Fully-Paid Leave Is Required If Employer Offers Unlimited Vacation Policy

Employers that offer “unlimited” or “untracked” vacation policies rarely allow workers to participate in their policy and receive paid leave during the period of time a given worker is on a protected leave of absence (LOA).  That is, although the employer will pay the full salary of someone who wants to travel for three weeks, it will not pay a dime to employees who take a leave from work due to health problems, pregnancy, family care or a similar protected reason.

Employers often think that this formulation allows them to have their cake and eat it too.  They have minimized the liability on their books for employees’ accrued but unused vacation while ensuring they will not be stuck paying many weeks of salary to someone who is not actually working.  But, this policy rests on very shaky legal ground.  As a result, an employee who took a protected LOA from a job that provided otherwise unlimited vacation but did not receive full pay during the term of that leave may be entitled to recover the wages s/he was not paid during the period of the leave.

LOA Statutes Require That Employers Allow Their Employees To Use Paid Vacation During The LOA

An unlimited vacation policy that pays employees anything less than their full salary during a protected LOA is arguably a violation of both the FMLA (Family and Medical Leave Act) and California’s CFRA (California Family Rights Act) and PDLL (Pregnancy Disability Leave Law).  Any argument to the contrary depends on two legal fictions, neither of which is likely to be accorded much respect by a court.

The first fiction that employers must advance in order to justify their position is the counterintuitive idea that although workers in an unlimited system can take a paid vacation whenever they want, they do not “accrue” any vacation time under that policy.  Convincing a court to adopt this reasoning is sure to be difficult given that various dictionaries define “accrue” to mean “receive,” “arise” and “come into existence,” among other things.  Each of those terms seems to describe the time off workers receive under an open vacation policy.

If vacation days are “accrued” under the employer’s vacation policy, then electing to pay employees anything less than their full salary during a protected LOA violates the plain text of each of the PDLL, CFRA and the FMLA.  See Gov. Code § 12945(a)(1) (PDLL requires workers have option to use “any accrued vacation leave” during LOA); Gov. Code § 12945.2(e) (CFRA requires workers be allowed to use any “accrued vacation leave or other accrued time off” during LOA); 29 U.S.C. § 2612(d)(2) (FMLA requires that worker be allowed to “substitute any accrued paid vacation leave, personal leave, or family leave” during LOA).

The second and related legal fiction that employers must advance is that the their unlimited vacation policy also does not provide workers with any of the following: “any vacation time,” “undifferentiated paid time off” or “any other paid or unpaid time off negotiated with the employer.”  California’s LOA laws use each of those terms as examples to describe the paid time off from work that an employee must be permitted to use while on a protected LOA.  See Gov. Code § 12945.2(e); Cal. Code Regs., tit. 2 §§ 7291.11(b)(2), 7297.5(b)(1).  Recognizing that lawyers can disagree about what the meaning of “is” is, it still seems very likely that the payment that workers subject to an unlimited vacation policy receive when they are away from the office during a workday falls under one or more of the definitions above.

Employers Cannot Administer Vacation Policies To Discriminate Against Protected LOAs

Even if employers succeed in convincing courts that unlimited vacation policies do not meet any of the preceding definitions, they may still be liable under the catchall prohibitions on discrimination that are included in each of the FMLA, CFRA and PDLL.  These statutes prohibit any act that restrains an employee from exercising the right to use their paid vacation during a protected absence.  See Gov. Code §§ 12945(a)(4), 12945.2(t); 29 U.S.C. § 2615(a)(1).  For example, a policy that subtly discourages workers from asking for paid vacation during a protected LOA would violate the law.  So would a policy by which absences that last beyond a certain duration are automatically converted to unpaid leave.

Moreover, the FMLA regulations state that “employers may not discriminate against employees on FMLA leave in the administration of their paid leave policies.”  29 CFR § 825.207(a).  Administering a vacation policy in a way that pays employees on a three-week honeymoon but shortchanges those who are tending to sick relatives is, in this author’s view, facially discriminatory.

What Remedies Do Workers Have?

An employee who worked for a company that provided “unlimited” vacation but refused to pay his or her full salary during an LOA would have a number of remedies under the relevant statutes.  But, all other things being equal, the FMLA likely offers the best set of remedies.

First, the FMLA allows the employee to recover “any wages, salary, employee benefits, or other compensation denied or lost.”  29 U.S.C. § 2617(a).  Here, that would mean back pay for the period of unpaid protected leave.  Second, the FMLA also provides for liquidated damages (i.e. double damages) unless the employer proves its violation was in good faith.  Id.  Third, the statute of limitations for a claim under the FMLA is two years, but is extended to three years in the event of a willful violation.  29 U.S.C. § 2617(c).  Finally, there is no administrative exhaustion requirement under the FMLA.  Thus, an employee can pursue a class action under the FMLA without filing any administrative complaint.  29 U.S.C. § 2617(a)(2)(B).

In contrast, California law offers a shorter statute of limitations—one year—and does not provide for liquidated damages.  Gov. Code § 12960(d).  Although class actions are authorized, both class actions and single-plaintiff cases are subject to the requirement of administrative exhaustion.  See Gov. Code § 12961.  The main potential benefits to proceeding in California are that the statutes and regulations arguable provide a clearer case for including “unlimited” vacation plans within the scope of the sort of paid leave employers must offer to employees on PDLL and CFRA leaves as well as the potentially-applicable California Unfair Competition Law, which has a four-year statute of limitations.

If you worked for a company that offered unlimited vacation but refused to pay your salary during a protected LOA, then please contact Sebastian Miller to discuss in more detail what remedies you may have available.

Disclaimer: All materials have been prepared for general information purposes only to permit you to learn more about Sebastian Miller Law, P.C, its services and experience.  The information presented is not legal advice, is not to be acted on as such, may not be current and is subject to change without notice.

 

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