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The Truth Behind "Unlimited Vacation" Policies: McPherson v. EF Intercultural Foundation

Updated: Jun 5

Imagine landing a job that promises a flexible schedule, including unlimited paid vacation time. It may sound fantastic, but these unlimited vacation policies leave employees in an awkward position. Employees may have no maximum vacation time, but there isn't any accrual of vested vacation time either. The culture within the workplace may pressure employees never to take any actual vacation time. On April 1, 2020, a California Court of Appeal issued a first published decision addressing these vague "unlimited" vacation policies in McPherson v. EF Intercultural Foundation, Inc.

Does an Unlimited Vacation Policy Violate the Labor Code?

The California Court of Appeal ruled that in McPherson, the employer's "unlimited" paid time off policy violated the Labor Code (section 227.3) due to the specific facts of the case. The Plaintiff worked full-time at EF Intercultural Foundation and was terminated. Plaintiff sued EF because they refused to pay accrued but unused vacation time after Plaintiff's employment ended.

EF had a written vacation policy contained within their employee handbook that dictated that employees were granted a fixed amount of vacation days per month, depending on the length of their employment. The court held that the vacation policy had an implied limit (between 2-6 weeks of vacation per year.) It also held that the employees' schedules made it impossible to take advantage of the "unlimited" vacation policy.

The court concluded that an employer "cannot avoid the labor law (Section 227.3) by leaving the amount of vacation time undefined in its policy while impliedly limiting the time actually available for approval." The employer was required to pay the terminated employee for accrued vacation time.

Lawful Unlimited Vacation Policies

The court did lay out how unlimited vacation policies can be lawful if implemented properly. To layout a lawful policy, employers must:

  • Communicate the policy clearly in writing.

  • State employees' ability to take PTO is NOT a form of additional wages, but part of a promise to provide a flexible work schedule, including the ability to decide when they are and are not working.

  • The employer must spell out the rights and obligations of both the employee and employer, as well as the consequences of failing to schedule PTO.

  • Allow employees to take off time or work fewer hours instead of taking time off; and

  • The employer must fairly administer the policy so that it does not become a "use it or lose it policy" in practice or result in inequities.

Does your employer have an unlimited vacation policy that you believe may be unlawful? Contact Gomerman | Bourn & Associates at 415-545-8608 today for a FREE consultation.

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