By Tyson Horrocks, Holland & Hart LLP

Tyson Horrocks

Like many businesses, you may have decided to give your employees unlimited PTO – or are considering doing so. The flexibility that unlimited PTO affords helps you attract and retain talent. You also avoid the administrative headaches associated with tracking PTO. And if you terminate the employee, you don’t have to pay out any accrued vacation time. Right? Not so fast.

A recent California Court of Appeal case reminds employers that loosely drafted PTO policies may leave them on the hook for unused vacation days. In McPherson v. EF Intercultural Found., Inc., No. B290869, 2020 WL 1543339, at *1 (Cal. Ct. App. Apr. 1, 2020), the employer purported to have an unlimited PTO policy for certain exempt employees, allowing them to come and go as they pleased so long as they fulfilled their job responsibilities. But the employer did not put this policy in writing, nor did they explain to the employees that paid time off was not a part of their compensation. In the absence of a well-defined policy, the Court found that the employer had an “implied cap” of vacation days based on the customary amount of vacation the employees took. Therefore, the Court held that when the company terminated its employees, it had to pay out the value of the unused portion of the “implied cap.” Read more >>