By Eric J. Uhl/ June 13, 2022
In April, Maine enacted a new law regarding payout of unused paid vacation time, L.D. 225, called “An Act Regarding the Treatment of Vacation Time upon the Cessation of Employment.” The new law—which goes into effect on January 1, 2023, and covers private employers with more than 10 employees—ostensibly changes longstanding Maine law on whether an employer must pay out the cash equivalent of unused paid vacation time when an employee separates from employment. The new law amends an existing statute, 26 M.R.S.A. § 626, which requires full payment of wages upon cessation of employment.
Under existing law, Maine employers had been able to determine for themselves whether to pay out unused paid leave to employees upon cessation of employment. If an employer’s policy or practice provided for payment of the unused leave time upon cessation of employment, then the employer would have to treat unused paid leave time the same as final wages and pay out the unused leave time by the next payday after termination, along with the employee’s final wages. If an employer’s policy or practice provided that employees were not entitled to payment of the unused paid leave time upon cessation of employment, then the employer would not have to pay out the unused leave time.
The new law seems to require covered employers to pay out an employee’s unused paid “vacation” upon cessation of employment (unless otherwise governed by a collective bargaining agreement). However, the new law does not change the pre-existing language in the statute giving employers discretion to set a policy on whether to pay out unused paid leave time upon cessation of employment. Instead, the new law merely adds that an employer must pay out unused vacation time accrued “pursuant to the employer’s vacation policy.”
So, while it appears that all employers must now pay out unused “vacation” at the time of termination, it is not entirely clear how the new law would affect employers with policies not to pay out unused paid leave. In addition, the new law does not define “vacation pay,” so it is not clear how the new law affects policies that combine personal and sick leave into a single “paid time off” policy or how it affects unused paid leave under the Maine Earned Paid Leave law.
We hope the Maine Department of Labor will provide additional guidance before the effective date. In the meantime, employers should review their paid leave policies with counsel to determine the effect of the new law. As with an employer’s failure to pay final wages in a timely manner, employees may seek damages for up to three times the amount that should have been paid upon termination, along with attorneys’ fees and costs.
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