We’ve been hearing about unlimited paid time off  (PTO) for some time, but it is not yet a common trend in Canada. However, from time to time in our employment law practice, we encounter employers who offer unlimited or unstructured time off to their employees.

At first glance,  unlimited PTO may sound wonderful and generous, and employers may offer it to foster a positive workplace culture and promote work-life balance. However,  without addressing potential issues via contracts and policies, offering unlimited and unstructured time off could cause more headaches than benefits for both the employers and the employees. 

The Potential Downsides to Unlimited PTO

First, research has shown that employees with unlimited PTO tend to take less time off than they otherwise would under a more structured policy. Expectations may be unclear around what amount of time off is appropriate, and some employees may experience reprisals if they take more time than an employer would like – for example, an employer may begin to think the employee isn’t busy enough, or that the role isn’t as crucial the company as it thought.

Second, having unlimited PTO creates complications when an employee resigns or is terminated. Under the Ontario Employment Standards Act, an employee is entitled to all earned but unpaid vacation pay when employment ends. In some cases, this could include vacation pay earned during a previous vacation entitlement year. As an employer offering unlimited PTO, it can become challenging to determine what would be owed to an exiting employee.  What was supposed to be an employee perk, could lead to an administrative nightmare,  unnecessary debates between employers and employees, and potential Employment Standards claims or litigation. 

Things to Consider if Implementing an Unlimited PTO

That being said, a clear policy which all employees understand from the minute they sign their employment contract, can work well in some workplaces. As stated above, it is vital to explicitly articulate what happens to “unused vacation time” when an employee exits. It is also important to have a robust system to book time off so that there aren’t too many employees off at the same time or during the busier times of the year. Remember, as an employer you don’t have to approve all vacation requests and you can determine when your employees take their time off. Open communication between team members and their managers about the rules and expectations for things such as the amount of advance employee notice or the maximum consecutive vacation time can help avoid employers, colleagues or projects being left in the lurch.

Final Thoughts 

Unlimited PTO is a noble goal to foster and encourage a healthy and happy workplace and, depending on the culture, can help with employee retention and job satisfaction. Employers wanting to offer unlimited PTO should strongly consider consulting with an employment lawyer to ensure that their policies and employment contracts reflect the intention of unlimited PTO, and address what employees are entitled to should their employment end. 

If you are interested in learning more about unlimited PTO and how to protect yourself, please contact us!