Many, if not most of you, participate in our employee handbook program. In some form or fashion, I have spearheaded this program for over 30 years, at all three of my law firms. As most of you know, the genesis of the current employee handbook program is an electronic template. Our department takes great care to craft the annual updates based on legislative changes and judicial decisions which took place in the prior year and will dictate changes for the coming year. We start with California, as most of our clients are based here, and because California has one of the most complex set of labor laws in the country. But we now provide versions and updates nationwide.
The base of the employee handbook, our electronic template, has been carefully honed and refined over these last three decades. While we invite clients to add their internal policies and language to make the handbook their own, the policies contained in the employee handbook template, along with the options we provide, emanate from the complex legal strictures dictated by California and federal law. We review the template every year, from start to finish, and edit it based not only on legal changes, but on our experience in front of hundreds of judges, arbitrators, and mediators over the course of the prior year.
The language contained in these policies is intentional. Those policies are meant not only to provide communication to your employees regarding your own company rules; they are a blueprint for you.
Please, do not make material changes to these policies, issue contrary memos, or deviate in practice from the rules set forth in the handbook. At a minimum, do not make any changes without running them by us. This handbook should be your compliance playbook.
In the course of this year‘s updates, we have noticed that several of you have made changes or asked to make changes to key policies which would make your practices unlawful and create costly PAGA or other wage and hour exposure. I am going to highlight just a few of these examples so you understand my concern.
Vacation Pay – Recently, we have noticed several of you making changes to your vacation policies. California has some of the quirkiest and strictest rules in the country regarding vacation pay accrual, rollover, pay outs, and caps. Most of these dictates stem from a California Supreme Court decision from 1982 called Suastez v Plastic Dress-Up. That case essentially held and confirmed that under California law (Labor Code Sec 227.3), vacation pay constitutes deferred compensation. It is not required to be provided, as sick pay now is. But if it is offered, either in the form of pure vacation pay or what some call paid time off (PTO), it cannot be forfeited. That money stays in the employees’ “bank” until it is used or paid out.
Unlike sick time, vacation pay should not be front loaded. Under California law, it is deemed to accrue on an even, per diem basis throughout the year. That means, if an employee is entitled to one week of vacation at the end of their first year, that vacation pay has been accruing throughout the course of that year. You can limit when the employee takes that vacation, but if they terminate midway through the year and have unused, accrued vacation, they must be paid for it immediately upon termination, at the rate of pay then in effect.
Vacation pay must never be forfeited. California has very strict rules forbidding the forfeiture of wages, including earned vacation pay. Employers may put a “reasonable cap”on that accrual, but the cap cannot be the equivalent of one year’s worth of vacation. It must be greater. For example, if an employee earns two weeks of vacation in one year, we generally recommend the cap be set at three weeks, or an amount no less than 1.5 times the annual accrual.
An employer may choose to pay out vacation upon year end, or, upon certain circumstances, schedule vacation for employees if they are not taking it. The rules work somewhat differently with exempt employees, but you can do this. What you cannot do is impose an unreasonable cap or enact a forfeiture.
I’m not naming names, but some of you have attempted to circumvent these rules, either in practice or by changing the language in the employee handbook policy. Please do not. These have been the rules surrounding vacation pay in California since before I started practicing law, which is a very long time ago.
Others of you have reached out about implementing “unlimited” or flexible vacation or PTO policies. The rules and court decisions surrounding “flex time off” are much more recent, but similarly complex. I wrote an entire article on this topic in a prior MMB, so I will not get into the details here. Suffice it to say that these kind of time off policies are scrutinized carefully by the California courts, the Labor Commissioner, and opposing attorneys, and they must be crafted with the utmost care to withstand that inspection. Such a policy may make sense for limited groups of employees, such as high-level executives or professional employees, like lawyers, who have other measures of accountability. But if these policies are not written and enforced very carefully, they will be seen as a mechanism to avoid compliance with the California vacation pay rules. Reach out for assistance.
Timing of pay dates. I wrote an article on this topic earlier in the year as well. California also has very strict rules about when employees must be paid for their work. If your employees are paid weekly or biweekly, they must be paid within seven days of the end of that pay period. If you pay employees semimonthly, they must be paid no later than the 10th of the month for all work performed between the 16th and the end of that month, and they must be paid no later than the 26th of the month for all work performed between the 1st and 15th of the month. (See, California Labor Code Sec 204).
If your paydays run afoul of this timing, you are in violation of California law, and you can be subject to a penalty for each employee, for every pay period in which you are late. Similarly, if you are paying your employees on the last day possible under the Labor Code, you cannot provide that you will pay your employees on the FOLLOWING workday if their payday falls on a weekend or holiday. There’s no grace period under the Labor Code. You must pay them on the PRIOR workday. Some of you have made these little changes to the handbook, thinking we will not notice. We notice. And more importantly, your employees notice. And so will opposing counsel. These rules are all publicized online, and your employees have more time on their hands to research these laws than you all do. That is why we draft these policies with such care. We know this is not your job. But it is ours. Rely on us to do it.
Sorry if I sound preachy on this beautiful Monday morning in December. But I literally spend my life trying to keep you all on the right side of these crucial and complicated California laws. The employee handbook is one area which we can control. Please – don’t mess with it.
