In California, “use it or lose it” vacation policies are prohibited. However, employers are only prohibited from taking back vacation time that has already accrued. They can take other measures to limit how much vacation time you can accumulate, such as by capping how many vacation days you can build up.
California prohibits “use it or lose it” vacation policies
In California, paid time off (PTO) and other benefits are a form of “wage.”[1] You are entitled to receive your wages once you have earned them. Therefore, once you have earned your vacation time, you are entitled to receive and keep it.
This makes “use it or lose it” vacation policies, or similar policies for other forms of PTO, unlawful in California.
California is one of only a few states in the U.S. with protections against “use it or lose it” PTO policies. In other states that also forbid the practice, state law treats PTO and vacation time as a “wage.”[2] Most states in the country either expressly permit these PTO policies or do not have laws concerning them.
Note, though, that there is no legal requirement under California vacation law for your employer to provide either paid or unpaid vacation time. However, many choose to provide vacation benefits, as well as other PTO like paid sick leave and personal days, to attract better workers.
Other PTO policies can limit vacation time accrual
However, just because California employers cannot adopt a “use it or lose it” policy for vacation time or PTO, that does not mean that they cannot limit it in other ways. Some common ways around California’s prohibition are:
- limiting when you can use your accrued time off, such as by implementing a “blackout” period when things are expected to get busy,
- maximizing the number of days of vacation that you can use in a row,
- lowering the annual accrual rate after a set amount of vacation time has accumulated, and
- capping how much vacation time you can accrue.[3]
This last policy, capping how much time you can build up, is similar to a “use it or lose it” policy. Rather than losing your vacation time, you just cannot get any more of it until you use some. However, the California Labor Commissioner’s Office requires that this be a reasonable cap on the accrual of vacation.[4]
So long as your employer does not implement these policies in a discriminatory way, they can be used in California to limit an employee’s vacation time.
Certain other policies also forbidden
There are, however, certain ways of limiting your vacation time that the California Division of Labor Standards Enforcement (DLSE) forbids. According to the DLSE, the following limitations on the use of your vacation time are unfair and will not be enforced in the state:
- requiring you to use all of your vacation time in the calendar year in which it was accrued,[5] and
- forcing you to use carry-over vacation time from last year before you could receive any new time in the current year.[6]
The employment lawyers at our law firm have found that plenty of California employers still use these policies. Some may even take away vacation accrual at the end of the year. They may be unaware that these policies are unenforceable under California labor law. On the other hand, they may know that they are unlawful but hope that their employees do not know the law.
You are entitled to a payout for your vacation pay
Because state employment law treats vacation time as a form of wage, and because you are entitled to your wages once they have been earned, you have a right to cash out unused vacation time when your job ends.[7] You are entitled to it even if you were:
- fired, or
- laid off.
According to California law, your employer is not allowed to take away vacation time:
“An employment contract or employer policy shall not provide for forfeiture of vested vacation time upon termination.”[8]
The payout for your unused vacation time would be included in your final paycheck. This paycheck would also cover the wages earned during your final pay period. The payment has to be made:
- immediately, if you were terminated or you resigned with at least 72 hours of notice, or
- within 72 hours, if you did not provide at least 72 hours of notice.[9]
If an employer fails to pay an employee’s final paycheck within this time period, they can face a waiting time penalty. This penalty is your daily pay for each day that the wages are late, for up to the waiting period maximum of 30 days.[10]
The amount of the payout for your accrued vacation time is based on your final rate of pay, not on your rate when each day of vacation was accrued.[11]
You are also entitled to cash out your other PTO, like your sick days, when you quit or are discharged.
Our employment attorneys have found that some employers let their workers cash out paid vacation time and other PTO while they are still on the job. Check your employment contract or employee handbook to see if your employer has such a company policy or if your PTO payout is only available at the termination of employment.
If there is a collective bargaining agreement, the terms of that agreement would control how unused vacation days are paid out, rather than California PTO laws.
Legal Citations:
[1] California Labor Code section 200 LAB.
[2] See Colorado Revised Statute (CRS) 8-4-101(14)(a)(III) and Nieto v. Clark’s Market, Inc., 488 P.3d 1140 (Colo. 2021).
[3] Boothby v. Atlas Mechanical, 6 Cal.App.4th 1595 (1992).
[4] Labor Commissioner’s Office, “FAQs – Vacation.”
[5] DLSE Opinion Letter 1993.08.18.
[6] DLSE Opinion Letter 1991.01.07.
[7] California Labor Code 227.3 LAB.
[8] Same.
[9] California Labor Code 202 LAB.
[10] California Labor Code 203 LAB.
[11] California Labor Code 227.3 LAB.
