Get Your Vacation Policy Right, and Then Relax!


Enjoying vacation time this summer? We all need a vacation at some point, and thankfully many employers provide for paid vacation leave. But as with many wage and hour issues, employers get themselves into legal trouble by improperly handling paid vacation. Here’s an overview of pitfalls and a checklist for employers to get their vacation policy right.

Let’s start with the bottom line: California employees have no right to take paid vacation unless the employer has agreed to provide it.

But many employers do provide vacation benefits, arising from an employment contract, a collective bargaining agreement, or the employer’s policy or practice. And if they decide to provide the benefit, they must comply with the law.

Here are a few areas where employers get into trouble with regard to vacation leave:

  • Employee can’t lose it by not using it. A “use it or lose it” policy, under which an individual who doesn’t use all of his or her accrued vacation pay by a particular time forfeits the right to be paid for those days at a later date, isn’t lawful in California. DLSE Manual §§15.1.1, 15.1.4. The California Supreme Court put it this way: vacation pay is earned on a daily basis as an employee works, and any vacation earned cannot be taken away. Suastez v Plastic Dress-Up Co. (1982) 31 C3d 774.
  • Vacation pay keeps growing unless it’s capped. Unused vacation pay continues to accumulate unless the vacation policy contains a “cap” on accruals. Although caps on total vacation pay are ok, policies that require all vacation to be taken in the year it’s earned (or in a very limited period following the accrued period) have been found to be unfair and won’t be enforced by the DLSE. DLSE Manual §
  • Terminated employees leave with their vacation pay. Unless otherwise provided by a collective bargaining agreement, an employee who’s terminated without having taken all accrued vacation time must be paid for the vacation time as wages at his or her final rate of pay. Lab C §227.3.

The key for employers is to draft their vacation policy clearly and fully in compliance with existing law. Here’s a checklist with the essential steps and factors to use in framing an employer’s paid-vacation policy:

__ Describe any eligibility requirements, including the waiting period, i.e., the length of time, if any, the employee must wait before paid vacation begins to accrue;

__ Formulate the rate at which paid vacation time accrues;

__ Describe any differences in accrual rates on account of years of service;

__ Indicate any limit on how much paid vacation time may be accrued;

__ State whether it’s permitted to take pay in lieu of vacation;

__ State whether vacation time must be approved in advance, and, if so, how much advance notice is required;

__ Indicate any restrictions on when vacation time can be used and how scheduling conflicts will be handled;

__ State whether vacation time must be taken in specified increments (e.g., 4 hours or 1 day at a time);

__ Set out any conditions under which vacation time may be taken in advance of its actual accrual;

__ If vacation time won’t continue to accrue during unpaid leaves of absence, make this clear;

__ State whether an employee who becomes ill during vacation leave can treat the period of illness as sick leave instead of vacation;

__ State whether a holiday that falls during a vacation period will be treated as a vacation day;

__ Describe the procedure for payment of accrued vacation on termination of employment; and

__ Explain the circumstances in which vacation may be substituted for unpaid leave under the California Family Rights Act (Govt C §12945.2), the federal Family and Medical Leave Act (29 USC §§2601–2654), and the California Pregnancy Disability Leave Law (Govt C §12945).

Details on vacation (and other types of leave) policies are in CEB’s Advising California Employers and Employees, chapter 6. Get a sample vacation leave policy in CEB’s Drafting Employment Documents for California Employers §9.13.

© The Regents of the University of California, 2014. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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