Court of Appeal: Union Contracts Must Clearly and Unmistakably Waive Rights Under California Vacation Law

It's California employment law 101 that employers must pay out all "vested" vacation time when an employee's employment ends.  No "use it or lose it" and no limits on "carry over" are allowed under Labor Code Section 227.3.  There's an exception in the statute though, which says the statute applies "[u]nless otherwise provided by a collective-bargaining agreement."

What does "otherwise provided" mean?  Well employer Celite had a collective bargaining relationship, and their agreement provided as follows, according to the Court of Appeal:

Celite granted its employees between one and five weeks of vacation annually. Each January, Celite calculated a yearly "vacation allotment" based on each employee's length of employment and the number of hours they worked the year before. [The] employees terminated from Celite were entitled to "receive whatever vacation allotment is due them upon separation."[fn] For 25 years, both Celite and the Union understood this provision to refer to the "vacation allotment" as defined above. Accordingly, Celite paid terminated employees for the vacation time already allotted to them for the year of their termination, but did not pay them the vacation time they had accrued toward the next year's allotment.

The description above suggests that the contract required payment of whatever vacation balance the employee had, but did not take into account "accrual" of vacation during the current year.  Pretty clear to me.

 

Not clear enough for the Court of Appeal, though, and I don't get a vote.  The Court decided that because vacation pay is a significant state-law right, any waiver of 227.3's requirements had to be "clear and unmistakable." Here's what the Court said:

To be clear and unmistakable, a waiver must do more than speak in "'[b]road, general language." (Vasquez, supra, 80 Cal.App.4th at p. 435.) It must be specific, and mention either the statutory protection being waived or, at a minimum, the statute itself. (Accord, Hoover v. American Income Life Ins. Co. (2012) 206 Cal.App.4th 1193, 1208.) The Agreements here neither mention pro rata vacation pay nor cite section 227.3. Celite points out that the Agreements "affirmatively address" vacation payments upon termination. But discussing a topic while at the same time saying nothing about the statutory right at issue does not affect a clear and unmistakable waiver of that right.

So, please check your union contracts and either negotiate a clear provision that waives Section 227.3 expressly and, preferably, quotes the statute.  This is why California release agreements quote Civil Code Section 1542, in case you've ever wondered about that.

On the bright side, the Court of Appeal decided the employer did not act "willfully" by following the collective bargaining agreement and, therefore, was not on the hook for "waiting time" penalties.  The court said that this was the first opinion deciding the standard for waivers under Section 227.3, and so the employer's mistake of law was not "willful."

Some times I wonder what all those class action plaintiff lawyers are doing after Brinker and Dukes v. Walmart put a damper on things.  (Ok, not really).  Well, here is the Court of Appeal riding to the rescue. 

It may be that the California or even U.S. Supreme Court may review this case, but the odds are long. If this case stays on the books, all union contracts prescribing a vacation payout provision that is less generous than Section 227.3 are subject to attack.  Make with the bargaining, employers.

The case is Choate v. Celite Corporation, and the opinion is here.

Court of Appeal: What's a Vacation?

Some companies give paid "sabbaticals" to long term employees. I am jealous of people who work for those companies.

Eric Paton worked for Advanced Micro Devices for seven years before he resigned.  He then sued AMD, claiming the sabbatical that he had not yet earned had "vested" during his entire employment, like vacation.  Therefore, he claimed, he was entitled to a proportional amount of sabbatical pay upon his termination of employment.  His lawsuit is a class action, brought on behalf of some 1400 former employees who had earned portions of their sabbaticals.

Preposterous, you say? Not so fast, said the court of appeal.

To figure out whether the sabbatical is vested vacation, which must be paid out upon termination under Labor Code Section 227.3, the court came up with a definition of "vacation:"

It is paid time off that accrues in proportion to the length of the employee's service, is not conditioned upon the occurrence of any event or condition, and usually does not impose conditions upon the employee's use of the time away from work.

Thus, consistent with the employment lawyer's understanding of vacation, holidays and sick days are not vacation because they are "conditioned upon the occurrence" of sickness or holidays.  Paid days off that do not require a condition to occur (like PTO and floating holidays) tend to fit within this definition.

The court then considered what is a true sabbatical.  The court borrowed from a test the state Division of Labor Standards Enforcement developed, and added an additional criterion:

First, leave that is granted infrequently tends to support the assertion that the leave is intended to retain experienced employees who have devoted a significant period of service to the employer. Every seven years is the traditional frequency and it seems an appropriate starting point for assessing corporate sabbaticals, as well. In many cases, an interval of seven years would be long enough for an employee to gain experience and demonstrate expertise that an employer might want to retain. Greater or lesser frequency could be appropriate depending upon the industry or particular company involved.

Second, the length of the leave should be adequate to achieve the employer's purpose. Since we are concerned here with unconditional sabbaticals given for the purpose of reenergizing the employee then, as the Labor Commissioner suggested, the length of the leave should be longer than that “normally” offered as vacation. Since regular vacation time may be used for rest, a sabbatical ought to provide the extended time off work that regular vacation does not.

Third, a legitimate sabbatical will always be granted in addition to regular vacation. . . .Because an employer could offer a minimal vacation plan and reward senior staff with sabbaticals as a way to avoid the financial liability of a more generous vacation plan, the employer's regular vacation policy should be comparable to the average vacation benefit offered in the relevant market.

A fourth factor is one that is implicit in the DLSE test but is not called out specifically. Since a sabbatical is designed to retain valued employees, then a legitimate sabbatical program should incorporate some feature that demonstrates that the employee taking the sabbatical is expected to return to work for the employer after the leave is over.

Applying this test, the court decided that AMD's plan raised a triable issue of fact regarding whether it was a true sabbatical or deferred vacation. The court's central concern was the purpose of establishing the program:  is it just added vacation for long term employees, or is it an incentive for employees to remain employed with AMD and improve their productivity upon return to work (sabbatical).  So, the court remanded the case for trial.

The decision is Paton v. Advanced Micro Devices and the opinion is here.