Leaves: Can We Force Employees to Take Vacation During a Twice-Yearly Shutdown?

We’ve been struggling with keeping production up because of employee vacations. So instead of trying to fight vacation schedules, we want to start shutting down for a week in December and again in July and making everyone take vacation during those weeks. Are there any laws about doing this or any problems that you foresee? How much notice do we have to give? How would we go about phasing this in? — Melanie S., HR Manager in San Leandro

The good news is that employers have a great deal of latitude regarding the “if, how, and when” involved in offering paid time off (PTO) benefits, including vacation and holidays. No state or federal laws require private employers (union contracts notwithstanding) to offer PTO of any kind, with the exception of San Francisco’s sick leave ordinance.¹ However, to be competitive for talent and to recognize the importance of work/life balance, most organizations do offer such benefits. To avoid legal risk once PTO is established, employers must administer, track, and maintain consistent and fair practices, including providing adequate notice when you change these benefits.

As Melanie’s question indicates, staying productive can be challenging during the winter holidays, especially when Christmas and New Year’s Day fall in the middle of a week, as they did in 2007 and will again this year. The distractions of the holiday season (such as family, parties, and shopping) are particularly erosive to employee productivity. Additionally, during weeks in which any holidays fall, many employees want to take the same days off, possibly causing morale issues when one person is allowed time off and another is not.

One option organizations have if clients, customers, or other obligations do not require regular, continuous operations is to temporarily close the business, as Melanie proposes in her question. Employers can require employees to use accrued PTO during such a temporary shutdown. Here are considerations for implementing this type of policy in California:

1. Announce the new plan, the philosophy behind it, and the business reasons for it in a company-wide communication. This will help increase employee understanding and acceptance. Give all employees an opportunity to voice questions and concerns before implementation, and explain any policy you may decide to institute for exceptions, such as for already scheduled vacations. Make sure everyone knows when the new plan will take effect.

2. Give employees a minimum of 90 days’ notice of the temporary closure and the requirement to use accrued PTO during this time. The state labor commissioner decreased the minimum notice period for exempt employees from nine months to 90 days in 2005, but it makes good sense for both business and morale reasons to give all employees the same amount of notice.

3. Clearly communicate the possible pay reductions if employees do not have enough accrued paid vacation hours or holiday pay to cover the entire closure period. For exempt employees, be very careful about any partial-week salary reduction. For example, if you are closed two partial weeks between Christmas and New Year’s Day, and an exempt employee has not accrued enough PTO (plus any holiday pay) to cover that closure period, you risk calling into question the exempt status of that employee and all those who are similarly situated. The federal Fair Labor Standards Act (FLSA) says an employee will not be considered to be “on a salary basis”—an essential prerequisite for exempt status—if deductions from agreed-upon compensation are made for absences dictated by the employer. But the FLSA does allow salary reduction for full-week periods in which no work is performed. To avoid a legal challenge, an option would be to pay the employee, but put him or her into “deficit” in his or her PTO bank, so that any new accrual will go to “paying back the bank.”

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4. Develop a way to deal with the inevitable requests for additional (even if unpaid) time off for special situations, such as travel to attend family weddings. To minimize morale issues and other challenges, analyze the vacation balances of your workforce, current vacation requests, and, if possible, previous heavy vacation request periods (e.g., summer during school closures). Hold one-on-one meetings with current employees who may have the most concerns with the new plan to work with them on the best way to and helpful ideas for a phase-in period.

5. If your employee handbooks and/or employee offer letters contain policies or PTO offers that conflict with this closure policy, be sure to issue a dated amendment that includes statements such as: “this policy supersedes any previous policy or PTO agreement,” “employer retains the right to change company policy at any time,” and “this policy is not a contract and does not alter the at-will status of any employee.” (These statements should also have been in those handbooks and letters!)

To sum up, a private employer has the right to offer or not offer PTO benefits to nonunion employees at its discretion. (For those with union employees, there may be an opportunity to negotiate a mandatory closure policy when a contract comes up for renewal.) Once established, PTO benefits can also be changed, as long as employers have reserved that right and did not establish some type of “contract” with any employee—if you have done so, or think you might have, consult with a lawyer before making any changes. To steer clear of legal challenges and undue morale issues, changes to policies or practices should be widely disseminated and include fair notice periods, consideration of pay practices, and consistent application.

Diana Gregory, SPHR, is a senior human resources specialist at the Walnut Creek office of Administaff, a professional employer organization and human resources outsourcing firm.

¹Employers with any employees working in San Francisco that establish a set PTO policy and do not maintain a separate sick leave policy may not comply with the current San Francisco sick leave ordinance. Contact the San Francisco Office of Labor Standards Enforcement at (415) 554-6271 for the most current and specific information on this subject.