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What is Owed to an Employee Who is Laid Off?

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Question: What is a company’s responsibility to an employee who was laid off four months ago and has now been terminated with regard to benefits and vacation pay?

Answer: If the benefits we’re concerned with are health insurance or a 401(k) plan, then the plans themselves will determine the company’s obligations and the employee’s rights.

For example, if the company employs 20 or more people, then a terminated employee will have the right to continue health insurance coverage under COBRA at his expense unless he was terminated for gross misconduct (an imprecisely defined term under COBRA).

An employee can generally leave his savings in a 401(k) plan or move them; for further specifics, the plan administrator needs to be consulted.

As for other company benefits such as vacation, the answer will depend on company practice and state law. Some companies have a practice of paying unused vacation to departing employees, so don’t deviate from that practice without some good reason.

We will assume that the company posting this question does not have such a practice or policy so then we look to state law. Many but by no means all states treat unused vacation as a form of wages owed to the employee which the company may not retain just because the employee has been terminated. This question came from an employer in Pennsylvania where the law does treat vacation pay as wages and further requires payment of a final paycheck by no later than the next regular payday following separation of employment.

You should check with local counsel to make sure you are following the proper state rules regarding this matter.

This response is intended for general informational purposes only and should not be construed as legal advice or a legal opinion, nor is this column a substitute for formal legal assistance. For help with particular legal needs, members are invited to consult with Brooke Duncan III of Adams and Reese LLP. Mr. Duncan can be reached at
504-585-0220 or by email at

Brooke Duncan

Posted In: Legal

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