California HR

Is Discretionary Paid Vacation A Good Idea?

I have a client that is a start-up company that I’m helping set-up up Policies & Procedures for their Handbook. They currently do not have any formal Time-off policy and do not want any established Company Holidays, amount of sick days per year or amount of vacation days per year. What they want and currently have is Paid/Unpaid Leave by request. Anytime you want to take time-off you need to request it from your manager; it is at the discretion of your manager whether or not you get it and whether or not it will be paid.

This is not a typical set-up that I’m used to and I have several concerns:

  1. There are 3 very different manager styles and I’m concerned that some departments will get more time-off than others; if they are not tracking time-off, what if a disgruntled employee decides to file a lawsuit and they never took time off would they be entitled to any accrued/unused vacation payout? How would that be determined?
  2. I’m concerned with the different management styles if they could get into possible issues of discrimination and/or unfair treatment issues; is that possible under “perception is reality”?
  3. As the company grows and employees seniority begins to establish what should be some of the issues that we need to prepare for? (e.g. a new employee takes a week vacation and an employee that has been with the company for over 2 years has never taken any and then they are terminated, do they have any recourse?)

Any comments and/or suggestions in regards to this policy or lack of policy would be greatly appreciated.

It sounds as it the company wants to treat paid time off as, essentially, a discretionary bonus. Since employers are not required to provide paid time off, and can give some employees paid time off while not giving it to others, there’s nothing objectively illegal about providing a discretionary bonus in the form of paid time off. However, because paid time off is, legally, a wage that the employee earns, an employer who doles our paid time off as a bonus is likely to be viewed as attempting to circumvent the rules that require PTO to vest as labor is performed and be paid out at termination. It is very, very strongly recommended that an employer wishing to offer PTO as a discretionary bonus consult with a qualified employment law attorney with wage and hour expertise before doing so. An attorney will very likely advise against such a practice.

Also, all employers are absolutely required to track and keep records of all hours an employee works, all paid or unpaid time off, and all bonuses or other benefits given to employees. All employers are also required to provide unpaid time off for a variety of reasons, such as for an employee to vote, serve jury duty, to appear in court, to attend school activities, etc. Employers who have employees working in San Francisco must also provide paid sick leave benefits (one hour of sick leave for every 30 hours worked), and must track these benefits and report them to a city agency on an annual basis (and, there’s a bill in the legislature that if approved, would make this the requirement for all California employers).

In addition, for all of the reasons you’ve noted, a policy that permits managers to give PTO as a discretionary bonus upon the manager’s sole discretion is highly vulnerable to discrimination claims, and again, is very likely to be discouraged by an attorney reviewing the entire facts.

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Also, while the law doesn’t confer any set seniority rights on employees (outside of a government or unionized setting), the risks associated with giving benefits to new employees that aren’t afforded to established employees are almost too numerous to count. The main concern, in addition to discrimination claims, is that it can easily be evidence of retaliation.

In other words, employees who complain about unlawful activities, or who have disabilities, who are injured on the job, who complain of poor working conditions, etc., aren’t getting PTO-bonuses like other employees who don’t complain or who aren’t injured or disabled. It can also easily be evidence of discriminatory pay practices under equal pay laws, if more men than women get the PTO benefit. An employer who doesn’t track and keep are really close eye on the overall picture of who is and who is not getting the PTO-bonus has no way to know if it’s practices are inadvertently biased, and will have no way to defend itself in a lawsuit if it turns out that one group is being treated less favorably than another group.

In terms of company holidays, while there’s no law that an employer has to offer paid holidays, employers must still allow employees to observe certain religious holidays and permit reasonable scheduling flexibility to do so. Also, an employer cannot favor one religion’s holidays over another.

It’s not uncommon for employers (especially small employers) to think that not having a uniform policy is easier to manage than having one. But, that is really never the case. Once a lawful policy is established, then there’s an easy way to know that you’re in compliance with the law and to be assured that you’re complying in a non-biased way. Also, making and following a policy is a lot cheaper and easier than defending against a lawsuit.

Finally, there are significant employee morale issues to consider.
Employees who feel that their pay, benefits and working conditions are subject to the whim of the employer are much more likely to feel picked on, unhappy, discriminated against, and that they’re being treated unfairly.

And, they’re more likely to seek employment elsewhere, making it harder to retain (or attract) good employees. Plus, if employees never get a break and can’t plan for family vacations and other personal activities, they’re likely to be more stressed, more overworked, and less productive.

—Jessica Christensen, Esq.
California Employer Advisor

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