Pay - Revisiting Suastez
provide paid vacation for qualifying employees as a supplemental
benefit. However, vacation pay policies vary widely between employers
with respect to eligibility, accumulation, when available to be
used, etc. Section 227.3 of the California Labor Code addresses
vested vacation time as follows:
otherwise provided by a collective-bargaining agreement, whenever
a contract of employment or employer policy provides for paid
and an employee is terminated without having taken off his vested
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
eligibility or time served; provided, however, that an employment
or employer policy shall not provide for forfeiture of vested
Commissioner or a designated representative,
in the resolution of any dispute with regard to vested vacation
apply the principles of equity and fairness."
normally provide for vesting of vacation credits after an employee
has worked for a required period of time. The vacation vesting provision
of the Labor Code reads in pertinent part: ". . . an employment
contract or employer policy shall not provide for forfeiture of
vested vacation time upon termination."1 Even though
the California Supreme Court addressed the issue of vesting more
than 20 years ago, the interpretation and application of the Labor
Code provision is sometimes confounding for employers even today.2
questions and answers are intended to provide assistance to employers
concerning vacation vesting, accumulation, and pay off policies.
My employer's vacation policy provides a right to a paid vacation.
When do my vacation rights vest?
Your right to a paid vacation vests proportionately as your labor
is rendered. For example, if your employer provides one day of vacation
monthly, after three months of employment you would have three days
of vacation accumulated.3
My employer's vacation policy provides that one day of paid vacation
is earned monthly. I am entitled to take paid vacation time after
one year of employment. If I quit my job prior to completing one
year, am I entitled to be paid for accumulated vacation for my period
Yes. Your right to paid vacation is proportionate to your length
of employment. If you were earning one day of vacation monthly and
you terminated after six months, you would be entitled to six day
of vacation pay.4
Question: When an employee earns vacation time at different
rates of pay (e.g. earning $20.00 an hour that increases to $25.00
an hour), may an employer pay for the vacation time when used at
the rate of pay received when it was earned?
All vested vacation shall be paid at the employee's rate of pay
when the vacation time is used.5
Question: Is an employer required to pay an employee for
accumulated vacation upon termination when the employee was fired
for committing a criminal act?
Vacation pay accrues as it is earned and cannot be forfeited, even
upon termination of employment, regardless of the reason for termination.6
Question: Can an employer place a maximum on the number of
vacation hours that can be accumulated?
An employer may place a reasonable cap on the number of vacation
hours that may be accumulated. Once an employee reaches the cap,
the individual is prevented from earning vacation as long as his/her
vacation hours remain at the maximum that may be accumulated.7
Question: My employer combines vacation and sick leave hours
and refers to them as "personal leave" that can be used
for any purpose. Am I entitled to be paid for any of my personal
leave upon termination?
Yes. When California Labor Code Section 227.3 was amended in 1976,
the following sentence was added: "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"8 (emphasis added).
When an employer
provides a paid time off policy giving an employee the right to
use the time for any purpose, California's Division of Labor Standards
Enforcement (DLSE), applying the principles of equity and fairness,
takes the position that the policy be subject to the same rules
as vacation policies.
providing for "paid time off" hour accumulations are considered
wages having a cash value and subject to payment upon termination.9
My employer has a "use it or lose it" vacation policy.
If I don't use my vacation by the end of the year, I will lose it.
Is this legal?
Vacation hours when earned are considered the same as deferred income.
The value of the vacation hours vests immediately.10
Question: My employer does not allow an employee to accrue
vacation time during the first six months of employment. Is this
DLSE's enforcement policy allows employers to require new employees
to be employed for a specified time (up to one year) before being
eligible to earn paid vacation time.
Labor Code Section 227.3.
2. Suastez v. Plastic Dress-Up Co., 31 Cal.3d 774 (1982).
4. California Labor Code Section 227.3.
7. Boothby v. Atlas Mechanical, 6 Cal.App.4th 1595 (1992).
8. Stats. 1976, ch. 1041, §2, p. 4653.