As with sick leave, California state law does not require employers to provide paid vacation leave to employees. However, unlike sick leave, vacation leave is not contingent on a certain event occurring and is considered akin to earned wages. Thus, there are limitations regarding vacation leave. An employer’s vacation plan or policy may also exclude certain classes of employees, such as part-time, temporary, casual, probationary and so forth. However, to avoid any misunderstandings in this area, the vacation plan or policy should state clearly and specifically which employee classification(s) are excluded.
In California, paid vacation is a form of wages, and it is earned as labor is performed. An employer’s vacation plan may provide for the earning of vacation benefits by the day, by the week, by the pay period or some other period basis. After vacation leave is earned, it cannot be taken away from the employee, which would occur if the employer’s policy stipulated that at the end of the year any unused vacation time would be forfeited. An employer can, however, place a reasonable cap on vacation benefits that prevents an employee from earning vacation in excess of a certain number of hours. Under applicable case law, any cap must be reasonable.
Similarly, the Division of Labor Standards Enforcement (DLSE) policy does not preclude an employer from providing a specific period of time at the beginning of the employment relationship during which an employee does not earn any vacation benefits. This could apply to a probationary or introductory period and can even apply to the whole first year of employment. Such a provision in a vacation plan will only be recognized, however, if it is not a subterfuge and, in fact, no vacation is implicitly earned or accrued during that first year or other period. In those instances where a waiting period is found to be a subterfuge, employees who separate from their employment during the waiting period will be entitled to prorated vacation pay at their final rate of pay. On the other hand, where the employer’s vacation plan has a valid waiting period provision, employees who separate from their employment during that period will be ineligible for any vacation pay.
An employer also has the right to manage its vacation pay responsibilities, and one of the ways it can do this is by controlling when vacation can be taken and the amount of vacation that may be taken at any particular time. Vacation time may be subject to scheduling and advance notice requirements. Employers may also provide blackout periods in which vacation time may not be used at all. Nonexempt employees may be debited vacation time in any increment of time that is applicable (e.g., less than an hour). According to current case law, vacation time may be debited in less than full-day increments of time for exempt employees without impacting the overtime exemption status.
Because of work schedules and the wishes of employees, many employers allow employees to take their vacation before it is actually earned. Under California law, vacation benefits are a form of wages, and an employer’s practice of allowing employees to take their vacation before it is actually earned or accrued is, in effect, an advance on wages. Thus, if an employee takes an advance on vacation and then quits or is discharged before all of that advanced vacation is earned or accrued, the effect is that there has been an overpayment of wages that is a debt owed to the employer.
The California courts have noted on a number of occasions that an advance on wages, as with any other debt owed (either to the employer or a third party), is subject to the provisions of the attachment law. However, since wages are exempt from prejudgment attachment, neither the employer nor any third party can recover the debt by way of attachment of the employee’s final pay, because to do so would violate the public policy considerations underlying the wage exemption statutes. Thus, in California, since the wage garnishment law provides the exclusive judicial procedure by which a judgment creditor can execute against the wages of a judgment debtor, an employer may not resort to self-help to recover debts owed to the employer by an employee from the wages then due to the employee.