'Unlimited vacation' policy could trigger payout when employment ends

In a landmark case, a California appellate court has held that it's possible for vacation time to vest despite an employer's efforts to establish an "unlimited" paid time off (PTO) policy. The impact of the case is significant because California employers must pay unused vacation time when someone's employment ends and a failure to pay can lead to severe costs and penalties. However, the court made it very clear that it's possible to set up an unlimited paid vacation policy to avoid that consequence as long as you properly communicate the policy and the vacation time is truly "unlimited."

Employer didn't tell managers about 'unlimited' paid vacation policy

EF Intercultural Foundation, Inc., a nonprofit that runs student exchange programs, had written and unwritten PTO policies. (In this article, we use "PTO" and "vacation" interchangeably.) The employee handbook provided for a fixed amount of vacation days for salaried employees based on their length of service and allowed them to carry over 10 days of unused vacation days from year to year. However, the vacation policy in the employee handbook didn't apply to "area managers." Instead, the PTO policy for area managers was unwritten and was conveyed "quite informally."