Litigating California Wage & Hour and Labor Code Class Actions

VII.
Vacation/Paid Time Off Forfeiture
Another type of wage and hour class action prevalent in California is one seeking payment of
forfeited vacation or other paid time off (“PTO”). California law does not require that employers
provide employees with vacation or PTO. 176 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. 177
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. 178 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 generally is acceptable. 179 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. 180
“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 corporate policy describing a “use it or lose it” vacation policy, class certification
and liability likely will follow.
A vacation decision that came down in 2006, Church v. Jamison, 181 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. The decision was not actually a class
action decision, but rather addressed the appropriate statute of limitations on any claim for unpaid
vacation. Vacation differs from regular wages in that an employee has no entitlement to be paid for
accrued but unused vacation until the employee quits or is discharged. That leaves open the
question of whether an employee may sue only for vacation accrued but unpaid during the four
176
177
178
179
180
181
DLSE Manual 15.1.2.
Owen v. Macy’s, Inc., 175 Cal. App. 4th 462 (2009) (employer’s policy of delaying onset of accrual of vacation benefits
for first six months was lawful).
Suastez v. Plastic Dress-up Co., 31 Cal. 3d 774 (1982).
DLSE Manual 15.1.4.
DLSE Manual 15.1.5.
143 Cal. App. 4th 1568 (2006).
Seyfarth Shaw LLP | www.seyfarth.com Litigating California Wage & Hour Class Actions (12th Edition) 44