Elimination of Vacation and Sick Day Accruals. Can that be Legal?

By Mark Terman

According to a November 17, 2014 article in LAobserved.com highlighted by the Los Angeles Business Journal, exempt non-union Los Angeles Times employees as of January 1, 2015 will no longer be able to accrue vacation days, sick days or floating holidays.  Instead, a new Discretionary Time-Off policy will reportedly allow those employees time off, “subject to their professional judgment and to the performance expectations of their supervisor that apply to their job.”  In theory, says the article, an employee can take more time off than under an accrual system, but Times’ employees are wary.

From some who caught this story, we have been asked if this kind of policy is legal. Well, in short, it can be.

Private employers generally do not have to provide paid vacation, sick or holidays under California Law.  Those benefits are so customary that many think they must be required.  An employer can lawfully end accruals for the future; but, it must allow use or pay out of vacation (or PTO) that has already been accrued.  This is because California law treats accrued vacation as a form of wages that cannot be taken away once earned.  By contrast, California law has not treated sick day accrual as wages and sick day accrual can be lost if not used.   Collective bargaining agreements often lay out different rules for union employees.

The Times policy reportedly ends future vacation accruals and allows exempt employees time off (with their regular pay continuing) if their supervisors approve the time off.  Employers go with a no accrual policy to save costs, particularly at termination of employment when unused vacation accruals must be paid in cash to the exiting employee. This strategy works legally and it can eventually end vacation accrual financial liability; but, it can be a morale problem to a workforce who may be wary that management may only infrequently approve time off.  Management does, however, have an incentive to handle requests fairly if it wants to attract and retain great employees.

A no accrual policy needs to be integrated with state and local laws in California which require minimum paid sick day accruals. Effective July 1, 2015, for example, AB 1522 requires that most employee be provided at least three paid sick leave days. Cities such as San Francisco already have similar laws.

Before changing to a no accrual policy, employers should, with the help of counsel, plan a policy that is both compliant with the California wage and hour laws and takes into account the impact it may have on the existing workforce and on recruiting.