California Labor Code § 227.3 requires employers to pay terminated employees for their unused paid vacation time at their final rate of pay. If an employee is fired or laid off, the final paycheck should include payment for this unused vested vacation time.
The text of the Labor Code section is as follows:
227.3. Unless otherwise provided by a collective-bargaining agreement, whenever a contract of employment or employer policy provides for paid vacations, and an employee is terminated without having taken off his vested vacation time, all vested vacation shall be paid to him as wages at his final rate in accordance with such contract of employment or employer policy respecting eligibility or time served; provided, however, that an employment contract or employer policy shall not provide for forfeiture of vested vacation time upon termination. The Labor Commissioner or a designated representative, in the resolution of any dispute with regard to vested vacation time, shall apply the principles of equity and fairness.
If you are terminated from your job, California Labor Code 227.3 LC requires the employer to pay you the cash equivalent of your unused paid vacation time unless otherwise provided by a
- collective bargaining agreement, or
- employment contract.
Unused paid vacation days generally must be paid out at your final rate of pay.1
Example: Bill is laid off from his job before he can take his five days of paid vacation. His final rate of pay is $100 per day. Therefore, Bill is owed $500 for his five unused vested vacation days ($100 per day times five days).
Your employer must pay you for your unused vacation time in your final paycheck, which you must receive at the time of your termination (unless you previously contracted otherwise). If your employer is late, you are entitled to a waiting time penalty of your daily rate of pay for each day your wages are late (up to 30 days maximum).2
Note that vacation time cannot expire in California. Therefore, “use it or lose it” policies are unenforceable.3
See our related article, Cash out vacation time in California – Here’s how to do it.
- California Labor Code 227.3 – General Occupations. See, for example, Henry v. Amrol, Inc. (Cal. App. Dep’t Super. Ct., 1990), 222 Cal. App. 3d Supp. 1. Minnick v. Automotive Creations, Inc. (Cal. App. 4th Dist., 2017) 13 Cal.App.5th 1000.
- California Labor Code 203 LC.
- Suastez v. Plastic Dress-Up Co. (1982) 31 Cal. 3d 774.