Use-It-Or-Lose-It Vacation Policies Illegal

by Patrick E. Turner
Employee Rights Attorney
Mission Viejo, California

Originally Published in The Orange County Register, June 3, 2002

Q: My company was just bought by another and moved to California. The previous company allowed for unused vacation days to be carried over. The new company has a "use it or lose it" policy. All vacation must be used in the year earned. Does California have laws regarding earned vacation days?

A: "California law regarding vacation can differ somewhat from other states," says employee rights attorney Patrick E. Turner of Don D. Sessions Law Corp. in Mission Viejo.

"The California courts have found that where vacation is ‘accrued,’ meaning earned in increments based upon service to the employer, it is to be considered ‘deferred compensation.’ Rather than paying you a higher wage or salary, the employer pays you less, but grants you a period of paid time off.

"Where an employer’s policy is an accrual type policy, as most are, earned vacation hours cannot be taken away once earned. Therefore, employer policies generally labeled as ‘use it or lose it’ vacation policies are illegal in California. ‘Use it or lose it’ policies for sick time are acceptable.

"An employer can cap the total amount of vacation that an employee can accrue without running foul of California labor law. In this circumstance, the employer sets a maximum amount of vacation hours it will keep on the books. Once an employee earns that maximum, he or she can earn no more until some of the balance is used. Capping policies are legal.

"The fact that the acquiring company may be based in another state has no bearing. All employers who employ individuals in California are required to comply with California Labor Code provisions."

For questions, call (800) 774-7494 or access job-law.com. © Sessions & Kimball LLP.