Many employers in California offer employees paid vacation time, but it's because of the California labor market, not California labor law. There is no law in California mandating vacation pay; however, if an employee offers it, the law regulates those benefits. The part of the Labor Code discussing vacation benefits is sometimes called California vacation law.
California Vacation Law
Many professional employees and those with degrees or training are sought after in the tight California labor market and can receive multiple job offers. This means that an employer must offer not just a competitive salary to attract top people, but also an excellent package of benefits that is sure to include paid time off, which incorporates vacation time.
Less well-educated employees, including most minimum-wage employees, often do not get offered vacation time. And California law does not require employers to offer any vacation time, paid or unpaid, to any employee. However, an employer that does provide paid vacation time to employees is subject to legal restrictions on how that obligation must be fulfilled.
Accruing Vacation Time
In California, paid vacation benefits are generally earned over time as the employee works. The accruing of paid time off for vacations is negotiated between an employer and an employee and can be set up in any of a variety of ways. The plan may provide for an employee to earn vacation time benefits by the day, by the week, by the month or by some other period of time.
For example, the vacation policy of a particular employer may provide that a proportionate share of the employee's vacation time accrues weekly and that she earns vacation time for each week worked. If that employee's contract provides for 10 work days (80 work hours) of annual vacation and she works 40 hours a week, for each week she works, she earns 1.538 hours of paid vacation. It is calculated like this: 80 hours of vacation days per year divided by 52 weeks = 1.538 hours of vacation earned per week.
Earned Vacation Time in California
Since employers require that the employee earn vacation days by putting in a specified amount of work time, earned vacation time is treated the same as earned wages under California law. The employee has a vested right to it.
This protects the employee if she is terminated or quits the job after she has earned some vacation benefits but before she has a chance to use them. What happens to the vacation time? Under California law, the employer cannot rescind the vacation benefits an employee has earned in any circumstances, even if the employee is fired for wrongful conduct. Accrued vacation time that is not yet taken is considered wages belonging to the employee.
Read More: California Law: Paid Time Off
Vacation Time Paid Out on Termination
If an employee earns vacation time in California, it is as much his property as are earned but unpaid wages. If he is terminated, he is entitled to any unpaid wages in his final check. Under the terms of California vacation law, that check will also include the monetary value of vested but unused vacation time. The employer can preclude the employee from taking an actual vacation after he is terminated but it cannot avoid paying out the value of that time.
In fact, the employer can require the employee to cash out any unused vacation time at the end of every calendar year. The employer has the authority to manage how it handles vacation pay in these circumstances, including by paying off employees each year for earned but untaken vacations.
How is vacation time pay calculated? For example, what if the employee's wage amount increased between the time the vacation time was accrued and the time he is terminated? In California, the rule is that the employer must pay all earned and unused vacation time of a terminated employee at his final rate of pay.
Use It or Lose It Policy
A "use it or lose it" strategy is sometimes used by employers to require an employee to take his vacation during the year it accrues. If the employee does not do that, he forfeits the vacation time.
However, given the fact that California law treats accrued but unused vacation time as vested, it doesn't allow an employer to enforce the "use it or lose it" approach. The Labor Commissioner has ruled that any policy forcing an employee to use vacation time in the calendar year it accrues to be unfair and unenforceable.
Capping Vacation Pay
On the other hand, a vacation policy that places a cap or ceiling on how much vacation pay can accrue is generally acceptable in California. It does not require a forfeiture of accrued vacation pay, it only limits the amount of vacation that can accrue and be stored.
Once the limit is reached, the employee cannot accrue any more vacation time until the "balance" in his account falls below the ceiling. The ceiling and the time period involved for taking vacation must be reasonable to be approved by the Labor Commissioner.
Waiting Period for Vacation Benefits
Some California employers offer vacation benefits but impose a waiting period. What might that look like? An employment contract might provide that the employee gets a month of vacation time each year, but that this begins in the second year of employment.
Under California labor law, an employer is allowed to set a waiting period for vacation benefits (or provide that they do not begin until after a probationary period) unless the circumstance suggests that the waiting period is a subterfuge.
Valid vs. Invalid Waiting Periods
A waiting period is only valid if no vacation is earned or accrued during the time it is in effect. If circumstances suggest the waiting period is a subterfuge, it is invalid. For example, if an employee is to get zero vacation days in year one, two months in year two and then one month per year in subsequent years, clearly the "waiting period" was a subterfuge.
What type of vacation time schedule would evidence a valid waiting period? If an employee got zero days vacation pay in year one, three weeks in year two and four weeks in subsequent years, it would appear that no vacation time accrued in year one. The California Labor Board could presume that the waiting period was valid.
Enforcement of California Vacation Law
If an employer does not follow California vacation law, the employee can file a wage claim with the Division of Labor Standards Enforcement (DLSE), a part of the California Labor Commissioner's Office. Her other option is to file a court action against her employer to recover the value of the benefits she lost.
If the employee files a labor claim, the DLSE follows a specific procedure whereby the claim is assigned to a Deputy Labor Commissioner who decides if the claim might have merit. If so, it is referred to a conference to determine the validity of the claim and to discover whether resolution is possible without a hearing.
If not, the claim is referred to a hearing. The procedure is similar to court with the parties and witnesses testifying under penalty of perjury in a recorded proceeding. The Labor Commissioner presides at the hearing and issues a decision, known an Order, Decision or Award. It can be appealed for a trial de novo, with the appeals court judge hearing evidence and witnesses.
Teo Spengler earned a J.D. from U.C. Berkeley's Boalt Hall. As an Assistant Attorney General in Juneau, she practiced before the Alaska Supreme Court and the U.S. Supreme Court before opening a plaintiff's personal injury practice in San Francisco. She holds both an M.A. and an M.F.A in creative writing and enjoys writing legal blogs and articles. Her work has appeared in numerous online publications including USA Today, Legal Zoom, eHow Business, Livestrong, SF Gate, Go Banking Rates, Arizona Central, Houston Chronicle, Navy Federal Credit Union, Pearson, Quicken.com, TurboTax.com, and numerous attorney websites. Spengler splits her time between the French Basque Country and Northern California.