Vacation Pay Law
“Unless otherwise provided by a collective-bargaining agreement, whenever a contract of employment or employer policy provides for paid vacations, and an employee is terminated without having taken off his vested vacation time, all vested vacation shall be paid to him as wages at his final rate in accordance with such contract of employment or employer policy respecting eligibility or time served."STATUTE
“Unless otherwise provided by a collective-bargaining agreement, whenever a contract of employment or employer policy provides for paid vacations, and an employee is terminated without having taken off his vested vacation time, all vested vacation shall be paid to him as wages at his final rate in accordance with such contract of employment or employer policy respecting eligibility or time served; provided, however, that an employment contract or employer policy shall not provide for forfeiture of vested vacation time upon termination. The Labor Commissioner or a designated representative, in the resolution of any dispute with regard to vested vacation time, shall apply the principles of equity and fairness.”
APPLICATION
Under California law, earned vacation time is considered wages, and vacation time is earned, or vests, as labor is performed. Certain employees can even be expressly excluded from vacation benefits.
Vacation pay accrues (adds up) as it is earned, and cannot be forfeited, even upon termination of employment, regardless of the reason for the termination. Suastez v. Plastic Dress Up (1982) 31 C3d 774.
There is no legal requirement in California that an employer provide its employees with either paid or unpaid vacation time. However, if an employer does have an established policy, practice, or agreement to provide paid vacation, then certain restrictions are placed on the employer as to how it fulfills its obligation to provide vacation pay. More importantly, a policy that provides for the forfeiture of vacation pay that is not used by a specified date (“use it or lose it”) is an illegal policy under California law.
Although in many ways it is functionally the same as a “use it or lose it” policy, employers can place limits on vacation accrual. For example, an employer can adopt a vacation policy which provides that once an employee earns 100 hours of vacation, no more vacation may be earned (accrued) until the vacation balance falls below that level.
PENALTY
If an employer does not pay you for all the vacation you have earned at the time your employment ends, you may be eligible to collect penalties from the employer under Labor Code Section 203 (accruing at a day’s worth of wages for up to 30 consecutive days).