“Use it or lose it” Vacation Policies: Tread Carefully

By Ryan C. Higgins and David J. Patin, Jr.

No law requires employers to grant vacation time to employees. However, many employers offer employees vacation time as a benefit of employment. Under Louisiana law, when vacation time is offered employers are generally required to compensate employees for accrued but unused vacation time upon termination of employment. The failure to timely pay employees for all accrued but unused vacation time upon termination of employment can subject employers to claims for penalties and attorney’s fees as discussed in a previous GRHG blog post about the Louisiana Wage Payment Act.

The exception to the rule requiring payment of accrued but unused vacation time is when the employer has a written policy providing that vacation time is nothing more than a mere gratuity or has a “use it or lose it” vacation policy. This post addressed only “use it or lose it” vacation policies. In short, a “use it or lose it” policy prohibits employees from carrying over accrued, unused vacation available during one year into the next year. In such cases, the vacation time not taken by the employee is lost before termination of employment and is not owed to the employee.

Although “use it or lose it” vacation policies are permitted by Louisiana law, they must be carefully drafted and applied. One reason for this is that Louisiana law also strictly prohibits employers from having employees sign employment contracts which require forfeiture of accrued vacation time when the employee is discharged or resigns. See Beard v. Summit Institute of Pulmonary Medicine and Rehabilitation, Inc., 707 So. 2d 1233 (La. 1998). The fine line between a “use it or lose it” policy and what could be considered “forfeiture” of vacation time has been the subject of litigation between employers and employees. Therefore, it is advisable for employers to have a written vacation policy that is carefully drafted by an experienced labor and employment attorney.

The attorneys at GRHG have represented both employers and employees in disputes arising out of payment of vacation time and other wages.