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Payout of Vacation Time in Maine
With summer right around the corner, the term “Vacationland” may have new meaning starting next year. On April 7, 2022, the Governor signed into law L.D. 225, changing longstanding Maine law on the payout of vacation time when employment ends for any reason. The new law appears to now require private employers with 10 or more employees to pay out an employee’s unused, accrued vacation time when their employment ends. The law takes effect on January 1, 2023.
What’s Changed?
Before L.D. 225, Maine law provided that employers could elect whether to pay out unused, accrued vacation. More specifically, Maine law provided that only when an employer had chosen to pay out unused, accrued vacation through established practice or policy was the employer required to pay out that time in the employee’s final paycheck. Maine law also stated that unused, accrued vacation then had the same status as “wages earned.”
Now that L.D. 225 has passed and is becoming part of Maine law, employers who do not pay out vacation on termination of employment will likely need to review their applicable policies. However, there are still questions regarding the full meaning and application of the new law that are discussed below.
With this change, Maine follows California [1], which similarly provides that all earned or vested vacation time must be paid on cessation of employment.
Exceptions
There are three types of employers in Maine that are exempted from this new law as set forth below:
- The new law does not apply to public employers such as the State of Maine, its counties, municipalities, the University of Maine System, the Maine Community College System, school administrative units, and other public entities;
- The new law does not apply to any employer with less than 10 employees; and
- For unionized employers, if the collective bargaining agreement addresses payout of vacation time on cessation of employment, the collective bargaining agreement governs.
What Does This Mean?
L.D. 225 retains important language in the statute stating that vacation pay has the same status as “wages earned.” For this reason, as noted above, aggrieved employees who do not receive a payout of vacation time consistent with the new law may sue their employers and seek liquidated damages in an amount of up to three times the unpaid sum (treble damages), interest, and attorney fees.
Additionally, existing Maine law provides for civil forfeitures and fines by the Department of Labor for unpaid wages, which will now include vacation time.
Remaining Questions
There are significant questions remaining about the effect and scope of the changes to the law as a result of L.D. 225. We are hopeful that the Maine Department of Labor will provide additional guidance on these issues prior to L.D. 225’s effective date.
Which policies are included?
Chief among these outstanding questions is the Legislature’s choice not to remove the existing language from the same statute, which provides that “whenever the terms of employment or the employer’s established practice includes provisions for paid vacations, vacation pay on cessation of employment has the same status as wages earned.” L.D. 225 merely added to that statute that “vacation accrued pursuant to the employer’s vacation policy . . . must be paid to the employee on cessation of employment.” Whether the “terms of employment or the employer’s established practice” must now include a provision for paying out accrued vacation time may depend on the specifics of each employer’s policy.
What is “vacation”?
A related question remains regarding the scope of the term “vacation,” which is not defined in L.D. 225 or elsewhere in the statute. Application of this new law to broader leave policies that do not differentiate between vacation and other forms of paid leave, such as sick and personal time, is unclear. For example, there remains a question as to whether this new law would apply to general paid time off (“PTO”) or Maine Earned Paid Leave. Although this issue was identified in committee, the Legislature retained the bill’s original language, referring solely to “vacation pay,” without providing a definition. Other states, such as California, have read language in a similar statute and noted that employers cannot evade the statute’s requirements by simply calling vacation by another name, such as “PTO.” [2] It remains to be seen whether Maine will follow a similar path
[2] See Cal. Dep’t of Industrial Relation, Labor Commissioner’s Office: Publication on “Vacation,” Question 8, available at https://www.dir.ca.gov/dlse/faq_vacation.htm.
Next Steps
Employers who must comply with this law (1) with vacation policies that do not currently provide for payout of unused vacation time on cessation of employment; or (2) with policies that do not separately account for enumerated vacation, sick and/or personal leave should consult with their legal counsel to determine the full effect of the new law. The risks associated with not complying with the new law could be significant. Bernstein Shur’s Labor and Employment Practice Group can review your existing policies to help you get ready for January.