Maine Bolsters Its Vacationland Moniker With Paid Vacation Time

Follow us on LinkedIn to see future News.

Rachael Luken Carp

January 17, 2023

In April 2022, Maine passed the Act Regarding the Treatment of Vacation Time upon the Cessation of Employment, which became effective on January 1, 2023.  The Act requires Maine employers to pay terminated employees all unused vacation accrued pursuant to the employer’s vacation policy no later than the next pay cycle. Vacation pay has the same status as wages earned upon cessation of employment.

Public employers and employers with ten or fewer employees are exempt from the Act and, if an employee’s employment is governed by a collective bargaining agreement that addresses payment of vacation pay upon cessation of employment, the collective bargaining agreement, not the Act, will determine vacation pay requirements.

After its passage, the Act raised as many questions as it answered for Maine employers, including:

• What constitutes “vacation” pay because the term “vacation” is not defined in the Act?
• Does the Act apply to terminated employees as well as those who resign voluntarily?
• Does the number of employees include those in state and out of state?
• Does the Act require employers to allow employees to accrue vacation time?

On September 20, 2022, the Maine Department of Labor Standards, Wage and Hour Division, issued Interpretive Guidance Policy 22-01 to clarify the confusion.  See https://www.maine.gov/labor/docs/2022/laborlaws/BLSInterpretiveGuidancePolicy22-01.pdf.

The Interpretive Guidance indicates the following:

• The Act applies only when the employee’s terms of employment or the employer’s established practice includes a provision for paid vacations.  In other words, the requirement to pay accrued vacation upon cessation of employment applies only if the employer has a policy or established practice allowing employees to accrue vacation.  The Act does not obligate employers to permit employees to accrue vacation.
• The Act does not require employers to pay for any kind of leave other than vacation.  Employers may establish separate paid time off policies for, among other things, vacation, sick leave, and earned paid leave.  Note, however, that Maine has a separate Earned Paid Leave policy.
• The Act counts only employees who work in Maine.  Therefore, if an employer has five employees in Maine and seven in Vermont, the employer is considered as having ten or fewer employees.
• The Act applies whether the employee resigned voluntarily or was terminated.  The determining factor is whether the employer has a policy providing for accrued vacation.

Employers should review their paid time off policies to ensure compliance with the Act.  If an employer’s policies do not distinguish between different kinds of paid time off, employers should consider creating distinct leave and vacation policies to avoid over or underpaying their employees.  Employers should be aware that an action for unpaid wages can prove very costly if the employer fails to pay accrued unused vacation pay to a departed employee.  Pursuant to the Act, an employer could be liable for (1) the amount of unpaid wages; (2) all accrued vacation pay; (3) interest; (4) liquidated damages in an additional amount equal to twice the amount of the unpaid wages and accrued vacation pay; and (5) costs of suit, including reasonable attorney’s fees.

The author of this article, Rachael Luken Carp, is a member of the Bars of Pennsylvania, New Jersey, and New York.  This article is designed to provide one perspective regarding recent legal developments, and is not intended to serve as legal advice in Pennsylvania, New Jersey, New York, Maine, or any other jurisdiction, nor does it establish an attorney-client relationship with any reader of the article where one does not exist.  Always consult an attorney with specific legal issues.