Can an employer take away earned vacation time?

An employer cannot take away earned vacation time. When an employer takes away accrued vacation, it is illegal and considered wage theft.

Author: Brad Nakase, Attorney

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In California, paid vacation time is viewed as a form of wages. Therefore, employee have the right to any earned vacation time or the cash equivalent and earned vacation cannot be taken away. In fact, an employee has the right to do the following with their built-up PTO:

  • Use it by taking time off or going on vacation
  • Cash it out by accepting a check in lieu of time off
  • Roll it over into the next year
  • Give it up

Typically, employees decide what to do with unused PTO at the end of a calendar year. But their decision might depend on the employer’s specific policies or their specific state’s laws. For example, some businesses might only allow employees to cash out up to 40 hours and roll over 10.

In this article, our Los Angeles employment attorney discusses earned vacation time as follows:

1. Are use it or lose it vacation policies legal in California?
2. Can my employer tell me when I can take my vacation time?

Are use it or lose it vacation policies legal in California?

In California, use it or lose it vacation policy is illegal. Therefore, an employer taking away earned vacation time is illegal. Earned vacation is treated the same as earned wages and vest as the employee performs work. Just like a wages cannot be taken from an employee, accrued cannot be taken away from a worker.

If a company enforces a use-it-or-lose-it policy, employees are required to use their PTO by a certain date or else give up their right to it. This type of policy prevents an employee from cashing out or rolling over unused time. Employers who enforce this type of policy must make sure that is clearly expressed to their employees. Importantly, use-it-or-lose-it policy that takes away an employee’s accrued vacation time is illegal in California.

California thus regulates unused vacation time by requiring employers to:

  • Payout unused vacation time to employees or rollover unused time to the next year (thereby banning use-it-or-lose-it policies)
  • Pay unused PTO as wages in an employee’s final paycheck
  • Both of the above

Example: Eduardo lives in California and works for a company that sells farming equipment. Eduardo is saving up his paid vacation days for a January trip to El Salvador with his wife. In November, shortly before his trip, Eduardo learns that he must use his PTO before the new year, when it will expire. Upset, he learns that his employer has a use-it-or-lose-it policy, where all unused earned vacation expires on December 31. He hires a lawyer and sues his employer. A policy that allows for unused vacation pay to be “lost” is thus not legal in states like California.

Can my employer tell me when I can take my vacation time?

In California, unlike taking away earned vacation time, an employer can control when an employee takes a vacation and how much is used at any one time. The employer may have a rule that up to five days of vacation time are used in a row to avoid being left short-staffed. An employer may also ask that an employee move his vacation to a later date if it conflicts with other employees’ time off. In some industries, there are even blackout dates. These are times of the year when no employee may take time off due to heavy business. Blackout dates are most common in retail when the holiday season is hectic. Importantly, vacation time is not taken away.

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