In most states, private sector employers are not required to provide vacation, whether paid or unpaid, to employees. Therefore, employers have significant discretion in developing vacation and personal leave policies that best fit the needs of their workplace and employees.
If promised, vacation must be granted. Nonetheless, it is important for employers to understand that, if their practices, policies, or statements rise to the level of creating a “promise” of vacation, then the employer may create a binding legal obligation to provide vacation—even when state law would not otherwise require it to do so.
Payout of vacation at termination. This caution also applies to obligations to pay out accrued, but unused, vacation time at termination of employment.
Even where state law does not specifically require employers to pay out accrued vacation upon termination, a consistent practice, written policy, or contract promising such payment may create an enforceable legal obligation to do so.
In such circumstances, earned vacation will generally be treated as wages pursuant to state wage payment and collection laws.
For additional information on final wage payments, please see the Paychecks
Clear policy language will control. Therefore, when state law does not expressly require employers to provide vacation or to pay out accrued vacation upon termination, employers should assume that their established policy will control.
For this reason, employers must ensure that vacation accrual, caps, and payout terms are set forth clearly and unambiguously in a written policy available to all covered employees. If there is any ambiguity in the policy, it will likely be interpreted in favor of the employee.