It depends upon the state. Some states, CA and IL for example, treat vacation as earned and owed, yet unpaid compensation. Because of this, it represents a liability, so it's got to be shown as such on the books. Which is also another reason why you see CA companies adopting "open vacation" policies, it takes that vacation liability off the balance sheet.
Other states view vacation as just an agreement between you and your employer. You basically agree that there are so many days you don't have to show up to work and they'll still pay you. That's it.
In the past I worked remote for an Atlanta-based company, and their employee handbook stated that they will pay out vacation up to a maximum of 40 hours. Anything in excess of 40 hours you had in the bank, you forfeited. I lived in a St Louis suburb in Illinois at the time, and as an Illinois-based employee they paid me my full vacation bucket when I quit.
Similarly, a friend of mine worked remote for the same company, but lived just across the river in Missouri. When she left, she got her vacation capped. MO and GA are among the states that do not view vacation as earned compensation.
Not only is vacation time treated as earned and owed in Illinois, the offers of the company can be held personally liable for the funds in the event the company goes out of business and does not pay this out. This applies even if the company is in federal receivership. I know this from first hand experience having worked with the Illinois Labor Board to resolve a matter.
In CA, this is definitely not the case. A company must cut you a check on your final day that includes everything owed to you, including unused vacation days.
Or they can cut you a check that doesn't include everything owed to you, but ask you to sign a long agreement, buried within which is an assertion that the company has paid everything it owes you.
Since you need this check, you wouldn't get your vacation days.
Anyway, while I agree with the red flag concern, I don't necessarily agree that companies have unlimited vacation in order to cause you to take less. Esp in the startup world, esp at early stage, I don't expect to see this sort of intentional subterfuge - esp because of how it could backfire. I do think a minimum vacation policy makes more sense and allows, esp in places like CA where vacation is earned wage, and unused vacation is paid out at the end of the year, to manage the way vacation is counted.
I also think a company with mandatory vacation should consider allowing people to take at least some vacation in the form of a bonus. Maybe they have a spouse who doesn't have as flexible of a schedule or just really enjoy their work. I don't think this should be an option for founders, however, and I think it should accompany a discussion, because it doesn't work for most people.
> Or they can cut you a check that doesn't include everything owed to you, but ask you to sign a long agreement, buried within which is an assertion that the company has paid everything it owes you.
You can write any old thing you like and get someone to sign it.
That doesn't necessarily mean it's enforceable.
Writing unenforceable clauses into fine print -- that you know are unenforceable -- is a legal bluff older than keeping records on clay tablets.
Nope. I was at a stodgy defense contractor in CT and they paid out vacation when I left. It's pretty standard at established companies. Small companies might skirt it, but it's definitely the right way to do things. In contrast I left a VC funded tech startup with "unlimited vacation" and we never even talked about paying for unused vacation.
