A job with an unlimited vacation policy seems awesome right? Companies that offer unlimited vacation policies are often viewed as employee friendly and revolutionary and many companies are jumping on the bandwagon. Your company tells you that they’re getting with the program and offering unlimited vacation! But before you start buying those plane tickets to Hawaii, consider this: is the unlimited vacation policy actually cheating you out of your wages?
Traditional vacation policies work on an accrual system where you accumulate a certain number of hours during each pay period. In California, vacation days that are accrued constitute wages and are part of an employee’s compensation package. “It is established that vacation pay is not a gratuity or a gift, but is, in effect, additional wages for services performed.” Suastez v. Plastic Dress-Up Co., 31 Cal.3d 774, 779 (1982). Accordingly, once you accrue a vacation day, it cannot be taken away. “Use it or lose it” vacation policies or policies where employers “buy back” your vacation days at a lower rate than your earned wages have been deemed illegal. See Boothby v. Atlas Mechanical, Inc., 6 Cal. App. 4th 1595, 1602 (1992); Wang v. Chinese Daily News, Inc., 435 F.Supp.2d 1042, 1049 (2006).
Once your vacation days vest, if you leave your job because you quit or are terminated, California law requires that your employer pay you for the unused vacation days as wages. Cal. Lab. Code § 227.3. This not only makes a lot of sense legally but also practically because who couldn’t use some extra cash when leaving a job?
If your job offers unlimited vacation and you don’t take any because you’re too busy or your manager won’t approve it, then you’re in no better position when you leave than your cube-mate that spent the better part of 2017 in the Bahamas. Unlimited vacation policies might seem great for the employee, but in actuality, companies save potentially millions of dollars when they establish one because they do not need to pay out when employees leave. And even articles that tout unlimited vacation policies acknowledge that employees may take less vacation: “Freedom gives people such a strong sense of ownership and accountability that, like business owners, many end up taking no vacation at all.”
If your company shifts from a traditional accrued vacation policy to an unlimited policy, what happens to your accrued vacation? The courts haven’t faced this issue yet but this author would argue that if your company requires you to use your “accrued” vacation dates before your “unlimited” vacation days, their policy violates Labor Code section 227.3. In addition, if unlimited vacation policies in action actually depend on the whims of managers and bosses who may or may not administer time-off fairly, then maybe the unlimited vacation policy is just ruse to get out of paying employees their due wages.
Although there haven’t been any court decisions regarding unlimited vacation policies, as more and more companies move towards that model, this topic is ripe for discussion. If you think your company’s vacation policy might be denying you your accrued wages, you should contact a lawyer to discuss your rights.