Seyfarth Shaw LLP | www.seyfarth.com Litigating CA Wage & Hour Class and PAGA Actions (23rd Edition) 61 VIII. Vacation/Paid Time Off Forfeiture Another type of wage and hour class action seen in California is one seeking payment of forfeited vacation or other paid time off (“PTO”). With the exception of paid sick leave,290 California law does not require that employers provide employees with vacation or PTO.291 Furthermore, an employer can lawfully require that employees work for a certain period of time without any vacation benefit, and then begin to accrue vacation only after the waiting period has ended.292 If the employer provides a vacation benefit, however, it may not create a plan whereby the employee “forfeits” vested vacation or PTO time. Under California law, accrued vacation or PTO constitutes “wages,” which is payable to the employee at termination.293 As such, employers may not have a “use it or lose it” provision in their vacation or PTO policy. A policy that places a reasonable cap on accrual of vacation or PTO is generally acceptable.294 The DLSE has taken the position, however, that an accrual cap that is set near one year’s allotment of vacation is a de facto use it or lose it policy since many employees will earn no additional vacation in a year if they do not take the vacation that year.295 “Use it or lose it” policies are lawful in most other states. Therefore, many out-of-state employers doing business in California are unaware of this requirement. Needless to say, where an action is filed challenging a written corporate vacation policy containing a “use it or lose it” provision, class certification and liability likely will follow. A vacation claim decision that came down in 2006, Church v. Jamison,296 has made vacation class claims more attractive because it creates the possibility that they may reach back much further than the four-year period of a typical wage and hour class action. 290 Labor Code Section 246 provides that California employees who work for at least 30 days a year are entitled to paid sick leave. Employees, including part-time and temporary employees, are entitled to one hour of paid leave for every 30 hours worked. An employer may limit the amount of paid sick leave an employee can use in one year to 24 hours or three days. Accrued paid sick leave may be carried over to the next year, but it may be capped at 48 hours or six days. Employers are not required to compensate employees for unused sick days upon termination. However, where employers provide PTO that combines vacation and sick time, then the accrued but unused PTO must be paid upon termination. Cities such as Los Angeles and San Francisco have implemented their own sick leave laws providing additional benefits and protections to employees. 291 DLSE Enforcement Manual § 15.1.2. 292 Owen v. Macy’s, Inc., 175 Cal. App. 4th 462 (2009) (upholding employer’s policy of delaying onset of accrual of vacation benefits for first six months); Minnick v. Automotive Creations, Inc., 13 Cal. App. 5th 1000 (2017) (upholding employer’s policy that employees accrued one week of vacation upon completing full year of service; employee terminated before first anniversary was entitled to no vacation pay). 293 Suastez v. Plastic Dress-up Co., 31 Cal. 3d 774 (1982). 294 DLSE Enforcement Manual § 15.1.4. 295 DLSE Enforcement Manual § 15.1.4.1. 296 143 Cal. App. 4th 1568 (2006).
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