Why your unlimited vacation policy may be of limited use in Europe

Written on 28 Apr 2016

It is no longer unusual to see US companies using unlimited vacation policies. What was perceived as a public relations coup when first announced by the likes of Netflix and Virgin Atlantic is now becoming commonplace across companies of all sectors and sizes, and in Silicon Valley the practice increasingly seems to be the norm.

The principal advantages of unlimited vacation policies are often quoted as:

  • no tracking of vacation days, therefore less administrative efforts
  • no liability to pay out unused vacation days at the end of employment
  • autonomy for employees to schedule their vacation

But does an unlimited vacation policy have the same advantages in Europe? Unfortunately not. In fact, the advantages that are seen in the US do not necessarily translate to a European workforce.

Tracking

US employers value the fact that if an unlimited vacation policy is used, there is no need to track the vacation days actually taken by their employees. Whether or not employees make use of their entitlements is their own responsibility. Sounds great, right? Unfortunately, in Europe the position is not as straightforward.

European law requires employers to grant their employees a minimum of 4 weeks’ vacation per year (and some countries even have higher minimum entitlements than this). This entitlement is mandatory and supersedes any wording to the contrary in the employment contract or any other agreements. No matter how much employees can theoretically take, the minimum amount must always be granted. Consequently, to be able to prove compliance, employers must keep track of days actually taken even if their employees can take as much time off as they want. The statutory minimum entitlement still makes it necessary to count and the administrative advantage is gone.

Liability

With an unlimited vacation policy, employers in the US can also eliminate liability for paying out unused vacation at the end of employment. Again, this would not work in Europe; any statutory minimum entitlements that have not been used by the employees at the end of employment still need to be paid out (although depending on the country and unlike in the US, that may be limited to entitlement for the current holiday year rather than multiple years). This will not only again make tracking necessary, but also removes the advantage of not having to pay out remaining days.

Autonomy and culture

Another – less legal, more cultural – issue is that employees are more likely to make full use of their rights. In other words, unlike the US where employees tend to take the same amount or even less time off under an unlimited vacation policy, your European employees may actually take significantly more. Because employees have more extensive protection in Europe compared to the US, particularly around termination and the reasons why an employer can fairly terminate, the deterrents that lead to US employees not taking a significant amount of leave, are unlikely to apply in the same way in Europe. A court is likely to have limited sympathy for an employer who has a policy of unlimited vacation, but disciplines or terminates employees for taking advantage of that policy.

Another unforeseen scenario that may arise in Europe if an unlimited vacation policy is introduced is that employees could try and use vacation time for a period of sickness. In many European countries, employers must continue salary payments for sick employees for a limited period of time when they are off work sick. After this time has elapsed (e.g. six weeks of sick leave in Germany) the employer’s responsibility to pay the employee salary ends and the employee only receives statutory sick pay, which will typically be much lower than the employee’s salary. An employee on long-term sick leave may come back to work for a short period and then say they want to take vacation under the unlimited vacation policy even the absence is because of sickness, which will mean the employer will be back to paying them their usual salary. To be clear, this is obviously a worst case scenario and most employees will be reasonable in the way they make use of an unlimited vacation policy. However, in a deteriorating employment relationship (and certainly once an employee has decided to leave at some point), employees may seek to take advantage of the situation.

Conclusion

The advantages of using an unlimited vacation policy in the US are not mirrored in Europe and ultimately are unlikely to be of any significant benefit in Europe. Whilst some of the scenarios laid out above can be anticipated and dealt with in a very detailed policy. But this seems somewhat contrary to the idea of an unlimited vacation policy being less administratively burdensome, less bureaucratic and giving the employee more personal autonomy.

An alternative to an unlimited vacation policy (other than being generous with the number of guaranteed holidays) would be adding a term in the employment contract enabling the company to grant additional vacation days at its sole discretion on a case-by-case basis. While some caution would still need to be taken, particularly around ensuring consistency with how additional vacation is given to avoid the risk of discrimination on the grounds of a protected characteristic, this approach is likely to face less legal and cultural challenges than an unlimited vacation policy.