One factor that may discourage many companies from offering a buy-back policy of vacation leaves is The Fair Labor Standards Act requirement that employers count such payments toward total compensation when calculating overtime pay. This stipulation, however, need not impact exempt employees vacation time buy-back.
The employer can change policies midway. In the Glenville Gage Company, Inc. v. Industrial Board of Appeals of the State of New York, Department of Labor, 70 AD2d 283 (3d Dept 1979) affd, 52 NY2d 777 (1980), the court decreed that an employer can make changes to an agreement detailing vacation benefits and nullify the employees accrued benefits under certain conditions, provided the employer notify the employees in writing of the conditions that nullify the benefit.
The law also stipulates that absence of any written forfeit policy mandates the employer to pay the employee for the accrued vacation not availed. This means that unless the company’s leave policy or the employment contract between the employer and employee mentions that vacation leaves lapses and is forfeited and if not availed during the stipulated time, the employee is entitled to sell back the vacation leave to the company, if they do not avail of the vacation.
Some state laws also do not allow employers to install a “use-it-or-lose-it" policy and mandate employers to reimburse the employee for vacation time not availed, if the company policy offers vacation time.
In a class action suit against Target by 270,000 California employees, the court ruled that vacation benefits offered by the company are vested benefits and must be paid, forcing the company to shell out $10 million.