Will your unlimited vacation policy run afoul of the law?

Unlimited vacations may be nice but they can cause problems.
Unlimited vacations may be nice but they can cause problems.

One of the more talked about trends in employee relations and new ways of working is unlimited vacation. Touted as the best way to treat employees unlimited vacation supposedly focuses on productivity rather than time. As long as an employee has their assignments done they can take off any amount of time they desire. It is the “civilized” way to treat people. There are some issues, however, not the least of which this vacation policy might actually run afoul of a variety of laws.


Let me state for the record that I think the idea of unlimited vacation is a fabulous idea. I am trying to achieve that in my own working life. There are issues however, as I wrote in Unlimited Vacation: Will It Work For Your Company? It is just not suitable for every worker, in every job, in every company. It doesn’t work for hourly employees working in a production environment. It works best in Results Only Work Environments (ROWE) companies where everyone is a salaried exempt employee. With salaried exempt employees time worked doesn’t matter. But for nonexempt employees (in the US) time does matter. The FLSA requires that people are paid on the basis of the time they work as opposed to results they produce. I have written about this several times and I am not going to go on about this issue. However, an attorney wrote a piece that points out that unlimited vacation may run afoul of several laws.

Accrual based laws

Attorney Kristy Kunisaki Marino of Foley & Lardner, LLP, pointed out in an article that many of the laws that deal with pay and vacation are based on accrual of vacation. The FLSA does not require companies to pay any vacation, however, California and Massachusetts, have employment laws that specify accrued vacation as earned wages which cannot be forfeited. This means that when an employee’s employment is terminated they are to be paid any accrued but unused vacation. With “unlimited” vacation there is no accrual and it is unclear how these states may view these policies. There is as of yet no guidance.


Marino also points out that there may be problems with protected leave laws, such as the FMLA. Generally FMLA is unpaid leave, although the unpaid time can be bridged by other paid opportunities such as short term disability or paid-time off such as vacation. The existence of unlimited vacation thus presents the opportunity to bridge all the FMLA time by having an employee say they are taking vacation for that entire period. Most companies require to employees on FMLA not to conduct any work, but if they did does that mean they are on vacation and thus due compensation? Now don’t get me wrong, there is nothing wrong, in my book, with paying employees for all of that time and long as the company has the revenue to do so. Many companies do not have those resources.

Other issues

Marino also points out that unlimited vacation policies are also potential areas of discrimination. Taking off on an unlimited vacation is generally subject to the needs of the business. What is the “need” doesn’t allow some workers to go while others do? Could the company be accused of discrimination?
In a post I did for Blogging4Jobs, Will Unlimited Vacation be the Death of Vacation?, I point out that having an unlimited vacation policy may actually result in less vacation being taken by employees who fear for their jobs.

Management and mitigation

It may take a while for laws and regulations to catch up to the concept of unlimited vacation. In the meantime courts may handle the objections to such policies. Marino suggests there are a few things that a company can do to reduce their exposure to problems. These include:

  • Think your policy through before you implement an unlimited vacation policy. Can it apply to everyone, and if not, why?
  • Make it clear that there is no accrual of time, thus no time is earned for purposes of pay out on termination.
  • Make a distinction between a leave of absence and vacation if you do not wish to pay for a leave of absence.
  • Make sure you are fairly administering the taking of time.
  • Monitor the usage for fairness and to make sure of its usage.

Unlimited vacation has great potential but a few, very large hurdles, have to be crossed, both socially and legally, before its use becomes widespread.
Photo credit: Mike Haberman, 2015

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