California Vacation Law: Unused Vacation Days

California laws regarding vacation policies do not require employers to provide vacation days to their workers.

Still, there are labor laws with which employers must comply if they choose to offer vacation time to their employees. Under California wage and hour law, an employer cannot take away earned but unused vacation time and must pay employees for any unused PTO days upon termination or voluntary separation. California vacation policies which deny pay for unused vacation days upon termination or force employees to “use it or lose it” are illegal and can carry serious consequences for businesses which employ such policies.

California Use It or Lose It Vacation Policies

California labor law states that vacation pay is considered wages that have been earned, but not yet paid. Vacation pay for California employees is offered as additional compensation for services rendered, rather than as a gift or gratuity, and cannot be taken away once earned. Use it or lose it policies which require employees to use their vacation time or have it forfeited at the end of the year are illegal under California employment law.

For years, California courts have maintained that vacation time is a type of deferred pay, or wages that are paid at a date after which such compensation is actually earned. In a 2010 wage and hour lawsuit, a judge found that California employment laws protect vested vacation time from being taken away, thereby making use it or lose it vacation policies in California illegal. The judge in this employment lawsuit ordered that the defendant, Lexmark International Inc., pay more than $8 million in damages to 178 current and former employees who were subjected to the company’s decades-long use it or lose it vacation policy.

Vacation Caps in California

According to California vacation law, employers are permitted to limit the amount of vacation time their employees can earn without actually taking it. An employer, for instance, can implement a policy that only allows their employees to accrue three weeks of vacation time. From then on, workers could not earn any more vacation days until they take time off from work. Employment policies which place caps on vacation time are legal; employers can stop employees from accruing more vacation, but they cannot take away paid time off which has already been earned.

California Lawsuits for Unused Vacation Days

If an employee is fired or otherwise involuntarily terminated, he or she remains entitled to whatever leftover vacation time earnings have accrued at the time of dismissal. By California vacation law, an employer may not withhold unused vacation pay from a departing employee, as these wages are understood as already earned though not yet paid. Additionally, it is legal for employers to establish probation periods of any length in which vacation time cannot be earned. Learn more about your rights under California earned vacation law.

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