Although no South Dakota law requires private sector employers to provide employees with vacations, paid or unpaid, most employers do offer their employees some version of vacation. Thus it is important for employers to remember that if they “promise” vacation, they may be legally bound to provide it—and that a binding promise does not require embodiment in a formal employment contract.
The courts have ruled that under some circumstances, an employer's assurance of paid vacation time, whether made in an employee handbook, given orally, or simply understood as a matter of consistent practice, may constitute an implied contract that is binding and enforceable.
Whether employers must pay employees for accrued vacation time at the time of termination depends on whether the employer has promised to do so, by contract, policy, or practice. Such a contract may be found in an oral agreement (Johnson et al. v. Petroleum Carriers Inc.240 N.W.2d 114 (SD Supreme Court, 1976)).
Employers in South Dakota are free to devise their own system for vacation accrual. There are several different commonly used options:
• On a monthly basis
• On a pay-period basis
• Upon completion of a 6-month or 12-month period
It is important for employers to be clear and unambiguous when drafting their vacation policies. If the policy is intended to ensure that employees work the entire accrual period to earn their vacation days, it should state clearly that employees will not be entitled to pro rata payment if they leave partway through the period. Remember that any vagueness in the policy is likely to be construed against the employer.