Legislature considers mandating “cash out” of vacation pay, resulting in higher costs and fewer worker benefits
The Joint Standing Committee on Labor and Housing held a public hearing on a bill that will eliminate the ability of employers to manage their in-house costs when it comes to vacation benefits, and instead mandate that all employees who receive vacation pay are allowed to “cash out” upon cessation of employment – even if they are discharged for misconduct.
LD 225, An Act Regarding the Treatment of Vacation Time upon the Cessation of Employment, sponsored by Rep. Amy Roeder (D-Bangor), will reverse more than 40 years of Maine law by requiring that, upon cessation of employment, a departing employee must be paid for any accrued but unused vacation time. This represents a significant departure from current Maine law and presents concerns for both employers and their employees.
First, it is important to point out that providing vacation pay to workers in Maine is completely discretionary. Under Maine’s Earned Paid Leave (EPL) law passed in 2019 and effective starting January 1 of this year, employers with more than 10 workers are required to provide full- and part-time workers with up to 40 hours a year of EPL to use as they wish. The EPL day could be used as a vacation day, a sick day, or for any personal reason. Many businesses that fall under this category chose to provide more vacation time – some significantly more – than just the EPL days to their workers. However, small business owners with 10 or fewer workers can determine whether or not they provide vacation days, and how many they will provide.
Whether an employee is eligible to “cash out” at the end of their employment has been governed by whether or not the employer’s workplace policy or employment agreement allows for cashing out. This is true for large or small employers and includes EPL days as governed by the Maine DOL rules. Currently, MRSA Title 26, Section 626, makes it clear that Maine law does not create a right to paid vacation time unless the employer’s policies and practices provide for it. So, if a business has such a policy or agreement in place, then unused but accrued vacation time takes the same status as wages earned. If they do not have such a policy, then employers can require a “use it or lose it” vacation policy. In other words, employees must use their vacation time or risk losing it.
The net effect of the passage of LD 225 will be a loss of workplace control and managing costs. The result will be higher, perhaps significantly, cost of doing business here in Maine – hitting our small businesses particularly hard, as they continue to struggle in this pandemic environment and its aftermath. As indicated above, employers are not required to offer vacation or sick time beyond the recently enacted EPL law. We have heard from many small businesses that the additional costs associated with the EPL law, and the increases in the minimum wage, have created financial challenges, particularly for many small rural employers. If companies are required to cash out any extra vacation benefits currently offered beyond EPL, then in many cases, they will simply stop providing those benefits. And if you are not a business covered under the EPL law – namely, one of Maine’s very small businesses – it will most certainly disincentivize you to start or continue to provide vacation benefits.
Furthermore, under the bill as presented, there are absolutely no guardrails associated with this cash out provision. In other words, an employer could be required to cash out an employee discharged for misconduct, including theft, assault, or any other violation of workplace policy, even if their policies say otherwise.
Lastly, the bill creates a conflict between regular vacation/PTO pay and Maine’s newest EPL law. Current DOL rules rely on this same section of Maine law when it comes to cashing out any unused but accrued leave. In other words, if an employer’s workplace policy or employment agreement allows the cashing out of unused vacation time, it also allows for the cash out of unused EPL time. However, if the employer’s policy does not allow such a cash out, then the employer is required to keep the unused/accrued leave on their books for a year, in case the employee returns to their former employer. LD 225 would supersede this, requiring an employee who returns to their previous employer to begin the accrual process all over again – bringing needless confusion and uncertainty to Maine small businesses.
Maine small employers are currently challenged as never before. Adding to that challenge by increasing the cost of doing business here through the enactment of an out-of-step employment policy will not assist them in meeting these challenges. LD 225 will add new and unplanned for costs for certain employers and result in fewer, truncated leave benefits for certain employees. Vacation time is provided to workers so that they can take time off to be with friends and family or for rest and relaxation allowing them to return to the workplace refreshed and productive. It is not intended to be a resignation bonus.
At this time, the Labor committee has not scheduled the bill for a work session. The Maine State Chamber was present to testify in strong opposition to this bill. We will continue to follow this important piece of legislation for Maine small businesses closely. For additional information or questions, please contact Peter Gore by calling (207) 623-4568, ext. 107, or by emailing email@example.com.