iStock_000034281440_LargeEarlier this week, on Martin Luther King, Jr. Day, many employees got the day off from work. It is, after all, one of the ten annual federal holidays. California state employees get additional holidays: Lincoln Day (February 12), Cesar Chavez Day (March 31), Admission Day (September 9), and Good Friday afternoon. And California considers every

By Jonathan L. Brophy

Employees are often shocked to learn that employers are not required to provide paid vacations. But it’s true. Legal guarantees of paid leave abound in other advanced economies, but not in the United States, and not even in California. Indeed, the effect of California law is to discourage employers from voluntarily providing paid vacation, because California peculiarly mandates that if the employer offers paid vacation, then the vacation pay must be deemed to vest, with any unused portion being due when employment ends. So “use it or lose it” policies, for example, are not enforceable in California.

In response to this annoying California peculiarity, some employers have considered adopting “no vacation” policies, and “unlimited time off” policies for exempt employees. Below is a quick primer on such policies and some issues to consider before changing existing policies.
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Employers usually reserve the right to approve in advance when their employees can schedule requested vacation time.  But can an employer with a garden-variety vacation/PTO policy (i.e., non-union, non-ERISA) ever require employees to use accrued vacation or PTO for an otherwise unpaid absence from work? 

Consider the following commonly occurring scenarios: 

1.  Sally needs to take a leave of absence to care for her ailing father. 

2.  Mike needs to take a leave of absence to deal with his own disabling medical condition. 

3.  Pregnant employee, Marcia, just found out she is ordered to bed rest for the remainder of her pregnancy. 

4.  Frank announces his plan to retire.  Then his supervisor makes her own announcement: Frank must use his vacation now, before his resignation is effective. 

5.  When the company closes for the last week of the year, all employees must use their vacation or PTO time. 

Remember the Rules:

Contrary to what many employees believe, vacation or PTO is not an entitlement.  It is a matter of agreement between the employer and the employee.  So, the accrual and terms of use can generally be subject to whatever reasonable restrictions and requirements the employer’s policy provides.  The key to validity here is the reasonableness of the restrictions. 

Reasonable restrictions can be things like:

✓     Only full-time employees are eligible for vacation
✓    
No one is eligible to accrue vacation until completing 90 days of employment
✓    
Vacation can be taken in minimum increments of, say, 4 hours or 1 day 
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While vacation time is not limited to the summer months, this is the traditional time for employees to vacate the workplace and get a little R&R.  With visions of sun-drenched beaches, waterparks and road trips fresh in our minds, here is a reminder of the basic California rules on vacation, or paid time off.  The rules are complex, and are different in more significant ways than just about anywhere else in the country, so knock the water out of your ears and pay close attention. 

Q.  What’s the difference between vacation and PTO (paid time off)?

            In California, there is no difference.  Any paid time off that can be used at the employee’s discretion and is not tied to a particular event (like your birthday) is considered vacation.  This includes unrestricted “personal days” and “floating holidays.”  They’re all vacation. 

Q.  Can an employer implement a “use-it-or-lose-it” policy for vacations?

            No.  Unlike most everywhere else, California law does not permit employers to require forfeiture of vested vacation if employees do not take the vacation during a prescribed time period.  For example, it is not okay in California to have a policy that says “You get two (2) weeks of vacation a year, but if you don’t use it by December 31, it will be lost.”  Here in California, rather than being lost, the vacation balance rolls over in its entirety.  

Q.  But, can an employer cap the amount of vacation time an employee accrues?

            Yes.  In order to prevent vacation accruing ad infinitum, employers have two potential tools. 
                        One:  Have a vacation accrual cap in place.  That is, when an employee accrues a maximum amount of vacation (say 1.5 times the annual accrual rate), all accruals will stop until the employee uses some vacation and the vacation balance falls below the cap.  The employer’s policy on vacation accrual caps must be carefully drafted so that an employee has a reasonable time to use accrued vacation.  Simply capping at the annual rate of accrual is not a reasonable amount. 

                        Two:  Have a policy that mandates when vacation must be used (see next week’s post on this).

Q.  Does an employer have to pay out vacation when an employee terminates? 

            Yes.  In California, accrued vacation is treated the same as wages.  If an employee has accrued but unused vacation at the time employment ends, it must be paid out at the employee’s final rate of pay. 

Q.  Can an employer decide not to provide vacation pay to some employees, such as probationary, part-time or temporary employees?


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