Cal-Peculiarities: How California Employment Law is Different 2022 Edition

©2022 Seyfarth Shaw LLP  www.seyfarth.com 2022 Cal-Peculiarities | 245 reasonably thought the charge was a gratuity for service staff. The plaintiffs sought restitution and sued for interference with contract and for breach of implied contract. The Court of Appeal, finding “service charge” a vague term, rejected the employer’s argument that a “service charge” can never be a gratuit y. 404 The Court of Appeal concluded that the allegations supported a claim that customers intended the service charge to be a gratuity for the service staff, not management, and permitted the lawsuit to proceed. As to tips paid by credit card, California employers must pay the employee the full amount of the gratuity indicated by the customer on the credit card slip, without deducting for any processing fees, and must pay the gratuity to the employee no later than the next regular payday following the date the patron authorized the credit card paymen t. 405 7.19 Vacation Pay California differs from most states by treating accrued vacation as a form of wages . 406 M ore specifically, by virtue of a Supreme Court interpretation of Labor Code section 227.3 , 407  earned vacation must not be forfeited,  unused vacation pay must be paid on termination of employment, at the final rate of pay,  vacation pay is deemed to be earned daily,  “use it or lose it” policies are unenforceable, and  “paid time off” is treated as vacation. The Section 227.3 vacation rules apply “[u]nless otherwise provided by a collective bargaining agreement.” The Court of Appeal has interpreted this exemption narrowly, holding that Section 227.3 rules apply even to union- represented employees unless their CBA “clearly and unmistakably waives” Section 227.3 right s. 408 7.19.1 Accrued vacation pay is a form of wages An employer need not provide any paid vacation at all. But if the employer does so, then California treats vacation pay as wages earned on a daily basis and not subject to any forfeiture and requires that all earned, unused vacation be paid upon termination of employment at the final rate of pay, regardless of when the vacation was earned or whether the employee had become eligible to use the vacatio n. 409 The basis for this peculiar doctrine is a California statute, Labor Code section 227.3, which provides that “all vested vacation shall be paid” to terminating employees “as wages at [their] final rate” and that no employer policy shall provide for “forfeiture of vested vacation time upon termination. ” 410 B ecause the right to be paid for the amount of vacation time offered by an employer constitutes deferred wages for services rendered, the employee is entitled to receive pay, at the time of termination, for the pro rata share earned during the time that the employee rendered services to the employer. Section 227.3 also empowers the Labor Commissioner to “apply the principles of equity and fairness” “in the resolution of any dispute with regard to vested vacation time.” Pursuant to this broad, vague mandate, the DLSE has promulgated interpretations that employers may find arbitrary and capricious. 7.19.2 Impermissible “use it or lose it” policies and permissible caps Many employers provide that paid vacation time, if not used within a given time (such as a calendar year), is forfeited. You must “use it or lose it.” In California it’s different. Because California law deems vacation pay to be a