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No Relaxation for Your Vacation Policies

August 2, 2002
Related Topics: Benefit Design and Communication, Employee Leave, Featured Article

You’d think that vacation policies would reap only positive feedback, but if poorly instituted, they can lead to a lot of trouble. They can bump up against state laws or conflict with federal FMLA leave. HR professionals also run into difficulties in simply deciding which types of policies to have and how to enforce them. Robin J. Samuel, an associate in the Los Angeles office of the law firm Hogan & Hartson LLP, explains the ins and outs of creating and enforcing proper vacation policies.

Some employers maintain a use-it-or-lose-it vacation policy, in which employees must use their vacation time within a calendar year or forfeit it. Do these plans work?
    I don’t really see a positive side to use-it-or-lose-it policies anymore. First of all, employees feel like they’re losing something they’ve earned. A lot of people consider their vacation benefits as part of their salary. If the employer takes vacation time away because the employee didn’t use it—say he was working extra hard that year—the employee often feels like he’s lost something. As employers become more national in scope, they run the risk that their company-wide vacation policies won’t comply with the law of the jurisdictions in which they start to operate.

    California, for instance, has prohibited use-it-or-lose-it policies for about 20 years. It was a 1983 California Supreme Court case, Saustes v. Plastic Dress-up Co. It ruled that when a company chooses to grant vacation time, the paid leave [becomes] an additional form of compensation for the employee’s services. To require its forfeiture is to require the forfeiture of actual compensation. More and more states are heading in the same direction.

What can an employer do to ensure that an employee doesn’t save up vacation time indefinitely?
    In California, companies [often] impose reasonable caps on vacation benefits by instituting what’s called a maximum accrual policy. Under such a policy, the employee does not earn additional vacation time if a certain amount of vacation has already been earned and remains unused. So you can say, “If you have two weeks of unused vacation time, you will not accrue any additional time.” That way, employees aren’t required to give up anything they’ve earned, but they just don’t earn the extra time.

Can employers demand that employees use vacation days instead of sick days?
    An employer can’t require an employee to use vacation time before taking an FMLA leave. For instance, the employer can’t demand the employee use her two weeks of vacation and only then begin FMLA leave. But the employer can require employees to substitute vacation time for unpaid FMLA leave, that is, substitute the first two weeks of FMLA leave with two weeks of paid vacation. That generally allows the employer to count the paid leaves against the employee’s annual 12-week allotment of FMLA leave. If the employer wants this type of substitution, it has to notify the employee, generally within two business days after it receives notice of the FMLA leave. In some circumstances, employees themselves can elect to use paid vacation in lieu of unpaid FMLA leave. Also, be sure to check any differences between your state family-leave law and the FMLA.

What’s the benefit of having a paid-time-off policy instead of a vacation policy?
    A lot of employers now are moving away from distinguishing between sick time and paid vacation. Instead they’re implementing paid-time-off policies, under which employees are given a certain number of paid days off work which they can use for any purpose. This makes it simpler for the employer in terms of record-keeping: you don’t have to track both sick-time and vacation-time accrual. There’s also greater flexibility for employees.

Can an employee who has given her two-week notice use her final two weeks as vacation days?
    Most employers don’t want to require employees to give them notice, because that can change the nature of the employment relationship from at will (either party is free at any time to terminate the relationship) to at cause, where specific reasons must be given for termination. But if an employee did give two weeks’ notice, there’s no rule that requires the employer to allow the employee to use his or her unused vacation time.

How much control does an employer have over employees’ vacation use?
    Employers are not required by law to give vacation benefits, so when they do give them, they’re entitled to control how much of the benefits they give and how they’ll be used. The employer has the right to accommodate vacation requests according to business needs. HR should have a clear policy in saying that it reserves the right to reschedule or deny vacation. You should also spell out how employees should request vacation, and how competing vacation requests will be decided—such as a first-come, first-served policy.

Some companies have been imposing extra vacation days to save money. What are the legalities of doing so?
    If my company was instituting such a policy, I’d try to make it voluntary. There’s a potential problem in a state like California with requiring employees to use vacation days in the year. That’s because again you’re requiring the employee to either give up the pay they’d receive had they worked or forfeit the right to receive pay for unused vacation time at termination. Another, separate consideration: If you’re scheduling unpaid work furloughs—closing a plant for a week of “vacation”—make sure you’re complying with the federal WARN Act. That statute says if you’re shutting down a plant, even for a short period of time, you have to provide a certain amount of notice to employees.

Any other issues surrounding vacation policies?
    Be sure to distinguish between exempt and non-exempt employees. To protect an exempt employee’s status, you should not allow them to take vacation in less than a full day’s increment. Treating them as an hourly employee can cause them to lose their exempt status.

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal option. Also remember that state laws may differ from federal laws.

Workforce, August 2002, pp. 78-79 -- Subscribe Now!

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