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In California, can an employer take away unused vacation at the end of a year?

June 13, 2011

In California, vacation pay is considered another form of wages that vests as it is earned. An employer’s policy that provides for the forfeiture of vacation pay that is not used by a specified time which is also called a “use it or lose it” policy is illegal under California law and will not be recognized by the state’s labor commissioner.

However, California law does allow employers to place a cap or ceiling on vacation accruals. This is allowable under California law because while a ‘use it or lose it’ policy results in a forfeiture of accrued vacation pay, a cap simply places a limit on the amount of vacation that can accrue. This means that once a certain level or amount of accrued vacation is earned but not taken, no further vacation or vacation pay accrues until the balance falls below the cap.

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