On April 7, 2022, Maine Governor Janet Mills signed legislation (L.D. 225) to require some Maine employers to pay out employee’s earned vacation time at the end of employment.
Prior to L.D. 225, Maine law provided that employers could choose 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. Under the new law, beginning on January 1, 2023, Maine employers with more than 10 employees, will be required to pay employees for all accrued unused paid vacation upon separation “pursuant to the employer’s vacation policy.” This requirement applies only to vacation time earned on or after January 1, 2023. Once the law becomes effective, earned vacation time is to be paid to a terminated employee along with any earned wages on the employee’s next established payday.
The law contains important language which states that vacation pay has the same status as “wages earned.” For this reason, employees who do not receive a payout of vacation time consistent with the new law may file wage claims and sue their employers for liquidated damages in an amount of up to three times the unpaid sum, interest, and attorney fees.
The newly enacted law does not provide a clear definition of what leave it covers, aside from “unused paid vacation accrued pursuant to the employer’s vacation policy.”
The new law does not apply to employers with 10 or fewer employees or employees whose employment is governed by a collective bargaining agreement that addresses payment of vacation pay. The law also does not apply to public employers.
Next Steps for Employers
It is expected that the Maine Department of Labor will provide additional guidance or regulations on the law prior to the effective date, as there are still some unanswered questions such as what constitutes “vacation” under the law and how to interpret the law’s statement regarding payout of “vacation accrued pursuant to the employer’s vacation policy” which could be interpreted to mean that the payout is a matter of written company policy versus a mandate to payout vacation regardless of the employer’s written policy. However, given that the prior law already allowed for payment based on company policy, it is highly likely that this new language is suggestive of a mandate to pay regardless of what the employer’s prior policy or practice had been. It is also unclear if the 10-employee threshold is determined based on total number of employees or just those employees working in Maine.
Employers whose vacation policies do not currently provide payment of unused vacation time at the end of employment will need to review and update their policy. Additionally, policies that do not separately account for enumerated vacation, sick and/or personal leave (i.e., PTO) should consult with their legal counsel to determine their obligations under the law.
HR Works will continue to monitor this topic and provide updated information as it becomes available.