PAYMENT OF ACCRUED VACATION PAY OF STATE EMPLOYEES UPON TERMINATION OF EMPLOYMENT

PAYMENT OF ACCRUED VACATION PAY OF STATE EMPLOYEES UPON TERMINATION OF EMPLOYMENT

Art. II, Sec. 25, of the state Constitution does not prohibit the payment for accrued vacation leave to former state employees whose employment was terminated in the manner specified in section 2, chapter 140, Laws of 1955.

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                                                                 August 23, 1955

Honorable Cliff Yelle
State Auditor
Legislative Building
Olympia, Washington                                                                                                              Cite as:  AGO 55-57 No. 129

Attention:  Mr. F. D. Keister, Assistant Auditor
Dear Sir:

            You have requested an opinion from this office as to whether section 2, chapter 140, Laws of 1955, is in conflict with section 25, Article II, of the state constitution regarding the payment of employees' accrued vacation pay after the termination of employment.

            It is our opinion that section 2, chapter 140, Laws of 1955, is in conformity with section 25, Article II, of the state constitution.

                                                                     ANALYSIS

            For many years RCW 43.01.040 provided for vacations with pay for state employees, as follows:

            "Each subordinate officer and employee of the several offices, departments, and institutions of the state government shall be entitled, during each twelve  [[Orig. Op. Page 2]] months' period, to fourteen days' leave of absence with full pay."

            The question concerning the right of a state employee to vacation pay after he had terminated his employment with the state was answered by the Washington supreme court inState ex rel. Bonsall v. Case, 172 Wash. 243 (1933).  The court, in holding against the former state employee, stated on page 245:

            "We see nothing in the statute which would authorize the payment, for a vacation period, to one who had been an employee of the state, subsequent to the time that his service ended.  The purpose of the statute, as we view it, was to give each employee, during the time that he was in the service of the state, a vacation of fourteen days on pay, but it does not follow from this that the state auditor could issue a warrant covering a vacation period which had not been taken, and, in effect, grant the employee a vacation on pay after he had ceased to be an employee of the state.  If this could be done, it would be, in effect, the giving to the employee of a gratuity or bonus in addition to his regular salary which he agreed to accept at the time the employment or service began."

            Section 25, Article II, of the state constitution provides that

            "The legislature shall never grant any extra compensation to any public officer, agent, servant or contractor after the services shall have been rendered, or the contract entered into, * * *"

            The above constitutional provision was construed for our purposes by the supreme court of the state in two important cases.  InState ex rel. Eshelman v. Cheetham, 21 Wash. 437 (1899), the state senate gave additional compensation to its employees because of the great number of hours that they were required to put in.  The court held that the state senate had no authority to give additional compensation to their employees after the service in  [[Orig. Op. Page 3]] question had been rendered, on the theory that the payment was a bonus, extra compensation, or a gratuity prohibited by section 25, Article II.

            "Extra compensation," in view of the constitutional prohibition against such gratuity, was further defined in Christie v. Port of Olympia, 27 Wn. (2d) 534 (1947).  Here, the Port of Olympia made a contract with the local longshoremen's union at a specified wage scale, with the condition that the wage scale would be finally determined by and conform to a scale to be subsequently agreed upon by the international union, the employers' association, and the war labor board.  The wage scale finally determined upon was at a higher figure and retroactive pay was granted.  The court held that this did not violate Article II, section 25, as such payments were neither gifts or extra compensation, but merely deferred compensation as provided for in the agreement.  Here it was understood by the parties to the agreement that the scale of wages initially agreed to was not to be full compensation.  In theEshelman case the "extra compensation" was within the prohibited area of Article II, section 25, because it was not bargained for or agreed to before the service was rendered.  The extra compensation or bonus contemplated by Article II, section 25, of the state constitution is aimed to eliminate the giving away of state funds and depleting the state treasury.  However, the "extra compensation" of the type in the Christie case was actually agreed upon and contemplated before the service was rendered and is not the gratuity type of "extra compensation" prohibited by the state constitution.

            Fundamentally, there are two theories on the basis of vacations with pay.  The older theory being that vacations with pay are a reward for faithful service rendered while the modern and growing majority theory is that they are a form of compensation to the employee in addition to the wage or salary.  This later theory is fully stated in Textile Workers of America v. Paris Fabric Mills, 22 N.J. Super. 381; 92 A. (2d) 40, 43 (1952):

            "* * * that an agreement to pay vacation pay to employees made to them before they perform their services, and based upon length of service and time worked, is not a gratuity; but, is a form of compensation for services rendered, the right to secure the promised compensation is vested as much as the right to receive wages or other forms of compensation."

             [[Orig. Op. Page 4]]

            With the passage of chapter 140, Laws of 1955, we believe Washington has now joined the growing majority of employers who consider vacations with pay as a form of compensation to the employees.

            Section 2, chapter 140, Laws of 1955, provides as follows:

            "Officers and employees referred to in section 1 of this act whose employment is terminated by their death; reduction in force; resignation; dismissal; or by retirement and who have accrued vacation leave as specified in section 1, shall be paid therefor under their contract of employment, or their estate if they are deceased, or if the employee in case of voluntary resignation has provided adequate notice of termination."

            In the above, we believe the legislature clearly intended to and did make adequate provisions for vacation leave pay to accrue to the employee's benefit in the form of compensation, collectible by the employee or his representative when, as a condition precedent, his employment is terminated in a manner stated in the statute.  There is no conflict with Article II, section 25, of the state constitution, as this is compensation for service rendered in accordance with the contract of employment.

            The contract of employment need not be embodied in a formal written document, although it is in most cases.  It may be an informal working arrangement between the employer and the employee containing the basic necessities of an agreement concerning the rights, duties, and obligations of both parties.  Thus the statutory rights to vacations with pay and retirement benefits form part of every state employee's contract, whether oral or written.

            When there is an agreement or where the basis of vacation pay is in a statute providing for it to accrue to the employee's benefit, it is in effect additional wages for services performed and not a gratuity or a gift.  Kidde Mfg. Co. v. United Electric and Radio Workers of America, 99 A. (2d) 210; 27 N.J. Super. 183, Ramay v. State, et al., 296 Mich. 449; 296 N.W. 323, 325 (1941);Livestock Feed v. CIO Local Union No. 1634, 73 S. (2d) 128 (1954);In re WillLow Cafeteria, 11 F. (2d) 429 (1940);Division of Labor Law Enforcement v.  [[Orig. Op. Page 5]] Ryan Aeronautical Co., 106 Cal. App. (2) 833; 236 P. (2d) 236 (1951).

            InPohle v. Christian, 21 C. (2) 83; 130 P. (2d) 417 (1942), under a similar California statute, the California court held that a former state employee did not lose his right to compensation for accumulated vacation time upon being separated from the service of the state of California, unless he has waived it by refusing to take a vacation before he was discharged.  See also,Clark v. State Personnel Board, 56 Cal. App. (2) 499; 133 P. (2d) 11 (1943); 43 Am.Jur. 164, sec. 383.

            Therefore, it is the opinion of this office that section 2, chapter 140, Laws of 1955, is in conformance with section 25, Article II, of the state constitution.

            We hope the above analysis will be of aid to you.

Very truly yours,

DON EASTVOLD
Attorney General

MAURICE M. EPSTEIN
Assistant Attorney General