court concluded that "sick leave is not a benefit which automatically vests when earned. Absent some personnel policy language to the contrary, employees are not entitled to compensation for sick leave which has been accumulated but not used when the employee terminates employment."

Does your church have a written sick leave policy?

If so, be sure to review it carefully. In particular, be sure you can answer the following questions:

  • Does our church have a sick leave policy? Is it in writing? Has it been communicated to employees? Has it been amended? If so, have amendments been communicated to employees? Have employees agreed to be bound by such amendments? Is the policy explained to all new employees?
  • Which employees are eligible for sick leave?
  • What, if any, conditions trigger an employee's right to sick leave? Obviously, most policies condition this benefit on illness or injury to the employee or in some cases the illness or injury of a family member of the employee. Does your policy contain additional conditions? Whatever conditions your policy contains are of vital importance. The central ruling of the court in this case was that employees are not entitled to any compensation for accumulated but unused sick leave at the time of the termination of their employment since the conditions to payment of the benefit have not occurred (illness or injury).
  • Does our policy change the basic rule that employees are not entitled to compensation for accrued but unused sick leave at the time of their termination? The court stressed that employers are free to do so if they wish.
  • Does our policy limit the amount of sick leave that an employee can take in one year? If it does not, consider amending the policy to include such a provision.
  • Does our policy limit the amount of unused sick leave that an employee can accumulate during the year and carry over to the following year? If it does not, consider amending the policy to include such a provision.
  • Has our policy been reviewed by an attorney? This is a recommended practice.

Vacation benefits

The court pointed out that vacation benefits are different from sick leave. They are earned and "vested" during an employee's term of employment. Generally, there are no "conditions" (such as illness or injury) that must occur in order to qualify for the benefit. As such, employers should pay employees the value of their accrued but unused vacation days at the time of their termination—unless the right to compensation for accrued vacation days has been limited by policy or contract.

Check your state law

Some states have enacted laws or regulations addressing the legal status of accrued sick leave. This is why it is a good practice to have your sick leave policy reviewed by a local attorney.

Shorter v. City of Sullivan, 701 N.E.2d 890 (Ind. App. 1998)

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