Zenefits has offered ex-employees cash for promise not to sue over unpaid vacation time

High-flying startup Zenefits has been the subject of a lot of troublesome news lately: missed sales projections, a big write-off on its $4.5 billion valuation by an investor, accusations that some of its salespeople were selling insurance without a license (an accusation it denies), and complaints by former employees that the company didn't pay them for unused vacation time when they left, according to the Wall Street Journal.

Zenefits CEO Parker Conrad, tells Business Insider that despite these reports, his company is doing great, hiring like crazy, and is happy with its revenue growth.

Zenefits denies that it owes former employees for unused paid time off (PTO) because it has an unlimited vacation policy. That means employees don't accrue days at all.

"Unlimited" time off is a common way to handle vacation tracking at startups, meaning it's not metered out - employees just schedule time off as they want it. Employees don't tend to take any more vacation than if the days are accrued the old-fashioned way, but in theory it creates less paperwork and headaches.

Zenefits is perhaps disproving that theory, because Zenefits has decided to offer some former employees a one-time cash payout anyway, in exchange for the employees agreeing not to sue over the matter, Pando Daily's Paul Carr reports.

"There was an error in the employee handbook, but in practice, it was understood that PTO was unlimited. Since there was an error, Zenefits is taking this extra step to resolve this issue," Zenefits spokesperson Kenneth Baer told Business Insider.

The published email, apparently sent to a former employee, explains it to employees this way:

We've been getting a few questions about whether we should have paid certain early employees vacation or PTO when they left Zenefits. As you know, we've always had an unlimited flexible time off policy. Parker has reiterated this whenever it has come up and it has been consistently reflected in the YourPeople, Inc. PTO card in Zenefits. We don't believe vacation or PTO has ever accrued, or was required to be paid out under our policy. Nevertheless, in order to resolve any issues related to our PTO policy or other wage matters, we're making a one-time offer....The agreement waives and releases any potential claims that you may have about wages including vacation or PTO between you and the Company.

Since unlimited vacation is common at Valley startups, it will be interesting to see if Zenefits' actions have a ripple effect at other startups. Will employees at other startups insist that they are owed for unused vacation days, too?