CSLB Law & Business ExamEmployment RequirementsHard
A contractor's written vacation policy states that any unused vacation time is forfeited if not taken by December 31 each year. An employee is terminated in November with 40 hours of accrued but unused vacation. Under California law, what is the employer's obligation regarding that vacation time?
- ANothing is owed because the policy lawfully forfeits unused vacation
- BThe employer must pay out the 40 hours of accrued vacation as wages in the final paycheck
- CThe employer may cap the payout at one week's worth of vacation regardless of actual accrual
- DVacation pay is owed only if the employee was terminated for reasons other than misconduct
Show answer & explanationAnswer & explanation
Correct answer: B. The employer must pay out the 40 hours of accrued vacation as wages in the final paycheck
California law treats vested vacation time as a form of wages that vests as it is earned; 'use-it-or-lose-it' forfeiture policies are unenforceable. Accrued, unused vacation must be paid out at the employee's final rate of pay upon termination, regardless of the reason for separation.
Why the other options are wrong
- A. Forfeiture policies for earned vacation are illegal in California.
- C. Employers can cap accrual rates prospectively but cannot forfeit already-earned time.
- D. The reason for termination does not affect the obligation to pay accrued vacation.
Vacation Pay Vesting
In California, earned vacation time vests as it accrues and is treated as wages; employers cannot use 'use-it-or-lose-it' policies, and accrued vacation must be paid out upon termination.
- Vacation vests as earned; cannot be forfeited
- Employers may cap accrual amounts, not forfeit earned time
- Must be paid at final rate of pay upon separation
Memory trick: Earned vacation is money in the bank—it never expires.