Unlimited vacation time? What’s not to love?

On the face of it, such policies are an employees’ and employers’ paradise. For many workers — particularly millennials, the cohort of individuals born from the early 1980s through the early 2000s — such policies appeal to their general preferences for flexibility and lack of strict guidelines. For employers, many of whom already give hefty time off to employees, this allows them to stop spending time and resources tracking, accounting for, and paying departing employees for accrued, unused time off. (This is particularly true in states such as California and Louisiana, which have laws that prevent “use it or lose it” policies and require an employer to pay the employee for unused time off when the employee leaves the company.) For both groups, “unlimited” vacation time policies encourage employees to actually take time off, which can lead to improved wellbeing and higher productivity.

So why are these polices often balked at by employees and said to create a legal minefield for employers? 

From the perspective of employees, unlimited vacation policies (or, more properly named, discretionary vacation policies) are sometimes seen as a way for management to actually restrict time off for vacation. Most of these policies require employees to consult with and obtain a manager’s approval prior to taking time off. Some employees fear that having no “right” to a certain number of days off will mean that they will get considerably fewer than in the past. 

Employees who have been banking vacation days at companies without use it or lose it policies may be particularly perturbed by what is seen as an attempt to surreptitiously change paid time off policies. That’s what reportedly happened at the Tribune Publishing Company, when it rolled out its “discretionary time off” policy at the end of 2014. Less than two weeks later, after employee pushback, the Tribune gave up on the new plan.

On the employers’ side of the equation, such policies can lead to unforeseen legal consequences. In California, for example, some companies have hoped to circumvent the state’s requirement to pay departing employees for unused, accrued vacation by implementing unlimited vacation time policies. But at least one company, Zenefits, ran into trouble when prior versions of the employee handbook weren’t clear that unlimited vacation time was the company policy. According to news reports, when a new version suddenly clarified the company’s position, employees threatened to sue, claiming that they had the right to payment for vacation time that accrued in the past. 

Even if employees are generally happy with discretionary vacation time policies, there are pitfalls for the employer. First, decisions on whether or not to approve vacation requests are unlikely to have the same level of oversight as decisions about, for example, compensation and promotions. Putting too much discretion into the hands of individual managers may expose employers to liability if decisionmaking is discriminatory or retaliatory.

Second, employers need to understand that an unlimited vacation time policy, while reducing the need to track some time off, does not eliminate the requirement altogether. Employers must still track time off to which employees are entitled under the Family and Medical Leave Act (FMLA), other company policies that speak to time off (whether paid or unpaid), and various state leave laws. And with a trend towards legally required paid sick time in some states, the obligation to track at least some time off is likely to continue or increase for the foreseeable future. Moreover, when it comes to FMLA requests for time off to provide medical care or the accommodations required under the Americans with Disabilities Act, the fact that an employer has approved time off for one employee who is taking a dream vacation to Europe may make it more difficult for that employer to argue that it can’t accommodate a few weeks off for an employee who needs time off for medical reasons.

Finally, employers need to think about whether an unlimited vacation time policy works with their corporate culture and the nature of their workforce. Such polices don’t mix well with all cultures, especially when job performance is difficult to measure or if it is hard to determine whether someone is really doing his or her job well. And most experts agree that unlimited vacation policies won’t really work for a workforce comprised of hourly or union employees, where time must be tracked in any case, and union contracts may call for a specific amount of vacation time. 

Given these potential issues, any company that wishes to institute a policy that no longer calls for the accrual or up-front award of vacation time should seek the advice of qualified legal counsel before implementing such a program. Attorneys can help ensure that the transition to such a policy complies with state law, that the administration of the policy does not run afoul of the FMLA, the ADA, or state laws, and that the policy does not lead to unintended consequences. 

Discretionary vacation time policies can be a blessing or a curse for employers and employees alike. Employers need to evaluate both the cultural and legal issues before instituting such a policy at their own workplaces.