©2024 Seyfarth Shaw LLP www.seyfarth.com 2024 Cal-Peculiarities | 253 some point, such as when the new policy began or when employment ends. The new policy would take care to avoid suspicion that it is a “subterfuge” to hide an unlawful “use it or lose it” policy. Thus, the policy would not specify limits on how much time off employees may take. But the policy would include safeguards, such as (1) requiring manager approval for significant lengths of time off, (2) imposing a business-needs requirement to ensure that employees remain available during critical periods, and (3) specifying that time off taken for leaves of absences or for sabbaticals would not be paid. This kind of policy might work for certain exempt employees. “Unlimited paid time off” policies for nonexempt employees, meanwhile, would seem impracticable. Nonexempt employees by their nature generally require supervision, which is incompatible with policies that give employees discretion to manage the time needed to do their work. Likewise, while exempt employees get paid the same regardless of how many hours they work, nonexempt employees generally get paid for all time worked, which employers must record; that arrangement would be at odds with an unlimited time-off policy. So how does an “unlimited PTO” policy fare when legally challenged? Early results were not promising. In a 2020 case, the Court of Appeal ruled in favor of exempt employees seeking pay for vacation time that they argued they accrued despite their employer’s unlimited, no-accrual vacation policy. The employer thought it had an “unlimited PTO” policy because the employer did not promise specific amounts of paid vacation and did not cap how much vacation employees could take. But the employer had no written statement that PTO was unlimited, and the employer in practice expected employees to take just two to four vacation weeks per year. The Court of Appeal, while disclaiming any holding that all nonspecific PTO policies would require payment of “unused” vacation upon termination of employment, upheld a trial court finding of an implied cap: “an employer cannot avoid Section 227.3 by leaving the amount of vacation time undefined in its policy while impliedly limiting the time actually available for approval.”461 The Court of Appeal said that an unlimited PTO plan might avoid final-pay obligations if it was in writing and (1) did not provide for additional wages but rather for a flexible work schedule, (2) specified employee and employer obligations and the consequences for failing to schedule time off, (3) allowed employees to take time off or to work fewer hours instead of taking time off, and (4) was “administered fairly” so it was not a de facto “use it or lose it” policy and so that it did not result in “inequities,” such as where some employees work long hours with minimal time off while others work fewer hours with more time off.462 7.20 Personal Liability for Wage and Hour Violations Unpaid wages. Some employees seeking unpaid wages have sued corporate officials personally. In its 2005 decision in Reynolds v. Bement, the California Supreme Court limited this practice by holding that corporate officers, directors, and shareholders cannot be personally liable for unpaid overtime wages as an “employer,” even if they exercised control over the payment of wages.463 Reynolds also rejected a theory that the individual defendants were jointly liable for directing or participating in tortious conduct. Reynolds explained: a “simple failure to comply with statutory overtime requirements” does not qualify as tortious.464 Finally, Reynolds held that the individual defendants could not be liable for “conspiring” with their corporate employer to withhold wages because corporate agents acting on the corporation’s behalf are not considered to be co-conspirators.465 At the same time, however, Reynolds encouraged plaintiffs not to despair, by speculating as to circumstances where personal liability for unpaid wages could still be possible. First, the Labor Commissioner can continue to use the broad definition of “employer” found in the Wage Orders to seek financial recovery from individuals in administrative hearings.466 Second, in cases of thinly capitalized corporations that have played fast and loose with the corporate form, the “alter ego” doctrine can make controlling individuals liable for unpaid wages. Third, huge civil penalties ($100 per underpaid employee per pay period) could be sought by aggrieved
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