Thursday, November 5, 2015

Can Employers Maintain “Use It Or Lose It” Vacation Policies

In August of 2014, the Illinois Department of Labor issued amendments to the Illinois Wage Payment and Collection Act regulation 300.520.  Most of the attention focused on the new requirement that employers keep time records for exempt employees. We’d guess that many employers, in fact, are still struggling with compliance of that requirement.

But, another amendment to the same regulation, issued at the same time, raises questions about the continued validity of commonly utilized “use or lose” vacation policies. 

The regulation has long contained the following provision:

e)         An employment contract or an employer's policy may require an employee to take vacation by a certain date or lose the vacation, provided that the employee is given a reasonable opportunity to take the vacation.  The employer must demonstrate that the employee had notice of the contract or policy provision.

That provision remains in the current version of the regulation. Among the amendments, though, is the following new provision:

h)         An employer cannot effectuate a forfeiture of earned vacation by a written employment policy or practice of the employer.

Simply put, the right that seems to be granted to employers in (e) to establish a use it or lose it vacation policy, appears to then be taken away in (h), since what is a use or lose policy but a forfeiture of earned vacation by a written employment policy? How can employers reconcile what appears to be two provisions in the same regulation that contradict each other? Labor and employment lawyers have been scratching their heads over the continued validity of the use or lose vacation policy since adoption of the amended regulation.

A basic rule of statutory construction is that courts will attempt to give meaning to every provision of a statute (or regulation in this instance). In other words, when a court is called upon to interpret a statute, it will attempt to give an interpretation that won’t invalidate or nullify any of the language in the statute. The theory is that the legislature (or agency) adopted the language and they must have had a reason for keeping all of the language in it. 

So, to assume that (h) invalidates (e) would include the assumption that the Department of Labor either just assumed that citizens would know that or forgot to eliminate (e) from the amended version of the regulation. These seem to be unlikely assumptions. 

More likely is the idea that these two provisions were meant to be read together, so that (h) expresses the general rule and (e) serves as an exception to the rule. After all, the DOL seems to have intentionally kept (e) in the regulation since it certainly had the opportunity to strike it from the amended version. There are certainly flaws in that position as well, since it seems hard to believe that the DOL wouldn’t make it explicit in the language itself that the two paragraphs should be read together.  

Unless or until the DOL or a court clarifies this confusion, we believe that it is safe to rely on the advice given by the DOL about its own regulation. On its website, under FAQ’s, the DOL poses the following question and answer:


Can a company have a policy that vacation must be used by a certain date or it is lost?

Yes. See Section 300.520.