a. To be eligible for a vacation in any calendar year, an Employee must: 1) have one year or more of Continuous Service; and (2) have worked for at least 520 hours during the preceding calendar year; or (3) have been off work due to compensable workplace illness or injury, in which case the Employee will be credited up to forty hours of work per week for the purpose determining eligibility described in this section; or (4) have been off work due to service in the Armed Forces, in which case the Employee will be credited up to forty hours of work per week for the purpose determining eligibility described in this section; and (5) has not quit, retired or been discharged for cause prior to January 1 of the vacation year.
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The question of "how this clause as written would be interpreted" can be answered in several ways, as the passage obviously can be misinterpreted in several ways. Predicting how particular individuals will interpret it is a hiding to nowhere.
To see what probably was meant, let us denote the five numbered clauses of the passage by the labels C, H1, H2, H3, and E, respectively. The passage then reduces to
Label C stands for a "Continuous Service" clause. Label E stands for an Employed clause.
A logical employee might argue for a meaning like
but of course logic has nothing to do with personnel matters so such an argument would be a waste of time.