My employer offers a generous amount of vacation time, permitting me to take as many as four weeks of paid vacation each year.
In years past, I have taken all of the days of vacation and haven’t had any left over at the end of the year, but this year I did not take many vacations and my employer has said that the vacation policy is “use it or lose it,” and at the end of the year my vacation days will be forfeited.
Can they do that?
The state of California treats paid vacation time as wages, and once vacation days have accrued, they are treated in the same way as your other compensation (like salary) during employment and upon termination.
Vacation days accrue evenly over the course of the year; if you are allowed four weeks of paid vacation time, after the first three months (1/4 of a year), one week (1/4 of your total vacation for the year) of paid vacation will have accrued. By the end of 12 months (4/4ths of a year), four weeks of vacation will have accrued (4/4ths of your total vacation for the year).
Think of your vacation days like an un-cashed paycheck; they are wages earned, but not yet realized in your bank account.
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If you were given a paycheck in November, and held onto that paycheck until January, would you lose your right to collect those wages? The answer is no. Does that mean that your employer’s policy is in violation of the law? The answer may not be so clear.
“Use it or lose it” is a shorthand phrase that may carry a different meaning to your employer than it does to you.
When you as an employee hear that phrase, you may think that the employer wipes the slate clean of all of your accrued vacation days. That kind of policy would be in violation of California law.
What your employer might mean, despite the confusing nomenclature of “use it or lose it,” is that you will not continue to accrue vacation days in excess of one year’s accrued vacation time. If that were the case, next year you may not gain any new vacation days.
It is permissible for employers to cap the amount of accrued vacation that an employee may earn, and once that cap is reached, not vest the employee with any additional vacation days until accrued days have been used.
Another possibility is that the employer may buy back the vacation days of current employees, and pay the employees a set amount for unused vacation days in an amount that could even be less than the employees’ regular rate of pay. However, going back to the paycheck analogy, the start of a new calendar year would not permit an employer to revoke vacation days that had already been earned.
At the termination of an employment relationship, outside of limited circumstances including the existence of a collective bargaining agreement, accrued vacation days must be paid out in the same fashion as the employee’s final paycheck.