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There is no legal requirement in California that an employer provide its employees with either paid or unpaid vacation time. However, if an employer does have an established policy, practice, or agreement to provide paid vacation, then certain restrictions are placed on the employer as to how it fulfills its obligation to provide vacation pay. Under California law, earned vacation time is considered wages, and vacation time is earned, or vests, as labor is performed. For example, if an employee is entitled to two weeks (10 work days) of vacation per year, after six months of work he or she will have earned five days of vacation. Vacation pay accrues (adds up) as it is earned, and cannot be forfeited, even upon termination of employment, regardless of the reason for the termination. However, an employer can place a reasonable cap on vacation benefits that prevents an employee from earning vacation over a certain number of hours. And, unless otherwise agreed to in a union agreement, at the end of employment all earned and unused vacation must be paid to the employee at his or her final rate of pay. 

My employer's vacation plan states that no vacation is earned during the first six months of employment. Is this legal?

Yes. An employer may provide a specific period of time at the beginning of the employment relationship during which an employee does not earn any vacation benefits. This could apply to a probationary or introductory period, and can even apply to the whole first year of employment.

Such a provision in a vacation plan will only be valid, however, if it is not for a phony reason, and in fact, no vacation is implicitly earned or accrued during that first year or other period. For example, a plan with the following provisions would invalid:

         Year 1: No vacation

         Year 2: 4 weeks vacation

         Year 3: 2 weeks vacation

The four weeks’ vacation earned in the second year, when viewed in the context of the two weeks’ vacation earned in the third year, makes it clear that two of the four weeks earned in year two are actually vacation earned in year one.

A valid vacation plan could look like the following:

         Year 1: No vacation

         Year 2: 2 weeks vacation

         Year 3: 3 weeks vacation

         Years 4 through 10: 4 weeks vacation

In those instances where a “waiting period” (Year 1 in the examples above) is considered a phony reason, employees who separate from their employment during the “waiting period” will be entitled to prorated vacation pay at their final rate of pay. On the other hand, where the employer’s vacation plan has a valid “waiting period” provision, employees who separate from their employment during that period will be ineligible for any vacation pay.

How is vacation earned?

In California, because paid vacation is a form of wages, it is earned as work is performed. An employer’s vacation plan may provide for the earning of vacation benefits on a day-by-day, by the week, by the pay period, or some other period basis. The calculation of vacation pay for terminating employees (a quit, discharge, death, end of contract, etc.) who have earned and accrued and unused vacation on the books at the time of termination must be prorated on a daily basis and must be paid at the final rate of pay in effect as of the date of the separation.

I am a part-time employee, and am excluded from my employer's vacation plan (only full-time employees get vacation). Is this legal?

Yes, it is legal. If an employer’s vacation plan/policy excludes certain classes of employees, such as part-time, temporary, casual, probationary, etc. Such a provision is valid, and the agreement will control.

My employer's vacation policy provides that if I do not use all of my annual vacation entitlement by the end of the year, that I lose the unused balance. Is this legal?

No, such a provision is not legal. In California, vacation pay is another form of wages which vests as it is earned (in this context, “vests” means you are invested or endowed with rights in the wages). Accordingly, a policy that provides for the loss of vacation pay that is not used by a specified date (“use it or lose it”) is illegal under California law.

My employer's vacation policy provides that once an employee earns 200 hours of vacation, no more vacation may be earned (accrued) until the vacation balance falls below that level. Is this legal?

Yes, such a provision is acceptable under the law. Unlike “use it or lose it” policies, a vacation policy that places a “cap” or “ceiling” on vacation pay accruals is permissible. Whereas a “use it or lose it” policy results in a loss of accrued vacation pay, a “cap” simply places a limit on the amount of vacation that can accrue; that is, once a certain level or amount of accrued vacation is earned but not taken, no further vacation or vacation pay accrues until the balance falls below the cap. The time periods involved for taking vacation must, of course, be reasonable. If implementation of a “cap” is a hidden reason to deny employees vacation or vacation benefits, it is invalid. 

Can my employer tell me when to take my vacation?

Yes, your employer has the right to manage its vacation pay responsibilities, and one of the ways it can do this is by controlling when vacation can be taken and the amount of vacation that may be taken at any particular time.

My employer's vacation policy provides that if I don't use all of my vacation by the end of the year, he will pay me for the vacation that I earned and accrued that year, but did not take. Is this legal?

Yes, your employer has the right to manage its vacation pay responsibilities, and one of the ways it can do this is by paying you off each year for vacation that you earned and accrued that year, but did not take.

My employer has combined its vacation and sick leave plans into one program that it calls "paid time off" (PTO). Under this program I have a certain number of paid days each year that I can take off from work for any purpose. Does this allow my employer to evade the law as it relates to vacations?

No, a “paid time off” (PTO) plan or policy does not allow your employer to go around the law with respect to vacations. Where an employer replaces its separate arrangements for vacation and sick leave with a program where employees are granted a certain number of “paid days off” each year that can be used for any purpose, including vacation and sick leave, employees have an absolute right to take these days off. Therefore, if an employee has earned and accrued paid time off days that have not been used at the time the employment relationship ends, the employee must be paid for these days.

What can I do if my employer retaliates against me because I informed him that in California vacation is wages and cannot be forfeited?

If your employer discriminates or retaliates against you in any manner whatsoever, for example, he discharges you because you objected to the fact that your vested vacation was taken away or not carried over from year-to-year, you may file a lawsuit against your employer.

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