252 | 2024 Cal-Peculiarities ©2024 Seyfarth Shaw LLP www.seyfarth.com The trial court in Paton had granted summary judgment to an employer sued by former salaried employees who claimed that the employer’s failure to pay them for unused sabbatical leaves amounted to an unlawful forfeiture of vested vacation pay. The leaves—available for eight weeks once an employee reached seven years of employment—were in addition to regular vacation. Paton distinguished regular vacation—deferred compensation typically earned in proportion to the length of employment—with a true sabbatical, which Paton defined as a leave designed to “provide incentive for experienced employees to continue with and improve their service to the employer.”453 Paton reversed the summary judgment for the employer, reasoning that because the employer imposed no condition on how employees used their sabbaticals, a reasonable jury could find that the sabbatical was really just extra vacation for long-term employees.454 Paton declined to apply a definitive test that would distinguish a sabbatical from a regular vacation. Rather, Paton announced a four-factor test to determine if a particular form of unconditional leave qualifies as a true sabbatical: (1) whether the leave is granted infrequently (e.g., every seven years), (2) whether the length of the leave is adequate to achieve the employer’s purpose (an unconditional leave should be longer than regular vacation), (3) whether (as always must be the case) the sabbatical is granted in addition to the average vacation given in the relevant labor market, and (4) whether the employee is expected to return to work once the leave ends.455 7.19.6 ERISA preemption Some employers have sought to avoid California vacation law by funding vacation pay through an ERISA plan.456 7.19.7 Claims for vacation pay do not accrue until termination The DLSE, in an unusually pro-employer opinion letter, once decided that the time for an employee to claim vacation pay begins to accrue when the vacation pay is earned. Employers that had used improper “use it or lose it” vacation plans could at least limit their liability to long-term employees by disregarding vacation pay earned beyond the statutory limitations period. But the Court of Appeal then held that a claim for unused vested vacation pay accrues only upon termination of employment, not before, regardless of when the vacation pay was earned.457 An employee suing for unpaid vacation pay at the end of employment thus can rely on vacation earned at any time during the employment. Notably, employers must also pay out accrued vacation whenever they furlough or lay off employees, when there is no specific return date within the normal pay period.458 7.19.8 Employers can pay vacation benefits at lower rates during employment The vacation pay statute requires that an employer pay an employee, upon termination, “all vested vacation … as wages at his final rate in accordance with such contract of employment or employer policy respecting eligibility or time served.”459 The Court of Appeal has recognized that this provision does not require employers to pay vacation at the employee’s regular rate during employment. The Court of Appeal thus affirmed the dismissal of a claim by employees complaining that they during their employment they received vacation pay in flat sums of $500 or so per week instead of receiving their (higher) regular rate of weekly pay.460 7.19.9 Transition to “no vacation” or “unlimited vacation” policies? Peculiar California vacation law inspired some employers to discontinue traditional paid vacation in favor of “unlimited time off” policies. The thinking was that at-will employers could prospectively change vacation plans. While employees could retain any accrued, unused vacation pay, the employer would pay off that balance at
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