Can we institute a use-it-or-lose-it vacation policy to encourage our employees to take their vacations?
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Use-it-or-lose-it vacation policies are not allowed in California. In other words, an employer can’t have a policy that says an employee earns two weeks of vacation each year, and if the employee hasn’t taken all of the two weeks by the end of the year, the employee loses whatever hasn’t been taken and starts the new year off with a zero balance. The employer must allow that unused vacation to carry over. However, what an employer can do as an alternative is to put a cap on the amount of vacation that can be accrued. As soon as employees reach that cap, they don’t accrue any more vacation until they take vacation and drop below the cap. The labor commissioner for the last 10 years or so relied on an opinion letter stating that an employee had to have at least 9 months to take the vacation, which was interpreted to mean that the cap could only be imposed after an employee had accrued 1.75 times the annual cap. Last November, the labor commissioner removed that letter from the Division of Labor Standards Enforcement Policy Manual—presumably on the basis that setting 9 months as a rule could only be done in a formal regulation. The new rule, therefore, is that the cap must be reasonable. Until there is further guidance on this issue, employers may want to proceed cautiously and continue with a 1.75 cap. — Lloyd W. Aubry, Jr.
Lloyd W. Aubry, Jr., former California labor commissioner, is of counsel at the San Francisco office of law firm Morrison & Foerster.