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January 1, 2013

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Legal Center Live: Accrued vacation considered wages by law

Question: Our company has a "use it or lose it" vacation accrual policy. Is this legal?

Answer: Alden J. Parker, an attorney with Weintraub and Tobin in Sacramento, has these insights:

The state of California does not require employers to provide vacation for their employees. There are certain restrictions the California labor code forces on employers should they choose to offer vacation time.

The code states that you cannot have a "use it or lose it" vacation policy, even in cases of termination or resignation. The vacation time is considered wages and is required to be paid out at the time of the employee's separation from the company.

However, the employer does have several options - a cap can be set on the amount of vacation accruable, or they can pay out the vacation time annually so there is no large lump sum hanging over the employer if the employee decides to leave.

The California Labor Commissioner considers two years' worth of vacation a reasonable accrual maximum.

Legal Center Live is a video series answering commonly asked legal questions affecting California restaurant operators. The CRA Legal Center provides CRA members with access to attorneys across the state who specialize in issues affecting restaurant operators. To ask a question, contact

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