"UNLIMITED" Vacation Time -- Too Good To Be True?

California law does not require employers to provide employees with paid time off/vacation pay. However, the average employer provides up to two weeks of vacation time annually. When vacation time is offered, certain rules apply. California Labor Code Section 227.3 requires employers to pay out all accrued, unused vacation pay as wages at the time of termination. If an employee has accrued 10 days vacation at the time of separation, then all 10 days of unused vacation time must be paid to the employee.

“Unlimited” vacation policies in which employees have no minimum and no maximum vacation and do not accrue any vacation time have become increasingly popular in recent years. But what is actually meant by "unlimited." Can you really take as many days off as you wish and continue to hold your job? Doubtful. And, when you leave the company, are you paid out any of your unused, "unlimited" vacation time? Employers say, "no."

On April 1, 2020, the California Court of Appeal issued the first published decision addressing unlimited vacation policies under California law. In this case, McPherson v. EF Intercultural Foundation, Inc., the employer offered "unlimited" vacation time. As a practical matter, however, employees were discouraged by management from taking more than the traditional two weeks of paid vacation. Some employees feared taking vacation at all. Others took many vacation days, only to discover it hurt their standing within the company because management never intended for employees to actually use "unlimited" vacation.

The Court of Appeal decided the employer's "unlimited" vacation time policy was ambiguous and without clear guidance for employees. Therefore, the court reasoned, the employer owed employees unpaid vacation wages under section 227.3 based on a traditional, two-weeks of vacation model.

This area of law is still developing, but the court clearly signaled employers cannot use "unlimited" vacation policies to avoid paying out unused vacation time unless employees receive a written policy clearly defining the parameters of "unlimited" vacation and employees are not discouraged from utilizing it within the policy.

For additional questions, please feel free to contract Christopher Taylor of Taylor Labor Law, P.C. at (626) 219-6008 or visit www.taylorlaborlaw.com.