July 5, 2020

Volume X, Number 187

July 03, 2020

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July 02, 2020

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Unlimited Vacation Policies in California – New Decision

The California Court of Appeals for the Second District evaluated the validity of unlimited vacation policies in a recent decision. Unlimited vacation policies operate how one might expect: instead of having a specific number of hours vest that the employee can use to take paid time off, an unlimited policy provides that the employee can take as much vacation per year as they would like to subject to company approval. In California, when vacation vests, it is treated as wages at termination and must be paid out. Since unlimited vacation does not vest, there is no payment due at termination.

In McPherson v. EF International Foundation, Inc., the Court of Appeals determined that the specific facts surrounding the employer’s unlimited vacation policy rendered it invalid. The employer did not have a written policy stating that vacation time was unlimited, nor did it tell the employees that their vacation time was unlimited and would not be treated as wages. Additionally, testimony showed that the company expected the employees to take vacation in a fixed range (i.e., two to four weeks).

The Court also provided some interesting guidance in unbinding dicta. In the unpublished portion of the decision, the court lays out the steps that employers should take to ensure that their vacation policy is truly unlimited and does not require employers to pay out vested time at the end of employment:

  • The policy must clearly provide that the employees’ ability to take paid time off is not a form of additional wages for services performed;

  • The rights and obligations of the employee and employer must be clearly outlined, including consequences for failing to take time off;

  • The policy must allow sufficient opportunity in practice for the employees to take time off or work fewer hours in lieu of taking time off; and

  • It must be administered fairly so that it does not become a de facto “use it or lose it” policy or result in inequities, such as when one employee works many hours, takes minimal time off, while another employee works fewer hours and takes more time off.

Although the Court’s guidance could be useful background against which to evaluate current unlimited vacation policies, employers should keep in mind that it is unbinding, and courts of appeal in other districts or the California Supreme Court may not agree with this approach.

Copyright © 2020, Hunton Andrews Kurth LLP. All Rights Reserved.National Law Review, Volume X, Number 132

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About this Author

Katherine Sandberg Employment Lawyer Hunton Andrews Kurth Law Firm
Associate

Katherine has extensive experience in wage and hour class actions and high-stakes trade secrets litigation. She also has a demonstrated track record of favorable outcomes in federal and state courts for clients facing claims of discrimination, harassment, retaliation and unfair competition. Moreover, she has guided clients through difficult interactions with administrative agencies and claimants to resolve disputes before lawsuits are ever filed.

Katherine also has significant experience defending business owners in public accommodation access litigation involving claims of...

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Roland M. Juarez Employment & Labor Attorney Hunton Andrews Kurth Los Angeles, CA
Partner

Roland’s practice focuses exclusively on employment and labor law.

Roland has exclusively handled employment cases since 1992. He was named a 2020 Top Minority Attorney in Los Angeles and a 2019 Top Litigator & Trial Lawyer, both by the Los Angeles Business Journal; a California Labor and Employment Star and was nominated as California's top Labor & Employment Litigation Attorney in 2019, both by Benchmark Litigation. Hunton’s California Employment Group was also nominated as the California Employment Group of the Year in 2019 by Benchmark. Roland’s experience includes class actions, non-compete, non-solicitation and employee raiding cases, discrimination, harassment, disability, wage and hour, PAGA and Title III website accessibility cases. He has numerous recent trial and arbitration wins and regularly practices in state and federal courts and JAMS arbitrations in California. 

Roland is a contributing author to the firm’s Employment & Labor Perspectives blog. He also serves as the Co-Head of Hunton Andrews Kurth’s Unfair Competition and Information Protection Task Force. He is also a member of the Firm’s national associates committee. Roland is admitted to practice before the U.S. Courts of Appeals for the 5th, 9th and 11th Circuits; U.S. District Courts for the Northern, Southern, Eastern and Central Districts of California and Texas; and the Northern District of Georgia. He was also a law clerk for Acting Justice Carol H. Arber, New York State Supreme Court (1990).

Relevant Experience

  • Successful prosecution of employee “raiding” and theft of trade secret matters, and defense against injunctions in non-competition and trade secret matters.
  • Multiple successful defense verdicts in trials alleging unpaid overtime, missed meal and rest breaks, and inaccurate wage statements based on misclassification and other wage and hour claims.
  • Multiple successful defense victories in JAMS Arbitrations including unpaid overtime, missed meal and rest breaks, and misclassification claims; discrimination, retaliation, failure to provide reasonable accommodation, and failure to engage in the interactive process all under California’s Fair Employment and Housing Act (FEHA); and wrongful termination under California law.
  • Multiple successful defense victories on summary judgment and motions to dismiss, including claims related to discrimination and harassment (race, age, sex, disability) under federal law and FEHA, breach of employment agreements, negligent Infliction of emotional distress, intentional infliction of emotional distress, ADA, FMLA, failure to engage in the interactive process and failure to accommodate.
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