California Vacation Pay Law

California Use It or Lose It Policy

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California wage and hour law does not require employers to offer vacation pay to employees. However, there are strict laws regarding vacation pay for employers who choose to offer this fringe benefit. According to California labor law, unused vacation pay cannot be forfeited and must be paid upon termination. Businesses that employ “use it or lose it” vacation policies or who deny employees vacation wages upon termination are in violation of employment law in California and may face legal consequences.

If you have been denied vacation pay upon termination or subjected to a use-it-or-lose-it vacation policy in California, you may be entitled to financial compensation. Fill out the free case review form and our California wage and hour attorneys will evaluate your case to determine if you are entitled to recover unused vacation time.

Use It or Lose It Vacation Policies Illegal in California

Under California wage and hour law, vacation pay is considered wages that have been earned, but not yet paid to the worker. Paid vacation time is not considered a gift or gratuity, but rather as additional pay for services performed. Once an employee in California earns vacation time, it cannot be taken away. Vacation policies that require employees to use their vacation time or have it forfeited at the year’s end are illegal under California labor law.

California courts have held for years that vacation pay is a type of deferred compensation, or income which is paid at a date after which such pay is actually earned. A judge in a 2010 California wage and hour case ruled that state labor laws protect vacation time from forfeiture, therefore prohibiting use it or lose it vacation policies. The employment lawsuit over which the judge presided was filed on behalf of 178 current and former employees of Lexmark International Inc., which was ordered to pay $8.3 million in damages to the plaintiffs.

Vacation Caps and Probation Periods

Employers in California are allowed to establish probation periods, in which employees do not earn vacation time. Employers are allowed to establish the length of probation periods, as there is no minimum or maximum time allowance for these periods. California vacation pay laws only apply once an employee begins to earn it under the policy established by the employer.

California employers are allowed to place caps on earned vacation pay. For instance, an employer can establish a policy which states that employees can only earn four weeks of vacation. Going forward, those with the maximum amount of earned vacation time cannot accrue any additional days until they actually take vacation time. This employment practice is legal, as it does not require employees to use their vacation time or have it forfeited. Rather, the policy requires employees to use their accrued vacation time if they wish to receive more. Therefore, California employees can prohibit employees from getting more vacation, but they cannot take away time their employees have already earned.

California Wage and Hour Attorneys

Our wage and hour attorneys are available to review claims from California employees who have lost vacation pay upon termination or have been subjected to a use it or lose it vacation policy at work. In California, employment policies in which an employee loses their vacation time at the end of the year or when they leave employment is illegal. Vacation time referred to as paid time off or floating holidays is still considered deferred compensation and must be treated as such. Essentially, if the time is to be used for personal reasons and scheduled at the employee’s convenience without limitation on its use, then it is considered earned wages. To find out if you are owed compensation for your unused vacation days, simply complete our free, no obligation case evaluation. Our California wage and hour lawyers are offering this initial legal consultation at no cost and are dedicated to protecting the rights of employees who have been denied the right to proper wages.