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The company should provide some kind of long term disability insurance for that. Asking the employee and everyone else to give up their vacation time because someone got very sick seems like something an evil super villain would do.
You get super sick, go through hell, lose all your vacation, and your coworkers are all pissed because they lost their vacation too. Once you get healthy again seems like a good time to just quit.
Now in this case it was the guy's own fault, which complicates things. But in normal cases - that whole process seems really ugly to me. I get PTO for little sicknesses - fine. But long term should be covered by some other system.
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