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September 28, 2011

Sabbaticals, or paid leaves for personal and professional development, have long been a basic benefit within the academic world. However, corporate sabbatical programs only go back about 50 years to when McDonald’s Corporation began offering eight weeks off for every 10 years of service. In general, paid sabbatical benefits are only offered by a small percent of U.S. employers. According to a 2009 Society of Human Resource Management benefits survey, paid sabbatical programs are offered only at 5% of U.S. companies. Other surveys by Wyatt Worldwide and Mercer Human Resources suggest somewhat higher usage at 15% to 20% when surveying the largest U.S. employers.

Paid sabbaticals have gained some popularity over the last four decades in Silicon Valley. Intel was one of the first companies in Silicon Valley to offer a paid sabbatical. At Intel, every seven years, each full-time
employee qualifies for eight weeks of leave with full pay and benefits which is in addition to regular vacations. In addition to Intel, several Silicon Valley/San Francisco Bay Area companies including Adobe, Advanced Micro Devices (AMD), Genentech, eBay, and Apple offer paid sabbaticals. Recently, the following California court case surfaced involving AMD and concerns when an employee might assume their employer, who provides paid sabbatical leave, is offering more vacation time and thus, is entitled to compensation for the unused sabbatical them when they conclude their employment.

California-based AMD was sued by a class of 1,432 former employees who claimed the company failed to pay them for sabbatical time they had earned but not used by the time they left the company.

Under AMD’s sabbatical policy, salaried employees with seven years of service were eligible for an eight-week fully paid sabbatical. The leave was forfeited if the employee did not use it before employment ended.

The former employees argued that the sabbatical program was really just extra vacation time. They asserted that the right to the sabbatical had vested for those who had worked seven years or more and they were therefore entitled to pay for the sabbatical; others with shorter tenure with AMD were entitled to pay for the unused sabbatical in proportion to the time they had worked for the company, the employees claimed.

The trial court dismissed the case before trial, finding that the sabbatical program offered a true sabbatical as matter of law—meaning there was no way a jury would find that it was actually vacation time. The class members appealed.

The fundamental question is whether the leave is deferred compensation earned over the course of employment or is intended to retain the most experienced or valued employees and enhance their future service to the employer.

In reversing the trial court, the Court of Appeals noted that the distinction between the two types of
leave, vacation and sabbatical, has never been clarified by a state court or the Legislature. To do so here, the court began by considering the definition of “vacation” within California Labor Code Section 227.3, which
prohibits employers from forcing employees to forfeit vested vacation time upon termination.

It determined that vacation is paid time off that:

  • accrues in proportion to the length of service,
  • is not conditioned on the occurrence of an event or condition, and
  • usually doesn’t impose conditions on the employee’s use of the time away

In contrast, the court found, a sabbatical is a conditional type of paid leave. Many corporate sabbaticals don’t require the employee to have a particular purpose or account for how his or her time is spent while on leave. The leave is provided simply for employees to “recharge their batteries,” the Court of Appeals said.

The problem is that corporate sabbaticals that are granted based only on length of service, and that impose no conditions on the time away, share elements with regular vacations. To determine whether a leave is indeed a sabbatical that can be lawfully forfeited, the court identified four factors that tend to show a
sabbatical leave is not regular vacation:

  • Frequency. Leave that is granted infrequently is more likely to be a sabbatical than vacation because it’s more likely that the leave is intended to retain experienced employees who have devoted significant chunk of time to the employer. The court suggested that seven-year intervals between the leaves would be an appropriate starting point for assessing corporate sabbaticals but acknowledged that greater or lesser frequency could be appropriate depending on the industry or company.
  • Length of leave. The leave must be long enough to achieve the employer’s purpose. For unconditional sabbaticals intended to reenergize the employee, the court said, the leave should be longer than the amount of time normally offered as vacation.
  • Vacation policy. Legitimate sabbaticals are always granted in addition to regular vacation. The employer’s regular vacation policy should be comparable to the average vacation benefit offered in the relevant market, according to the court. Otherwise, it reasoned, an employer might be tempted to offer a minimal vacation and reward senior staff with sabbaticals as a way to reduce financial liability.
  • Expectation of return to work. Because a sabbatical is intended to retain valued employees, its terms should incorporate some feature that demonstrates that the employee taking it is expected to return to work for the employer afterward.

The court emphasized that each case must be decided on its own facts. Turning to the leave program at issue, the court found that it included elements of both a vacation and a legitimate sabbatical. The Court of Appeals concluded that none of the evidence was decisive and returned the case to the trial court so a jury could decide the “crucial factual question: What is the true purpose of the program?” 09-27-2011. Article taken from Bureau of National Affairs with additional introduction information added by HRM Partners.

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