The news media reports on more and more companies moving to offer unlimited vacation. On its face, this policy change appears to be a generous offer by an employer to boost employee morale and attract top talent, but there may be other factors at play. Practical Law reached out to Keith Watts and Michael Olsen of Ogletree, Deakins, Nash, Smoak & Stewart, P.C. for their thoughts on this recent corporate trend.

Keith Watts is a managing and a founding shareholder of Ogletree's Orange County, California office. Keith practices exclusively labor and employment law and regularly advises employers on methods to avoid employment-related claims. He represents employers in agency proceedings before the National Labor Relations Board (NLRB), the Equal Employment Opportunity Commission (EEOC) and other federal and state agencies.

Michael Olsen is an associate in Ogletree's Orange County office. Michael represents and counsels employers in a wide range of labor and employment matters, including federal and California discrimination cases, wrongful termination, trade secrets, and wage and hour issues.

An unlimited vacation policy is still the exception rather than the norm in corporate America, but there is a trend in the last few years to adopt more flexible paid time off policies for some categories of employees, such as certain exempt or white collar employees.

The law surrounding vacation time may discourage its use. California law, for instance, defines vacation days as a form of wage earned by the employee. As a result, many employees simply accrue their vacation days, which must be paid out as wages regardless of whether the employee ever takes time off from work. An unlimited vacation policy would encourage employees to use their vacation time, rather than bank that time and be paid for vacation, regardless of whether they ever took time off.

Employers are able to offer flexibility to their employees and attract highly qualified candidates who may require the flexibility of an unlimited vacation policy. Employers may also benefit from an unlimited vacation policy because employees will be encouraged to use vacation time, instead of simply accruing time off, with resultant increases in productivity. Employees who are encouraged to take time off – instead of simply accruing vacation time – may be more rested, relaxed, re-energized and, therefore, more productive. Additionally, a policy that allows for unlimited time off may also encourage more efficient use of work time.

Some of the disadvantages include the fact that employees will have less guidance regarding how much time off is permissible. Moreover, such a policy will not work for every type of worker. For instance, workers whose jobs require on-site presence, such as customer service positions, would not be able to take “unlimited vacation” and still perform the functions of their jobs.

Certain companies or industries may find such a policy beneficial for certain categories of workers. However, such a policy will not be standard in every industry, and some job types will not be amenable to such a policy, because of the nature of the job. In the end, the growth of such a policy will depend on a demonstrated benefit for both employers and employees, such as increases in employee productivity and increased work/life balance for employees.