©2024 Seyfarth Shaw LLP www.seyfarth.com 2024 Cal-Peculiarities | 251 Section 227.3 also empowers the Labor Commissioner to “apply the principles of equity and fairness” “in the resolution of any dispute with regard to vested vacation time.” Pursuant to this broad, vague mandate, the DLSE has promulgated interpretations that employers may find arbitrary and capricious. 7.19.2 Impermissible “use it or lose it” policies and permissible caps Many employers provide that paid vacation time, if not used within a given time (such as a calendar year), is forfeited. You must “use it or lose it.” In California it’s different. Because California law deems vacation pay to be a form of wages that vests daily, it is not subject to forfeiture. Accordingly, “use it or lose it” vacation policies are not enforceable in California.444 Nonetheless, employers can approximate the result of a “use it or lose it” policy by implementing a “no further accrual” policy. That policy permissibly may provide that once employees accrue a particular number of vacation days (an accumulation “cap”), they no longer continue to earn vacation until they take vacation to reduce the accumulated number of unused vacation days below the cap.445 The DLSE has opined, however, that the level of the cap must be reasonable. The DLSE has withdrawn an opinion letter that arbitrarily required the cap to be 1.75 times the annual vacation accrual rate.446 7.19.3 Problems with denying vacation pay to short-term employees Vacation pay is deemed to have been earned from the first day of employment if the vacation pay plan provides that an employee has earned a given amount of vacation pay (e.g., two weeks) upon completion of the first six months or one year of employment. Thus, if California employers want to avoid paying accrued vacation pay to terminating short-term employees, then they must clearly provide that no vacation is earned for some specific initial period of time.447 If an employer also wants to permit an employee to take vacation immediately after that initial period, then it can arrange for the employee to take the vacation pay in the form of an advance against wages to be earned in the future, pursuant to a written agreement. But the DLSE has opined that California employers must not deduct from a final paycheck to recover for advanced, unearned vacation.448 7.19.4 “Personal time off” policies Some employers have combined vacation and sick leave to create an overall benefit typically called “personal time off.” This arrangement has administrative advantages, but enhances employer liability under California law because California will treat PTO as simply vacation by another name unless use of the PTO is conditioned upon a specific event, such as illness, an anniversary date, or a holiday. Moreover, employers with a PTO policy should ensure that the policy complies with the requirements of the California Paid Sick Leave Law (see § 2.14), unless they maintain a separate California Paid Sick Leave policy and bank of hours. A PTO arrangement also has “kin care” implications (see § 2.11). 7.19.5 Sabbaticals Some employers provide long-term employees with a sabbatical: a paid leave to promote retention and increase productivity upon the employees’ return to work. An employer thus might entitle employees to an eight-week paid leave—in addition to regular vacation—once they complete seven years of service. The DLSE acknowledges that a true sabbatical is not subject to the anti-forfeiture rules that protect regular vacation. But the DLSE insists that a “sabbatical” is really just extra vacation unless the leave (a) is awarded in addition to earned vacation, (b) occurs only after lengthy employment (such as seven years), (c) is granted for an extended period longer than the normal vacation, and (d) is provided only to high level managers and advanced professionals.449 One Court of Appeal decision, Paton v. Advanced Micro Devices, Inc.,450 rejected the DLSE’s arbitrary view that true sabbaticals are offered only to high-level or professional employees,451 but Paton generally adopted the DLSE’s approach and declined to define a clear set of rules on which employers could rely to ensure that the sabbaticals they grant will not be mistaken for vacation.452
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