With the Silicon Valley trend of unlimited vacation policies creeping into non-tech workplaces, I've had a few calls this week about how they work. In theory, an unlimited vacation policy allows employees to take as much time off as they want, without the employer tracking it or having to pay anything out upon termination. But, in practice, there are a lot of wrinkles. Here's a quick Q&A on some of the considerations I've been addressing in case you are contemplating a change in policy.
Q: Can an employer give guidance on how much vacation would be appropriate under an "unlimited vacation policy?"
A: No. If an employer gives guidance on how many days are acceptable, it looks like a ruse to circumvent the California law requiring payment of vacation upon termination of employment.
Q: Can an employer discipline an employee for taking too much time off?
A: Again, no. First, under an unlimited policy, an employer should not keep track of time taken. Second, any disciplinary action would be performance based. (ie. An employee didn't complete a project in a timely manner or the quantity or quality of the work is suffering).
Q: Can an employer deny time off requests?
A: Yes, an employer can still provide black-out periods or a process for requesting time off to ensure the needs of the business are not interrupted.
Q: Are these policies lawful?
A: It depends. Because these are relatively new policies, there hasn't been any litigation yet. But I think it depends on how you transition from the old policy to the new one, ensuring any accrued vacation is paid out or there is a reasonable runway of time to take accrued vacation before implementing the new policy so there is no loss of earned wages. If the DLSE does decide these policies are a subterfuge, waiting time penalties could be substantial. Lastly, an unlimited vacation policy isn't a substitute for California or local sick leave laws, so consult with counsel when drafting a new vacation policy.
If you're asking, I think these policies work best where there is an employee population of largely exempt employees and there is a culture of independent work product with little emphasis on hierarchy. It also works well in a professional services environment, where productivity is measurable in billable hours. While there's always a concern about the unmotivated employee who takes advantage of the system, if you can live with a degree of uncertainty and are ready to revise your attendance policy, an unlimited vacation policy may be right for you.
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