“Unlimited vacation”—sounds great, doesn’t it? Company after company, from Netflix to Goldman Sachs, have switched to so-called “unlimited vacation” plans. Employers market these plans as pro-employee benefits. But are they really?
“Unlimited paid time off is positioned as if it’s an amazing benefit for employees, where in fact it actually is really bad for employees and amazing for employers,” says Veehtahl Eilat-Raichel, the chief executive and co-founder of Sorbet, a company that purchases unused accrued vacation pay. Our employee rights attorneys agree.
How Are Unlimited Vacation Plans Bad for Employees?
First, they amount to a pay cut. In certain states, including California, your company must pay you for unused vacation time when you leave the company. By switching to an unlimited vacation plan, companies no longer have to pay out this time when you leave—even if you never take a day of vacation!
Second, studies have shown that employees take fewer vacation days under unlimited plans because they don’t want to seem less motivated or to be seen as “taking advantage” of the vacation policy. As the New York Times observed, “unlimited vacation can allow employers to position themselves as caring and thoughtful, while reducing their own financial investment.”
Accrued Vacation Time is Money That Your Employee Owes You
In California, vacation pay, or paid time off (“PTO”) is “not a gratuity or a gift.” Your PTO is part of your compensation package: it counts as wages. Once earned, your employer must pay out each PTO hour at the end of their employment at their then-rate of pay—which means PTO becomes more valuable over time. Labor Code section 227.3.
Once accrued, your PTO is yours. Your employer cannot “forfeit” it. Your employer cannot take it away or refuse to pay it out upon your separation or resignation.
Vacation Time Must Vest to Become Yours
However, you must earn PTO before it must be paid out. An employer can dictate the accrual time for PTO based on your hours worked. An employer can also place a reasonable accrual limit on PTO—but that limit must be between 1.5 and 2 times your yearly accrual. Your employer may include a probationary period, but these are strictly construed and may be illegal if they are unreasonable.
Sadly, an employer is not required to offer paid vacation at all. But once it does, it cannot take away vested paid vacation hours, even if it later changes to an “unlimited vacation plan.”
Unlimited Vacation Plans Are Illegal If They Are Designed to Prevent Employees from Taking Vacation Or Place Unfair Limits on Vacation Use
California has been at the forefront of fighting vacation plans that are used to steal wages from employees. As far back as the 1980s, the California Department of Labor Standards and Enforcement wrote that unlimited vacation plan policies that require advance approval for using a certain number of weeks during each year are actually yearly accrual policies pretending to be “unlimited.”
Additionally, “unlimited” vacation policies that make it difficult for employees to take vacation likely run afoul of California law. Your employer cannot “frustrate” your ability to take advantage of their agreement to provide paid vacation.
These policies are illegal. Your employer may owe you PTO in an amount equal to the yearly amount of PTO you can take without approval.
Talk to an Experienced Wage and Employment Lawyer
Every worker in California is entitled to receive all compensation benefits they were promised when they started working, including a right to be paid out for unused vacation. If you’re having trouble getting your accrued vacation paid, you likely have a legal claim against your employer. Additionally, if your company is rolling out their unlimited vacation plan as a way to cause you to take fewer vacation days, it might be illegal.
At King & Siegel, LLP. we provide free consultations for all clients with questions about employee compensation issues and represent clients in both litigation and arbitration to ensure they get their promised pay, including their promised vacation pay. Contact our experienced employment lawyers today.
Julian Burns King graduated with honors from Harvard Law School and founded King & Siegel in 2018. As head of the Firm’s discrimination and harassment practice areas, she champions the rights of working parents and victims of workplace discrimination and harassment. She has been recognized as a “Rising Star” by Super Lawyers annually since 2018 and has recovered tens of millions of dollars on behalf of her clients.