Hey, It’s HR; No Good Deed...

I’ve worked in Human Resources for over 25 years and believe that most employers strive to do the "right" thing for employees. However, human nature, being inconsistent from person to person, with widely varying expectations, when combined with the compliance landscape we must operate in, often leaves me feeling a bit defeated in these efforts. The adage "no good deed goes unpunished" frequently comes to mind.

For example, unlimited Paid Time Off (PTO). This concept became a topic of discussion in the early 2000s following Netflix’s implementation of its "No Vacation Policy" in 2003. A decade later, some large employers began offering unlimited PTO, including General Electric, LinkedIn, and the Virgin Group. Although its growth has slowed, it remains a popular topic as companies review their benefits to ensure they are competitive. However, adoption is not at a high level in smaller businesses. The Employers Association of America (EAA) 2024 National Policies & Practices Survey indicates that an average of less than 1.5% of employers provide an unlimited PTO benefit. As they consider whether this benefit is the right fit for their organization, companies should be certain they have a solid understanding of the associated legal implications (the "no good deed…" part). The Family and Medical Leave Act (FMLA), the Americans with Disabilities Act (ADA), and the Uniformed Services Employment and Reemployment Rights Act (USERRA), to name a few, have been subject to litigation related to their interaction with unlimited PTO policies. These particular laws require employees to be treated in the same manner as similarly situated employees who are not on leave. As such, extended periods of leave may be required to be paid under an unlimited PTO policy. Federal appeals courts in the Ninth, Seventh (covering Illinois, Indiana, and Wisconsin), Third, and Eleventh circuits have all held in favor of plaintiffs who were not paid short-term leave benefits when taking military leave under USERRA. Similarly, an employer may open themselves up to legal liability if they do not pay employees for FMLA or leave under the ADA under an unlimited PTO plan.

Of course (more "no good deed…" news), state laws will also come into play. Some companies have implemented unlimited PTO plans with the thought that it will eliminate the need to pay out unused PTO at termination. Several states, including Illinois, disagree! Illinois guidance states that the "monetary equivalent equal to the amount of vacation pay to which the employee would otherwise have been allowed to take during that year but had not taken" would be due at termination. The state provides no additional guidance on how that amount should be determined; however, some legal pundits have recommended a payout of at least 40 hours.

There are plan design elements that employers can consider, such as having an unlimited "vacation" policy that can be used only for purposes of vacation, not leaves of absence. However, it is unclear whether the courts would accept this differentiation as a defense.

Lest your good deed be punished, it would be wise to seek assistance if you are considering an unlimited PTO/vacation plan. As case law continues to develop, guidance, including legal support, will ensure your policy is compliant.

If you are looking for assistance in developing your paid time off programs, MRA can help. Contact us today to learn how.