The Four Questions to Ask Before Switching to PTO

Hagan, a partner in the Dallas office of law firm Sarles & Ouimet, LLP, made his suggestions at a recent BLR webinar. Here are his four questions:

Question 1: Will an Anticipated Change Affect Existing, Accrued Leave?

If you anticipate making a change that might affect existing accrued vacation, you will have to determine if the effect will reduce any person’s leave bank. If the answer to that question is yes, then you need to consult with your attorney to be sure that you are not breaking state law, Hagan says. 

Is Your Leave Plan Subject to a CBA?

If your employees are subject to a Collective Bargaining Agreement, then compliance with the CBA will be necessary to avoid labor claims or breach of contract liability.

How Solid is Your Handbook?

Examine your employee handbook carefully and ask yourself these two questions, says Hagan.

One, Is the handbook open to interpretation as a contract? Employers generally want to avoid this, because we always want to keep our employees at will unless they are contract employees or independent contractors.

However, if you think your handbook might be viewed as a contract, then you may have to abide by its provisions.

Two, has the company reserved the right to unilaterally change policies?  If your handbook does not meet the best practices of avoiding contractual entanglement by including a clause reserving your sole right to interpret and modify its policies, you need to get with your HR attorney. With his or her help, you can update your handbook to reduce the potential for liability stemming from any benefit changes you might make. 

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Is Your Leave Plan ERISA Qualified?

There are a few employers out there that have attempted to construct vacation plans that are exempt from state laws, says Hagan. They try to get their vacation plans to fall under the federal Employee Retirement Income Security (ERISA) law, which by its nature trumps all state laws on vacation and all state laws in general.

ERISA provides that the term “employee welfare benefit plan” applies to any plan, fund, or program established or maintained by an employer for the purpose of providing benefits in the events of sickness, accident, disability, death, or vacation benefits.

Of course, if that were universally true, every employer in the United States offering vacation would have to fill out form 5500 for ERISA compliance.
However, generally, regulations specifically categorize the employer practice of paying sick leave or vacation benefits out of its general assets as a payroll practice and not a welfare plan under ERISA.

So, although it is possible to construct leave plans such as a vacation plan that would be governed by ERISA, and thus preemptive of state law, this is a very, very tricky area and you will want to consol with an ERISA lawyer and make sure that you set this up correctly. 

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