CA treats earned vested vacation a little differently than the rest of the country and many employers get this wrong. This is from the DLSE
4.
Q.
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?
A.
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 forfeiture of vacation pay that is not used by a specified date (“use it or lose it”) is an illegal policy under California law and will not be recognized by the Labor Commissioner.
5.
Q.
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?
A.
Yes, such a provision would be acceptable to the Labor Commissioner. 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 forfeiture 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 subterfuge to deny employees vacation or vacation benefits, the policy will not be recognized by the Labor Commissioner.
DLSE has repeatedly found vacation policies which provide that all vacation must be taken in the year it is earned (or in a very limited period following the accrual period) are unfair and will not be enforced by the Division.
