California Vacation Vesting Ruling Highlights Importance of Clear Policy Language

Construction   |   Health Care   |   Insurance   |   Labor & Employment   |   Litigation and Trials   |   Real Estate   |   Technology   |   August 1, 2017
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Can your employees claim they are owed vacation pay from their first day at work? Last week, the California Court of Appeal reminded employers in California of the importance of a clear vacation policy to avoid that liability. In Minnick v. Automotive Creations, Inc., the court reaffirmed an employer’s right to have a policy whereby a worker’s entitlement to vacation pay does not vest until after their first anniversary of employment.

Plaintiff Nathan Minnick claimed his employer violated the California Labor Code by not paying him vacation wages upon his departure, and sought penalties under PAGA (Private Attorney General Act) for all of the employer’s workers. In affirming the dismissal of action on a demurrer, the court upheld the validity of the defendant’s written vacation policy, which stated:

“All employees earn 1 week of vacation after completion of one year service and a maximum of two weeks' vacation after two years of service. This means that after you have completed your first anniversary with the company, you are entitled to take one week of paid vacation, and after the completion of two years’ service, you will accrue two weeks paid vacation per year. This does not mean that you earn or accrue 1/12th of one week's vacation accrual each month during your first year. You must complete one year of service with the company to be entitled to one week vacation."

The opinion in Minnick affirmed that employers do not have to provide any vacation pay at all, and a policy that precludes an employee from vesting in any vacation time until they have worked at least one year is valid under California law. The court stated:

“An employer may lawfully decide it will not provide paid vacation. By logical extension, an employer can properly decide it will provide paid vacation after a specified waiting period. This is similar to an employer's authority to limit the amount of vacation pay that may be earned. If employers can lawfully restrict vacation accrual at the back end, it foIlows that employers can lawfully impose a waiting period at the front end.”

This ruling highlights the importance of making sure your vacation policies are stated clearly and explicitly. Employers should reexamine their employment manuals to confirm the vacation policy meets the standards of Minnick. Given the constant change of employment regulations, especially in California, employers should consider annual review of those employment manuals to insure they continue to comply with the ever-rapid change in worker rules and regulations.

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