Legislative Update: Can Illinois Employers Still Have a “Use it or Lose it” Vacation Policy?

May 2016
By Anthony J. Caruso, Jr., Esq.

It is my belief that the answer is YES!

The Illinois Department of Labor, noting its well-established regulation under 56 Ill. Adm. 300.520(e) states:

“An employment contract or an employer’s policy may require an employee to take vacation by a certain date or lose the vacation, provided that the employee is given a reasonable opportunity to take the vacation. The employer must demonstrate that the employee had notice of the contract or policy provisions.”

To complicate things, effective August 22, 2014, the Illinois Department of Labor ADDED a new regulation on vacation policies. 56 Ill. Adm. 300.520(h) WITHOUT CHANGING, MODIFYING, OR REVISING THE EXISTING “USE IT OR LOSE IT” regulation as stated above. The new regulation 300.520(h) confusingly states as follows:

“An employer cannot effectuate a forfeiture of earned vacation by a written employment policy or practice of the employer.”

Based upon statutory interpretation, the Illinois Department of Labor should have deleted the “Use it or Lose it” authorizing regulation if it was no longer valid. Rather, the likely interpretation is that the new forfeiture regulation forbids OTHER types of forfeiture policies or practices by employers of earned vacation. For example, the following policies are prohibited under the new regulation 300.520(h):

• Employee’s failure to give two weeks’ notice prior to resigning results in employee forfeiting earned vacation.
• Employee forfeits earned vacation if terminated for performance or misconduct.

Therefore, the “Use it or Lose it” vacation policy is still likely valid; however, the IDOL has not issued a written legal advisory opinion. At some point, there may be a legal clarification by the courts. I would suggest that Illinois employers have a clear legal argument to continue to have a “Use it or Lose it” policy. The policy should clearly state that the employee will be given a reasonable opportunity to take the earned vacation before losing it. The policy should also indicate that it is in compliance with the Illinois Department of Labor Vacation Regulation under 56 Ill. Adm. 300.520(e).

Questions? Contact Anthony J. Caruso, Jr. of Wessels Sherman’s St. Charles office at (630) 377-1554 or via email at ancaruso@wesselssherman.com