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Marcus, J., not on panel. Rule IV, Part 2, §3.
SUPREME COURT OF LOUISIANA
SUMMIT INSTITUTE OF PULMONARY
MEDICINE AND REHABILITATION, INC.
ON WRIT OF CERTIORARI TO THE COURT OF APPEAL,
SECOND CIRCUIT, PARISH OF BOSSIER
We granted this writ to determine whether an employer can refuse to pay an
employee accrued vacation benefits in accordance with a company policy which
states that accrued benefits are forfeited when the employee “abandons his position.”
We hold such conduct by the employer violates Louisiana Revised Statutes 23:631,
632 and 634 and subjects the employer to the payment of penalties and attorneys’
FACTS AND PROCEDURAL HISTORY
Dianne Beard (“Beard”) was employed as a Licensed Practical Nurse by
Summit Institute of Pulmonary Medicine and Rehabilitation, Inc. (“Summit”) from
June 1, 1994 through June 25, 1995. At that time, Summit had in effect a personnel
policy that stated that when an employee walks off the job without cause or
voluntary resigns without notice, he or she is deemed to have abandoned his or her
position. The policy further stated that all employees who abandoned their position
would forfeit all accrued benefits. On June 25, 1995, Beard walked off her job at
the beginning of her shift and never returned to work. When she requested her
accrued vacation pay, totaling $432.00, Summit refused, claiming that she had
abandoned her position and therefore forfeited her right to vacation pay under
Beard filed a petition for unpaid wages, penalty wages and attorneys’ fees
against Summit under La. R.S. 23:631, 632 and 634. The trial court granted
Beard’s motion for summary judgment, finding Summit liable for unpaid vacation
pay, penalty wages and attorneys’ fees. The Second Circuit reversed, holding that
an employer’s wage forfeiture policy may in some circumstances be permissible if
the forfeiture is not caused by the unilateral act of the employer. Beard v. Summit
Institute of Pulmonary Medicine and Rehabilitation, Inc., 29,603-CA (La. App.
2 Cir. 6/18/97) 697 So. 2d 621. We granted a writ to consider the correctness of
that holding. Beard v. Summit Institute of Pulmonary Medicine and
Rehabilitation, Inc., 97-C-1784 (La. 10/17/97), 701 So. 2d 1348.
The following statutes are pertinent to this matter. La. R.S. 23:631(A)(1)(b)
Upon the resignation of any laborer or other employee of any kind
whatever, it shall be the duty of the person employing such laborer or
other employee to pay the amount then due under the terms of
employment, whether the employment is by the hour, day, week, or
month, on or before the next regular pay day or no later than 15 days
following the date of resignation, whichever occurs first.
La. R.S. 23:632 provides:
An employer who fails or refuses to comply with the provisions of R.S.
23:631 shall be liable to the employee for 90 days wages at the
employee’s daily rate of pay, or else for full wages from the time the
employee’s demand for payment is made until the employer shall pay
or tender the amount of unpaid wages due to such employee, whichever
is the lesser amount of penalty wages. Reasonable attorney’s fees shall
be allowed the laborer or employee by the court which shall be taxed
as costs to be paid by the employer, in the event a well-founded suit for
any unpaid wages whatsoever be filed by the laborer or employee after
three days shall have elapsed from time of making the first demand
following discharge or resignation.
Finally, La. R.S. 23:634 provides:
No person, acting either for himself or as agent or otherwise shall
require any of his employees to sign contracts by which the employees
shall forfeit their wages if discharged before the contract is completed
or if the employees resign their employment before the contract is
completed; but in all such cases the employee shall be entitled to the
wages actually earned up to the time of their discharge or resignation.
These statutes were “designed to assure the prompt payment of wages upon an
employee’s discharge or resignation.” Boudreaux v. Hamilton Medical Group,
Inc., 94-0879 (La. 10/17/94), 644 So. 2d 619, 622; Mason v. Norton, 360 So. 2d
178, 180 (La. 1978).
Liability for Accrued Vacation Pay
The lower courts framed the issue in terms of whether the company policy
violated La. R.S. 23:634. Summit argues that because Beard was not required to
sign a contract providing that she would forfeit her wages if she resigned before the
end of the contract period, La. R.S. 23:634 does not apply. However, clearly if an
employer may not require an employee to sign a contract providing for forfeiture of
wages upon termination or resignation, an employer cannot require an employee to
forfeit wages simply by enacting a policy to that effect. Accordingly, the anti-
forfeiture provisions of La. R.S. 23:634, as well as the provisions of 23:631 and
632, apply to this case.
Initially, we must determine whether Summit violated La. R.S. 23:631 by
failing to pay her upon resignation “any amount then due under the terms of
employment, whether the employment is by the hour, day, week, or month, . . . .”
This Court has held that the phrase “any amount then due under the terms of
employment . . . refers to wages which are earned during a pay period.”
Boudreaux, supra at 622. We held that “only compensation that is earned during
a pay period will be considered wages under the statute.” Id.
Although this Court has never addressed whether accrued vacation pay
qualifies as “wages,” every court of appeal that has addressed the issue has held that
accrued vacation pay is wages under La. R.S. 23:631. Baudoin v. Vermillion
Parish School Bd., 96-1604 (La. App. 3 Cir. 4/2/97), 692 So. 2d 1316, writ den.,
97-1169 (La. 6/20/97), 695 So. 2d 1358; Barrilleaux v. Franklin Foundation
Hosp., 96-0343 (La. App. 1 Cir. 11/8/96), 683 So. 2d 348, 353, writ den., 96-
2885 (La. 1/24/97), 686 So. 2d 864; Macrellis v. Southwest Louisiana
Independence Center, 94-1155 (La. App. 3 Cir. 5/3/95), 657 So. 2d 135; Lambert
v. Usry & Weeks, 94-216 (La. App. 5 Cir. 9/14/94), 643 So. 2d 1280, 1281;
Potvin v. Wright’s Sound Gallery, Inc., 568 So. 2d 623 (La. App. 2 Cir. 1990);
Garrison v. Burger King Corp., 537 So. 2d 834, 836 (La. App. 5 Cir. 1989);
Blankenship v. Southern Beverage Co., Inc., 520 So. 2d 440, 441 (La. App. 1st
Cir. 1988), writ dism., 522 So. 2d 574 (La. 1988); Pohl v. Domesticom, Inc., 503
So. 2d 125 (La. App. 5 Cir. 1987), writ den., 505 So. 2d 1148 (La. 1987); Lee
v. Katz and Bestoff, Inc., 479 So. 2d 459 (La. App. 1 Cir. 1985); Howser v.
Carruth Mortg. Corp., 476 So. 2d 830 (La. App. 5 Cir. 1985). We agree. When
an employer agrees to pay employees for unused vacation time as a condition of
The dissent distinguishes between an employee who “resigns” and one who “abandons
her position” and argues that La. R.S. 23:632 and 634 are only applicable to an employee who
resigns. However, this view is contrary to the personnel policy itself which states that
“[a]bandonment of position is considered a voluntary resignation without notice.”
their employment, that accrued vacation pay is compensation that is earned during
a pay period under Boudreaux. As such, accrued vacation time is an “amount then
due under the terms of employment” and constitutes wages under La. R.S. 23:631.
Summit argues that since its personnel policy provides that vacation pay is
forfeited when an employee abandons his or her position, which Beard did, that the
vacation pay is not due under the terms of employment. However, La. R.S. 23:634
strictly forbids an employer from requiring an employee to forfeit her “wages” upon
resignation and provides that the employee shall be entitled to the wages actually
earned up to the time of their discharge or resignation. The terms of Beard’s
employment were that she would be compensated for any unused vacation time.
Because accrued vacation time is “wages,” La. R.S. 23:634 prohibits an
employment policy or a signed employment contract which requires its forfeiture.1
This holding is in line with the vast majority of court of appeal cases that have
considered this issue. Baudoin v. Vermilion Parish School Bd., supra (once
benefits such as vacation pay have vested, company policy cannot then deprive the
employee of the right to these benefits); Barrilleaux v. Franklin Foundation Hosp.,
supra (“Once an employee’s right to vacation benefits has vested, an employer
cannot force forfeiture of this earned right.”); Soday v. Mall Snacks, Inc., 374 So.
2d 138, 140-141 (La. App. 1 Cir. 1979) (“The fact that an employee quit her job
abruptly without notice to employer does not justify the employer’s withholding
payment of the employee’s earned wages. It is well established that a company
policy can have no adverse effect on the requirement of prompt payment of earned
wages upon termination of an employee.”); Macrellis v. Southwest Louisiana
Independence Center, supra (in spite of company policy providing that use of
annual leave was permitted only after an employee had been employed for one year,
annual leave was still earned during the first year and thus was an “amount then
due” under La. R.S. 23:631(A)); Lee v. Katz and Bestoff, Inc., supra (company
policy providing that unused vacation is forfeited upon separation of employment is
manifestly unjust and invalid under La. R.S. 23:631 and 634 as the unilateral act of
the employer prevents the fulfillment of the condition to the employee’s receipt of
the benefits); Duhon v. Prof Erny’s Music Co., Inc., 328 So. 2d 788 (La. App. 3rd
Cir. 1976) (company policy requiring employee to sign form before being entitled
to wages is invalid as the statute does not allow the employer’s procedures to
condition the payment of wages); Hendrix v. Delta Air Lines, Inc., 234 So. 2d 93
(La. App. 4 Cir.), writ den., 256 So. 2d 364 (La. 1970) (company policy of paying
terminated employees seven to ten days after discharge could not outrank or
invalidate statute requiring sooner payment).
Accordingly, we hold that Summit violated La. R.S. 23:631 and 634 by
refusing to pay Beard accrued vacation benefits in the amount of $439.00. Because
of the clear wording of the statutes, the court of appeal erred in holding that “a
policy which provides for the forfeiture of benefits, which is not controlled by the
unilateral act of the employer, may in some circumstances be permissible.” The
court of appeal also erred in considering the reasonableness of Summit’s forfeiture
policy as there is no such exception in La. R.S. 23:624.
Liability for Penalty Wages
We now consider whether Summit is liable for penalty wages under La. R.S.
23:632 by virtue of its violation of La. R.S. 23:631. La. R.S. 23:632 provides in
part that “[a]n employer who fails or refuses to comply with the provisions of R.S.
23:631 shall be liable to the employee for 90 days wages at the employer’s daily rate
of pay . . . .” La. R.S. 23:632. While recognizing that this is a “coercive means”
to compel an employer to pay an employee within the time limits proscribed by La.
R.S. 23:631, we have held that the penalty must be strictly construed and may yield
to equitable defenses. Bannon v. Techeland Oil Corp., 205 La. 689, 693, 17 So.
2d 921 (1944). We have further elaborated that “a good-faith non-arbitrary defense
to liability for unpaid wages, i.e., a reasonable basis for resisting liability” permits
the court to excuse the employer from the imposition of additional penalty wages.
Carriere v. Pee Wee’s Equipment Co., 364 So. 2d 555, 557 (La. 1978).
Summit claims that it should not be assessed penalty wages because it relied
on jurisprudence which indicated that, in an appropriate case, an employer’s policy
which resulted in forfeiture of accrued fringe benefits (as opposed to actual wages
for hours worked) might well be approved. See Potvin v. Wright’s Sound Gallery,
Inc., supra and Huddleston v. Dillard Department Store, Inc., 94-53 (La. App. 5th
Cir. 5/31/94), 638 So. 2d 383. Although there is no evidence in the record that
Summit based its decision not to pay vacation benefits on these cases, assuming that
it did, this is not a valid equitable defense.
Potvin, a case which held the employer liable for unused vacation pay, merely
recognized that two Fifth Circuit cases, Landry v. Pauli’s, Inc., 496 So. 2d 431
(La. App. 5 Cir. 1986), writ den., 500 So. 2d 428 (La. 1987) and Howser, supra,
had held that the forfeiture of vacation pay was allowed where company policy
precluded compensation for unused vacation time. However, unlike in the Landry
and Howser cases, Summit’s terms of employment allowed employees to accrue
unused vacation time and to be paid for it upon termination of employment. It was
only after an employee violated certain regulations that “all accrued benefits [were]
forfeited” in violation of La. R.S. 23:634. Thus, it was unreasonable for Summit
to rely on the Potvin case in refusing to pay the accrued vacation pay, as Summit’s
policy did not preclude the accrual of unused vacation time.
Huddleston involved a company policy which provided as follows:
Vacation is a benefit and not an earned wage. “Accrued Vacation” is
only considered an earned benefit, and payable upon termination, if the
employee terminates due to death, retirement, or voluntarily terminates
employment by (1) providing a two weeks notice to their immediate
supervisor and/or the personnel office prior to termination, and (2)
working all hours scheduled during the two week period, or shorter
period as determined by management. Employees involuntarily
terminated for cause are not eligible for vacation pay.
The Fifth Circuit held that this policy did not violate La. R.S. 23:634 because “the
right to be paid for unused vacation does not vest in the employee until such time
that the appropriate conditions prior to separation from employment are met . . . .”
638 So. 2d at 685. While not ruling on the correctness of this decision, we note that
Huddleston is distinguishable in that under Summit’s terms of employment, the
right to be paid for unused vacation benefits vested as the benefits were earned.
Summit’s policy attempted to require certain employees to forfeit these vested and
accrued benefits at termination of employment.
In allegedly relying on Potvin and Huddleston in refusing to pay vacation
benefits, Summit evidently ignored the plethora of other cases cited above holding
that a company policy requiring the forfeiture of earned wages or vacation pay
violates La. R.S. 23:634. Furthermore, other courts of appeal have held that
reliance on an invalid company policy requiring the forfeiture of earned benefits
upon certain conditions will not excuse an employer from the imposition of penalty
wages. See Brown v. Navarre Chevrolet, Inc., 610 So. 2d 165 (La. App. 3rd Cir.
1992); Hendrix v. Delta Air Lines, Inc., supra; Soday v. Mall Snacks, Inc., supra;
Duhon v. Prof Erny’s Music Co., Inc., supra. We agree. Reliance on an unlawful
company policy does not constitute a good faith non-arbitrary defense to liability for
Liability for Attorneys’ Fees
Lastly, Beard alleges that Summit should be assessed attorneys’ fees in the
amount stipulated by the parties in the trial court, $2,400.00, and requests an
increase in attorneys’ fees in the amount of $3,500.00, representing fees in
connection with legal services rendered on appeal to the Second Circuit and in
connection with proceedings before this Court.
La. R.S. 23:632 provides that “[r]easonable attorney’s fees shall be allowed
the laborer or employee by the court which shall be taxed as costs to be paid by the
employer, in the event a well-founded suit for any unpaid wages whatsoever be filed
. . . .” Unlike penalty wages, courts do not permit equitable defenses to the award
of attorney’s fees in the event a “well-founded suit” for wages is filed. Carriere v.
Pee Wee’s Equipment Co., supra. This suit is obviously a “well-founded suit” as
plaintiff prevailed at the trial court and at this Court. Accordingly, Beard is entitled
to attorneys’ fees.
We affirm the $2,400.00 award of attorneys’ fees granted by the trial court.
In addition, in accordance with the policy of La. R.S. 23:632 of encouraging
workers to assert their rights to those wages and motivating attorneys to prosecute
those suits to insure that the working people of this state will not be deprived of their
earnings, courts must also consider the time spent in preparation of the successful
appeal. Accordingly, we award plaintiff an additional $2,600.00 for time spent in
defending the appeal to the Second Circuit and in connection with the proceedings
before this Court.
If an employer employs a person upon the condition that the person will be
able to accrue unused vacation time and be paid for it, such accrued vacation time,
once earned, is “an amount due under the terms of employment” under La. R.S.
23:631 and also constitutes “wages” under La. R.S. 23:634. As such, La. R.S.
23:634 prohibits the employer, either through an employment contract or policy,
from requiring the employee to forfeit these wages for the violation of a company
regulation when the employee is discharged or resigns. Accordingly, Summit is
liable to Beard in the amount of $432.00 in accrued vacation pay. In addition,
reliance on such an unlawful company policy in refusing to pay the employee these
earned and accrued vacation benefits does not constitute a valid equitable defense
under La. R.S. 23:632 to the imposition of penalty wages. Accordingly, Summit
must pay Beard $9,720.00 in penalty wages. As this is a “well-founded suit” for
unpaid wages, Summit is liable to Beard for attorneys’ fees in the amount of
$5,000.00 for work done in the trial court, appellate court and this Court.
For the reasons stated herein, the judgment of the court of appeal is reversed
and the trial court’s judgment is reinstated, except that we raise the attorneys’ fee
award to $5,000.00. All costs are assessed to defendant.
REVERSED AND RENDERED.