Is a “use it or lose it” vacation policy legal in California?

 In Blog, Business Law, Lawsuits & Disputes

Wage and hour disputes can be costly for employers. This is why it’s so important to make sure that your business complies with all relevant labor laws. One example where this is especially true is vacation days earned by employees and how they are handled.

California law

In California, vacation days are considered a form of wages, and employees have legal rights to them once they have been earned. As a result, an employer cannot force an employee to forfeit vacation days if they are not used. Once an employee leaves the company, he or she must be compensated for the days that were earned but not used during the period of employment. This compensation must be paid as wages at the employee’s final pay rate.

California does not allow the use of a “use it or lose it” vacation policy. However, the following practices are allowed regarding vacation time for employees:

  • Imposing a probationary or waiting period at the beginning of employment where no vacation is accrued
  • Excluding part-time employees from earning vacation
  • Putting a cap on the number of vacation days an employee may earn
  • Controlling the time when vacation is taken and the amount taken
  • “Paying off” an employee for vacation days that were earned but not taken in a given year

While California law does not require employers to provide vacation time (paid or unpaid), if an employer has a policy, practice, or agreement to provide paid vacation time, all legal restrictions must be followed.

Lexmark’s costly vacation policy

Lexmark International, Inc.’s experience serves as a warning for employers to follow the law. The company instituted a use it or lose it policy for its employees in 1991. Employees who did not use their vacation days by the end of the year had to forfeit those days. Carry-over was not allowed. In 2005, employees of the company brought a class action suit against Lexmark for violation of the California Labor Code. Lexmark lost the case and the plaintiffs were awarded $8.3 million by the court (not counting attorneys’ fees).

If you run a business, you need to make sure your policies comply with all employment law requirements. A well-written employment handbook that outlines vacation and other company policies is recommended for businesses with employees. Regarding vacation days, the policy should be explained clearly in the manual, including how vacation time is earned, who may earn it, and who is excluded.

Helix Law Firm can help with all business issues, including litigation

No matter what stage your business is in, Helix Law Firm is ready to assist you. We can help with entity formation, provide ongoing legal counsel, and handle all aspects of a business purchase or sale. We also stand ready to help guide you and your business through any disputes or litigation you might encounter.

If you’re interested in learning more about how Helix can help your business succeed, please call us at (619) 567-4447 to schedule a free consultation.

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