While some states mandate that employers must pay workers for unused vacation time when terminated, most states utilize a “use-it-or-lose-it” system where current employees are not compensated if they fail to use vacation time. However, employers may still choose to pay workers for unused time off under an employment contract. Thus, in this situation, an employee may be entitled to compensation either through state law or contract.
Employers have the freedom to contract within applicable state contract law. This includes the right to regulate the accrual and payment of vacation benefits in an employment contract. If the employer and employee agree to the contract, it is binding on the parties.
California law considers vacation time as a form of wage. This includes paying the worker for unused vacation days and sick leave. California requires employers to pay for unused paid time off (PTO) when terminating a worker. Therefore, employers must pay employees any unused vacation pay in the paycheck for their final pay period.
However, while California prohibits a “use-it-or-lose-it” vacation time policy, employees may still be subject to collective bargaining agreements that limit the amount of vacation time that employees may accrue. Therefore, in practice, California employees may still lose vacation time with no compensation. While it would not expire, it would still fail to accrue after a pre-determined number of vacation hours are earned.
If an employer refuses to pay an employee who is entitled to payment for unused vacation or PTO, the employee may file a wage and hour lawsuit. If the employer’s violation is prevalent among many workers, it may form the basis of a class-action lawsuit. If an employee is terminated for exercising the right to compensation for any unused vacation time, it may form the basis of a wrongful termination claim.
As a worker in California, you have many important rights that must be constantly safeguarded. Even in 2021, many California employers try to work around legal requirements to increase their profits. If you believe that your employer is violating your rights, call Moss Bollinger for a free consultation to discuss solutions for asserting and defending these important, valuable rights. Moss Bollinger takes great pride in holding employers accountable for workplace violations that infringe upon the protections afforded every California worker by California law. Contact Moss Bollinger today.