The court stressed that its decision was based on the particular facts of this case and went on to say that, "We by no means hold that all unlimited paid-time-off policies give rise to an obligation to pay 'unused' vacation when an employee leaves."įlexible work arrangements and unlimited paid-vacation policies may be of considerable benefit to employees and to the employers who want to recruit and retain those employees, the court noted, and employees and employers are free to contract for unlimited paid vacation. In essence, the court said, this employer did not in actuality have an unlimited PTO policy. Other employees who were covered by the handbook accrued vacation that vested over time. That may have been the informal policy for employees in the position held by the plaintiff, but the company had no written policy or agreement to that effect, and its employee handbook did not cover employees who held the plaintiff's job. The court held that section 227.3 applied to this employer's "unlimited" PTO policy because the company never told the employee-who was suing to recover unpaid vacation days-that she had unlimited paid vacation. Accrued vacation time is considered to be earned wages. However, if an employer does provide paid vacation, section 227.3 of the California Labor Code requires the employer to pay any vested vacation time an employee has not used at the time employment ends. The court, however, limited the ruling to the facts of the case and said that, if done properly, an employer may be able to construct an unlimited PTO policy that will not obligate the employer to pay for unused leave.Ĭalifornia law does not require employers to provide employees with paid vacation. A California appeals court ruled that under an employer's unlimited paid-time-off (PTO) policy, an employee actually accrued vacation days as she worked and was entitled to be paid for unused days when her employment ended.
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