California Appellate Court Rules Deferred Vacation Policy Lawful
A vacation policy stipulating employees do not begin to earn vacation time until after their first year of employment is lawful, the California Court of Appeal has ruled.
SAN DIEGO — Installing security contactors and other industry-related firms doing business in California will want to consider a recent court ruling that upholds an employer’s right to impose a clearly defined waiting period before an employee can begin accruing vacation time.
The San Diego division of the California Court of Appeal recently ruled so long as an employer’s vacation policy clearly states employees do not earn vacation time unless they are retained beyond a specified waiting period, employers do not have to provide vacation pay vesting on the first day of employment.
Thus, if an employee is terminated or quits shortly after being hired, the employer is not legally bound to pay a portion of the value of vacation time the employee would have earned had the employee lasted beyond the clearly expressed time period.
The Court of Appeal addressed the issue in Minnick v. Automotive Creations Inc., which was decided in late July. Nathan Minnick sued his former employer, alleging the company’s vacation policy violated state law because it required employees who worked for less than one year to forfeit vested vacation pay. Minnick, who was employed for six months, sought penalties under California’s Labor Code Private Attorney General Act of 2004 (PAGA).
The Court of Appeal found the defendants’ vacation policy lawfully provided that employees did not begin to earn vacation time until after their first year. Because Minnick’s employment ended during his first year, he did not have any vested or accrued vacation pay. Therefore, he was not owed any vacation wages.
The California-based law firm Mitchell Silberberg & Knupp discussed the court’s decision on its web site. In a blog post, the law firm alerts employers to be mindful in the wake of the Minnick decision if they are going to place conditions on vacation time, the policy language needs to unambiguously inform the employees of any such conditions.
“The policy language in Minnick was found to be lawful primarily because it specifically informed the employees in advance that they did not earn any vacation until they completed one year of service, and also that they did not earn or accrue any vacation during that first year,” the law firm stated.
Employer Questions Answered
The MSK blog also fielded a couple questions from employers to further illuminate California vacation policy:
Is it okay if our vacation policy states: “Upon completion of one year of continuous employment, employees will receive 5 days of paid vacation and then employees will continue to receive 5 days of paid vacation annually on their anniversary date”?
MSK: No. The issue with the above language is that, unlike the language in Minnick, it does not specifically state that the employees do not earn or accrue any paid vacation during their first year. The Minnick court explained that the above language does not unambiguously provide that vacation is not earned from the first day of work; rather it states that after the first year, “employees will continue to receive 5 days of paid vacation” thereby suggesting that the employer would apply the same accrual rate in the first year of employment as in later years.
Employers accordingly need to be quite specific in ensuring that their vacation policy language specifically states that vacation is earned only after completion of one year service, and also states that employees do not earn or accrue any vacation during their first year of employment.
If we allow an employee to take a vacation before he or she fully earns it, would we then be required to pay the employee for the full year of paid vacation if he or she leaves before the end of that year?
MSK: No. An employer is allowed to “advance” the vacation benefit, thereby permitting the employee to take a paid vacation before it is fully earned, while also being allowed to only pay the employee a pro rata share (the vested portion) of the benefit if the employee leaves before the end of the year. For example, if the employee earns five days of vacation by the end of the second year, an employer can allow the employee to take the full five days of paid vacation after three months into the year.
However, if the employee has not taken any vacation time and leaves three months into the year, upon termination, the employer is only required to pay the employee for a pro rata share (i.e., 3/12 of the five days) of the paid vacation that was earned through the date of employment. Again, vacation policies require great clarity to avoid unintended results.
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