Employers Who Offer Unlimited Vacation May Have to Pay for Accrued Days

A California appellate court ruled on a case this year that found when an employer claims to offer unlimited vacation, but imposes limits in practice, it may have to pay out accrued but unused days at termination. The practical implications for California employees is that an employer may be required to pay out for unused vacation days if their vacation policy is not truly unlimited in practice. If you believe that an employer owes you compensation for unused vacation days, speak to an experienced employment law attorney in California today.

 McPherson v. EF Intercultural Found., Inc.

In this case, the plaintiffs were three full-time, exempt, salaried managers of their employer. The company’s policy was to allow for unlimited vacation with pay and did not accrue vacation days for their employees. The plaintiffs had all left their employer and claimed that the company owed them compensation for accrued but unused vacation days as required by the California Labor Code. The employer counter argued that the state Labor Code does not apply to unlimited vacation policies, that the former employees earned no vacation time, and therefore were not entitled to compensation for accrued days.

The state appellate court upheld the trial court’s ruling that the former employees were entitled to compensation for accrued vacation days and that the employer’s vacation policy fell under the state’s Labor Code. Their reasoning was that while the company claimed to have an unlimited vacation policy, in reality it was not. The company was found to neither be unlimited in practice nor conveyed as such. The court found that the employer had an implied limit of vacation that was not beyond what would be offered in a traditional accrual policy. Furthermore, the employee’s incredibly heavy work schedules would preclude them from taking unlimited time off. The policy was also not directed shared with employees, but rather conveyed informally through side conversations to managers.

When is a Vacation Policy Truly Unlimited?

The appellate court set forth a four part test to determine whether an employer’s vacation policy is truly unlimited. The policy must conform to the following rules:

• The policy clearly provides that employees’ ability to take paid time off is not a form of additional wages for services performed but can be part of a promise by the employer to provide a flexible work schedule
• The policy spells out the rights and obligations of both employee and employer as well as the consequences of failing to schedule time off
• The policy in practice allows sufficient opportunity for employees to take time off, or work fewer hours in exchange for taking time off
• The policy is administered fairly so that it neither becomes a “use it or lose it policy” nor results in inequities between employees

Even if an employer’s vacation policy is determined to be truly unlimited, the state’s Labor Code may still apply. The appellate court did not rule on this issue, and so employees may still be entitled to accrued days under a truly unlimited vacation policy. 

Talk to an Employment Law Attorney

If you would like to learn more about whether you are entitled to accrued vacation day compensation by a former employer, call or contact an employment law attorney now.