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Can we apply a use-it-or-lose-it clause to our company’s vacation policy?

by on
in Employment Law,Human Resources

Q. Our company’s employee handbook states that workers receive two weeks of paid vacation a year. Some of our employees have accrued significant amounts of unused vacation over the years. Can we require those workers to use their accrued vacation by a certain date or forfeit it?

A. Generally, employers are not required to provide workers with vacation time. However, for those employers that do provide this benefit, California law has extended broad protection to “vested” vacation time.

Section 227.3 of the California Labor Code states that whenever an employer has contractually agreed to provide paid vacation and a worker’s employment is terminated before using his or her vested vacation, the worker must be paid for the unused accrued vacation time.

California courts have interpreted this statute to prohibit “use-it-or-lose-it” policies—requiring a worker who does not use accrued vacation by a certain date to forfeit the vacation time. Thus, you may not force your employees to use their vacation by threatening the loss of paid leave.

Employers should note, however, that it’s legal to place caps on the amount of vacation time an employee can accrue. Under such a policy, once a worker has accrued a certain amount of vacation, he or she stops earning additional time off until the amount accrued falls below the specified level.

For such a policy to be enforceable, employers must provide workers with a reasonable opportunity to take vacation time.

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