Amended Maine Law Will Require Vacation Payout When Employment Ends

Maine’s governor recently signed H.P. 160 - L.D. 225, amending the state’s final wages statute to require that “[a]ll unused paid vacation accrued pursuant to the employer's vacation policy on and after January 1, 2023 must be paid to the employee on cessation of employment.” The amendment provides that private employers with 11 or more employees must pay all unused vacation to a separated employee at the cessation of employment regardless of the employer’s policy; payment must made in full no later than the employee’s next established payday. The changes take effect July 19, 2022.

The payout requirement will not apply to public employers. Additionally, if a collective bargaining agreement governs an employee’s employment and addresses vacation payout when employment ends, the CBA, not the statute, will determine vacation payout requirements. These new provisions also apply when a company sells its business under a separate part of the statute, treating a sale of a business the same as any other “cessation of employment.”

With these amendments, Maine joins a small group of states that limit an employer’s ability not to pay out vacation when employment ends, and an even more exclusive list of states whose prohibition against vacation forfeiture comes via a statute or regulation rather than a court decision (including, but not limited to, California, Illinois, and Rhode Island). Additionally, by virtue of these amendments, Maine likely will become the first jurisdiction in the United States with a generally applicable mandatory job-protected paid leave law to require a payout when employment ends.

Maine’s mandatory Earned Paid Leave law (EPL) does not address the end-of-employment payout issue, but the regulations implementing EPL include language that is nearly identical to that in the final wages statute:

Final Wages Statute (26 MRS §626)

EPL Rules

Whenever the terms of employment or the employer's established practice includes provisions for paid vacations, vacation pay on cessation of employment has the same status as wages earned.

Whenever the terms of employment or the employer’s established practice includes provisions to pay the balance of unused earned paid leave at the time of separation, earned paid leave on cessation of employment has the same status as wages earned in accordance with 26 MRS §626.

Currently, according to the EPL FAQs, how the Maine Department of Labor applies its rule aligns with pre-amendment standards in the final wages statute:

If you currently have a vacation policy that states the unused balance of vacation time will be paid at the time of separation (and you don’t have a separate Earned Paid Leave policy) then you will be required to pay the unused vacation and Earned Paid Leave balances.

If you have a vacation policy that states the unused vacation balance is not paid at the time of separation, then the Earned Paid Leave balance will not need to be paid.

Thus, although the current DOL regulations say that EPL is lost at separation unless the employer has a policy stating otherwise, it appears the new amendment to the final wages statute might render such policies inapplicable. The Maine DOL should hopefully provide guidance on the relationship between the amended final wages statute and the EPL law.

The amended law also treats actions for unpaid accrued vacation the same as actions for any other unpaid wages. This means that a judgment in favor of an employee must include the unpaid vacation, interest, an additional amount equal to twice the amount of the unpaid vacation as liquidated damages, costs, and attorney’s fees.

With these amendments to the final wages statute, employers with Maine operations should monitor the ME DOL site for updates to its EPL rules and FAQs. Additionally, they should consider reviewing, and possibly revising, their vacation and/or EPL policies now to bring them in line with Maine’s amended final wages statute.

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.