If promised, it must be granted. Although
no California law requires private sector employers to provide employees with
vacations, whether paid or unpaid, most employers do offer their employees
some version of vacation. It is important for employers to keep in mind, that
in California, if employers "promise" vacation, they may be legally bound
to provide it--and a binding promise does not require embodiment in a formal
employment contract. California case law says that an employer's assurance
of paid vacation time, whether made in an employee handbook, or given orally,
or simply a matter of consistent practice, under most circumstances, constitutes
a binding and enforceable implied contract.
In addition, California employers have the right to decide when
employees may take their vacations and the length of time employees are allowed
to be away on vacation.
Employers may allow employees the option of receiving cash instead
of using their vacation days. The employer can establish certain times during
the year when an employee can receive the cash instead of using their accrued
vacation time, or can allow employees to cash in at any time during the year.
Employers may allow employees to take vacation time before it
is accrued, but do not have to allow this.
A California court of appeal has
held that an employer in California need not provide paid vacation to its
employees; need not provide paid vacation to new employees for a certain period
of their initial employment; and may maintain a policy that employees will
cease to accrue vacation time in excess of any earned but unused amount in
their vacation bank (Owen v. Macy's, Inc., No. B207719 (CA Ct. App. 2d, Div.
2, 7/1/2009)).
When Vacation Pay Is Due at Termination The state Supreme Court has ruled that vacation pay is, in effect,
additional wages for services performed, a form of deferred compensation.
When an employee is terminated without having taken his vested vacation time,
compensation for the vested, unused vacation must be paid as wages at the
employee's final rate. California does not allow a "use it or lose it" vacation
policy; no employment contract or agreement may allow for the forfeiture of
accrued, or "vested" vacation time. There is an exception for employees under
a collective bargaining agreement; the "use it or lose it" policy may apply
if it is part of the agreement.
Accrual Method Employers are free to devise their own system for vacation accrual.
There are several different commonly used options:
| | • Upon completion of a 6-month or 12-month period |
It is important for employers to be clear and unambiguous when
drafting their vacation policies. If the policy is intended to ensure that
employees work the entire accrual period to earn their vacation days, it should
state clearly that employees will not be entitled to pro rata payment if they
leave partway through the period. Remember that any vagueness in the policy
is likely to be construed against the employer.
Such a system may limit only the period of vacation that may
be accrued--not whether it must be compensated after it is vested.
Cap on accrual. Employers may reasonably
limit the accrual of vacation beyond a certain limit--for example, at 11/2 or
2 times the annual accrual. Once a level of vacation beyond the employer's
cap accrues, the employee may accrue no more days until one or more are taken.
Then the employee begins to accrue vacation time again.
Vacation pay vests as it is earned. Both
statutory and case law say that vacation pay vests as it is earned, so that
an employee who leaves the job must be paid pro rata for vested vacation no
matter what the employer's policy might say. For example, an employer's policy
might provide that an employee may take 2 weeks of vacation after 1 full year
of service--but an employee who leaves after 6 months is entitled to be paid
for 1 week, even though the person could not actually have used vacation time
until the year was up.
Four-year limit on payment. There is a
4-year limit on payment of accrued vacation at termination (because it is
based upon contract). In other words, an employee that is allowed to take
vacation as soon as it is accrued, may not ask for any more than 4 years retroactive
vacation pay at termination.
Paid time off. Employers may lump together
vacation, sick leave, personal days, etc. into an amalgam of time called "paid
time off" (PTO). However, employers should note that at termination the entire
PTO will be considered vacation, and all unused time must be compensated (CA Lab. Code, Sec. 227.3, DLSE Interpretive Bulletin No.
86-3, Sec. 6(a); Suastez v. Plastic Dress-Up Co., 31 Cal. 774 (1982); Boothby
v. Atlas Mechanical, Inc., 8 Cal.Rptr.2d 600 (1992); Sequiera v. Rincon-Vitova Insectaries, Inc., 32 Cal.
App.4th 632 (1995)).