unlimited vacation policies

California law does not require employers to provide paid vacation. But if a California employer does choose to give paid vacation time, state legal requirements apply regarding accrual and compensation. For example, vacation may not be on a “use it or lose it” basis, and all vested but unused vacation is considered earned compensation that must be paid to the employee when their employment ends. Cal. Labor Code section 227.3. These rules apply to any unrestricted paid time off (PTO), including floating holidays and PTO plans that combine vacation and sick time into a single policy.

To avoid these restrictions and increase employee flexibility, many California employers have implemented what are colloquially referred to as “unlimited” vacation plans. In such plans, employees receive vacation time that does not accrue and is not subject to specified limits. Instead, an employee’s use of vacation is conditioned on management approval and business- or performance-related factors (for example, not interfering with business operations, completion of job duties, etc.). However, a recent decision from a California Court of Appeal, McPherson v. EF Intercultural Foundation, Inc. (April 1, 2020), calls into question the legal and practical viability of these “unlimited” vacation plans.
Continue Reading California Court of Appeal addresses “unlimited” vacation policies