Expert: Shirley McAllister, CPP, PHR - 5/2/2008

Question
QUESTION: A salaried employee of 5 years has recently quit and has asked for unused vacation time compensation. He recalls that when hired I told him that he could take up to 3 weeks off the first year if so desired.  He may have taken 1 week, I do not recall.  He never mentioned vacation time again and probably took only 1-2 weeks per year after that. I have paid him every 2 weeks the agreed upon salary- vacation time never came up in our annual negotiations. Now he wants compensation for unused vacation time. What is my obligation?

ANSWER: Vacation time is a state law. Some states have laws covering it and some do not. I need to know which state you are in so I can find out what your state laws say about the payment of vacation pay to a terminating employee.

Please let me know so I can answer your question.

Thanks
Shirley

---------- FOLLOW-UP ----------

QUESTION: I live and work in California.  He is my only salaried employee. He definitely did not work at least 10 Holidays per year and may well have taken a number of personal days off.  Our agreement was that he would do outside sales and supervise a crew to perform work based on those sales. He supervised the crews 20 hours a week. There was no record-keeping of what he did the other 20 hours. I only spoke with him about once every 2 weeks so I don't exactly know what days or how many he took off.  Thanks, Mel

Answer
If you discussed it when he was hired and told him he could take the time off than you probably have a verbal contract with him concerning his vacation time.

In the situation you speak of I would have written a contract and hired him as an independent contractor instead of an employee.

Do you have anything in writing that you offered him vacation time or is it just something he said you told him? Do you remember telling him that when he started? Maybe you did not and he just made it up to get vacation pay.  

If you have a vacation plan written up I would treat him as if he were another employee. I would also assume that he took some vacation time off in the three years he worked .

He was only working 20 hours a week, so to prevent future occurrences you could write into your plan that part time employees less than 30 hours are not eligible for vacation. Also most companies do not give vacation for the first year.

A valid vacation plan could look like the following:

Year 1: No vacation

Year 2: 2 weeks vacation

Year 3: 3 weeks vacation

Years 4 through 10: 4 weeks vacation

In those instances where a "waiting period" (Year 1 in the examples above) 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.


What do you pay your other employees? You could be in a little hot water with the California Department of Labor for not keeping records on this employee for hours worked and time off taken. You need to keep it on all workers, not just non exempt workers.

Did he tell you how much vacation he thinks he has coming?

This is what the rules say at the California Department of Labor:

There is no legal requirement in California that an employer provide its employees with either paid or unpaid vacation time. However, if an employer does have an established policy, practice, or agreement to provide paid vacation, then certain restrictions are placed on the employer as to how it fulfills its obligation to provide vacation pay. Under California law, earned vacation time is considered wages, and vacation time is earned, or vests, as labor is performed. For example, if an employee is entitled to two weeks (10 work days) of vacation per year, after six months of work he or she will have earned five days of vacation. Vacation pay accrues (adds up) as it is earned, and cannot be forfeited, even upon termination of employment, regardless of the reason for the termination. (Suastez v. Plastic Dress Up (1982) 31 C3d 774) An employer can place a reasonable cap on vacation benefits that prevents an employee from earning vacation over a certain amount of hours. (Boothby v. Atlas Mechanical (1992) 6 Cal.App.4th 1595) And, unless otherwise stipulated by a collective bargaining agreement, upon termination of employment all earned and unused vacation must be paid to the employee at his or her final rate of pay. Labor Code Section 227.3 The Califonia Legislature, in order to ensure that vacation plans were fairly and equitably handled, provided that the Labor Commissioner was to "apply the principles of equity and fairness" in resolving vacation claims.

Here are some questions and answers concerning vacation pay:

What happens to my earned and accrued but unused vacation if I am discharged or quit my job?


A.
Under California law, unless otherwise stipulated by a collective bargaining agreement, whenever the employment relationship ends, for any reason whatsoever, and the employee has not used all of his or her earned and accrued vacation, the employer must pay the employee at his or her final rate of pay for all of his or her earned and accrued and unused vacation days. Labor Code Section 227.3. Because paid vacation benefits are considered wages, such pay must be included in the employee's final paycheck.

11.
Q.
My employer does not allow employees to carry-over any unused vacation days from year-to-year. When I was discharged last week none of these forfeited vacation days were included in my final paycheck? What can I do?


A.
You can either file a wage claim with the Division of Labor Standards Enforcement (the Commissioner's Office), or you can file a lawsuit in court against your employer to recover the lost wages. Additionally, if you no longer work for this employer, you can make a claim for the waiting time penalty pursuant to Labor Code Section 203.

I hope that you can find a solution between the two of you that you can both live with.

I would write up a vacation plan or I would not offer vacation at all. Just a suggestion.

I do wish you a speedily and fair resolution to your problem. I think you will have to negotiate with this employee.

Shirley