North Dakota Broadens PTO Forfeiture Provision

Author: Rena Pirsos, XpertHR Legal Editor

May 6, 2015

An amendment to North Dakota's termination pay law makes it easier for private employers in the state to avoid paying out unused paid time off (PTO) to a terminating employee. Employers should review and update, if necessary, their PTO and final pay policies in light of this change in the law before it goes into effect, and notify employees of any changes as well.

The amendment adds a new provision to the state's termination pay law stating that, if an employee separates from employment, an employer is not required to pay out PTO if:

  • The PTO was awarded by the employer but not yet earned by the employee; and
  • Before awarding PTO, the employer gave the employee written notice of the limitation on payment of awarded PTO.

The new provision will only apply to terminations that occur on or after August 1, 2015.

Under current law, PTO can only be forfeited on termination if all of the following four conditions have been met:

  • The employee's termination is voluntary (e.g., the employee decides to quit);
  • At the time the employee was hired, the employer provided the employee with written notice of the limitation on payment of accrued PTO;
  • The employee has been working for the employer for less than one year; and
  • The employee gave the employer less than five days' written or verbal notice of the termination.

Current regulations regarding payment of PTO on termination, however, will have to be amended accordingly. The regulations provide that:

  • Once PTO is earned or awarded, it is considered wages that must be paid out at the employee's regular rate, if it has not yet been used up by the employee when he or she terminates; and
  • An employment contract or policy may not provide for forfeiture of earned PTO on termination.

The regulations also specify that PTO includes annual leave, earned time, personal days or any other employment provisions intended to provide compensation as vacation. Employers are permitted by the regulations to adopt use-it-or-lose-it policies that require employees to take vacation by a certain date or lose the vacation. However, the employer must have provided the employee with notice of the policy as well as a reasonable opportunity to take the PTO.