Unused Vacation
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UNUSED VACATION UPON TERMINATION

The Court of Appeal recently upheld an employer’s policy limiting employees’ vacation benefits. Owen v. Macy's, Inc.(2009) 175 <u1:state w:st="on"><u1:place w:st="on">Cal. App. 4th 462. The employer’s policy allowed employees to earn vacation benefits after 6 months on the job. However, the benefit vested only twice a year: 50% in May, and 50% in August--a policy clearly described in Macy's employee handbook. When the employer terminated employees in April without paying for unvested vacation time, Plaintiff sued demanding payment.

Courts had previously ruled that employers cannot adopt “use it or lose it” policies and must, upon termination, pay employees all earned vacation time. In this case, the court deemed the unvested vacation time as unearned and sided with the employer.

RECOMMENDATION: For associations with employees, boards need to review their employee handbooks. When associations give vacation benefits, their handbook should explain (i) when employees start earning it, (ii) how it accumulates, (iii) when employees can use it, and (iv) the maximum vacation that can be accumulated. Once the vacation time vests, employees are entitled to keep it until used, or until receiving compensation at termination. To keep costs under control, associations should consider capping the total amount of vacation time employees can earn.

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Adams Stirling PLC