Vacation payout on cessation of employment

STATE OF MAINE
DEPARTMENT OF LABOR
BUREAU OF LABOR STANDARDS
45 STATE HOUSE STATION
AUGUSTA, MAINE 04333-0045

JANET T. MILLS, GOVERNOR
LAURA A. FORTMAN, COMMISSIONER
MICHAEL ROLAND, DIRECTOR

Bureau of Labor Standards, Wage and Hour Division
Interpretive Guidance Policy 22-01

Issued on: September 20, 2022

Subject: 26 M.R.S. 626 – Cessation of Employment

Purpose: This interpretive guidance addresses legislative changes to section 626 and its
interaction with other parts of Chapter 7, including earned paid leave. This document is
intended to guide MDOL staff, employees and employers in understanding the Wage and
Hour Division's ("WHD") interpretation of the relevant statutes and rules for the purposes of
statutory enforcement.

Background: Section 626, Cessation of Employment, was amended by P.L. 2022 Ch. 561, to
address the circumstances in which vacation must be paid out on cessation of employment.
This has raised a number of interpretive questions, including about the interaction with
section 637, Earned Paid Leave and its related rules, 12-170 ch. 18.

Policy: At the outset, WHD notes what has not changed about section 626. First, this section
applies only when "the terms of employment or the employer's established practice includes
provision for paid vacations[.]" The amended language applies only to private employers of
11 or more employees. Public employer is defined in the statute. However, in determining the
application of the statute to private employers, WHD counts only employees who work in
Maine. For example, if an employer has six workers in Maine and six workers in New
Hampshire, WHD would consider this employer as having 10 or fewer employees for the
purposes of section 626.

Second, section 626 does not obligate employers to allow employees to accrue vacation.
What has changed is that if a covered employer's policy or established practice does allow
employees to accrue vacation, each employee must be paid for all unused, accrued vacation
at the time of separation. The statute obligates covered employers to pay employees
"vacation accrued pursuant to the employer's vacation policy on and after January 1, 2023."
In investigating complaints, WHD will look to the employer's vacation policy to determine
whether vacation is accrued and how. In the absence of a written policy, WHD will look to the
employer's established practice. However, WHD strongly encourages employers to adopt a
written vacation policy. Any vacation accrued prior to January 1, 2023 is not covered by the
amended statutory language – however, if prior to that date, it was the employer's established
practice or policy to pay accrued vacation on cessation of employment, the employer is still
obligated to do so.

The statute does not obligate employers to pay for any leave time other than vacation.
Pursuant to the Earned Paid Leave rules, 12-170 ch. 18, section III(E), "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."
Employers may have separate vacation and earned paid leave policies. If an employer has no
earned paid leave policy but has a policy or practice of paying out vacation, WHD will
consider the employer's policy or practice to cover earned paid leave as well.

PHONE: (207) 623-7900 (Voice)
FAX: (207) 623-7938
TTY USERS CALL MAINE RELAY 711
OFFICES LOCATED AT: CENTRAL MAINE COMMERCE CENTER, 45 COMMERCE DR., AUGUSTA, ME 04330