Vacation Pay for California Employees

There is no California or federal law, which requires employers to provide employees with vacation time.  Nonetheless, if the employer does provide vacation time, certain provisions of the California Labor Code must be followed.

Vacation time is treated as deferred wages and accrues and vests proportionately as time worked.  Therefore, California employers cannot have a “use it or lose it” policy by which earned vacation expires.  Employers may, however, put reasonable caps on accrued vacation, provided those caps were disclosed to the employee beforehand (e.g. in the employee handbook, offer letter, or the employment agreement).  A vacation pay policy will likely violate state law if the cap on accrual is so small that it is, in practice, a “use it or lose it” policy.

An employer’s policy generally controls how much vacation time an employee earns, and different amounts of vacation time may be given to different employees if the policy is clear. Employers are generally permitted to exclude certain employees from the vacation time policy for a certain amount of time at the beginning of employment (e.g. during a probationary period). Also, the employer is free to control when vacation is taken and how much vacation is taken at any one time.

Generally, all accrued vacation is due upon termination, layoff or quit, and an employment contract cannot force an employee to forfeit earned vacation.

The statute of limitations to bring a claim for unpaid vacation is three years from the date the employee is terminated or resigns. This statute of limitations begins to run when employment ends, not when the employee’s vacation accrued. Thus, an employee can recover any vacation that vested during the employment relationship, even if it accrued long before the filing of the claim.