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Illinois Department of Labor Clarifies Stance on Employers’ “Use It or Lose It” Vacation Policies

by Kevin J. Richter, Shareholder and Scott Johnston, Law Clerk at Mathis, Marifian & Richter, Ltd. & Student at Saint Louis University School of Law.

Revisions made in 2014 to Illinois employment rules and regulations caused some uncertainty with regards to vacation policies. Specifically, the position the Department of Labor took on “use it or lose it” policies resulted in confusion because a provision was added that prohibits the forfeiture of earned vacation by a written policy, while the provision authorizing “use it or lose it” policies remained in the regulation. In response to the confusion, the Department of Labor has released some “Frequently Asked Questions” (FAQs) that offer guidance and examples.

The simple and straightforward answer to the general question, “Does Section 300.520(h) of the regulations prohibit a ‘use it or lose it’ policy?” is “No.” Subsection (h), states, “[a]n employer cannot effectuate a forfeiture of earned vacation by a written employment policy or practice of the employer,” (56 Ill. Admin. Code § 300.520(h)) is clarified as meaning that an employer cannot make a mid-year change to a vacation policy that results in an employee losing vacation time accrued up to that point. The FAQs provides the following example:

Employer A has a use it or lose it policy that runs from January 1 to December 31 and the time is earned as the employee renders service to the employer at a rate of 10 days per year. On July 1, Employer A decides to change its vacation policy in its employee manual and eliminates the use it or lose it policy. The employee would be entitled to 5 days of vacation, which is what the employee earned from January 1 through June 30 (6/12 x 10 = 5 days).

The FAQs further explain that employers may still utilize a “use it or lose it” policy as long as the policy is in accordance with the standard vacation policy requirements (see 56 Ill. Admin. Code § 300.520(f)), the employee has a reasonable opportunity to take the vacation, and the employer can demonstrate that the employee had notice of the “use it or lose it” nature of the policy. Thus, “use it or lose it” vacation policies are still valid for employers to use, but a change in policy by the employer cannot be used as a “lose it” trigger to eliminate vacation time already accrued by an employee.

Professional Services Disclaimer: Please note that the information presented here is as an educational service, and while it contains information about legal issues, it is not legal advice. No warranty is made regarding the applicability of the information presented to a particular client situation, and the information set forth is not a substitute for original legal research, analysis and drafting for a particular client situation.

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