Suastez v. Plastic Dress-Up Co.

• Decision Date: 01 July 1982
• Docket Number: DRESS-UP
• Citation: 647 P.2d 122,183 Cal.Rptr. 846,31 Cal.3d 774
• Court: California Supreme Court
• Parties: , 647 P.2d 122, 25 Wage & Hour Cas. (BNA) 1040, 33 A.L.R.4th 254, 94 Lab.Cas. P 55,356, 3 Employee Benefits Cas. 2429 Francisco SUASTEZ, Plaintiff and Respondent, v. PLASTICCO., Defendant and Appellant. L.A. 31522.

Page 846

183 Cal.Rptr. 846

31 Cal.3d 774, 647 P.2d 122, 25 Wage & Hour Cas. (BNA) 1040,

33 A.L.R.4th 254, 94 Lab.Cas. P 55,356,

3 Employee Benefits Cas. 2429

Francisco SUASTEZ, Plaintiff and Respondent, v. PLASTIC DRESS-UP CO., Defendant and Appellant.

L.A. 31522.

Supreme Court of California.

July 1, 1982.

Rehearing Denied Sept. 22, 1982.

Paul, Hastings, Janofsky & Walker, Andrew C. Peterson and Elaine Holland, Los Angeles, for defendant and appellant.

Gary B. McGaha, Pomona, and Jose A. Gonzales, El Monte, for plaintiff and respondent.

Patrick W. Henning and Louis Giannini, San Francisco, amici curiae for plaintiff and respondent.

BIRD, Chief Justice.

Under an employment policy providing for annual paid vacations, when does the right to a vacation "vest"?

I.

The following facts are not in dispute. Francisco Suastez, respondent, was employed by the appellant, Plastic Dress-Up Co. (Plastic Dress-Up), from October 16, 1972, until July 20, 1978. Throughout this time, and in accordance with its regular policy, the company paid Suastez weekly wages based on his hourly wage. Additionally, it provided certain fringe benefits, including holiday and vacation pay.

The company's vacation policy provided that each employee was entitled to between one and four weeks of paid vacation annually, depending on the length of his or her employment. ¹ According to testimony in the trial court, an employee did not become eligible for a paid vacation under the company's policy until the anniversary of his or her employment. Thus, Plastic Dress-Up customarily refused to pay vacation benefits to anyone whose employment was terminated before that anniversary date. ²

Suastez received vacation pay in 1974, 1975 and 1976, but took no time off. In October of 1977, immediately after his anniversary date, Suastez took a three-week paid vacation.

Midweek in July of 1978, Suastez's employment was terminated. The company paid him $68.79 as net wages for the part of the week that he had worked. ³ At that time, Suastez requested a pro rata share of his vacation pay for the period from his anniversary date (Oct. 16, 1977) until his last day of work (July 20, 1978). Plastic Dress-Up refused to pay any pro rata vacation benefits. ⁴ Suastez then filed suit in the Los Angeles County Superior Court seeking damages, costs and a declaration that the company's refusal to pay him a pro rata share of his vacation pay violated California Labor Code section 227.3. ⁵

After a hearing, the court dismissed the complaint for lack of subject matter jurisdiction, finding that Suastez had failed to exhaust his administrative remedies. Suastez then filed a claim for pro rata vacation benefits with the Labor Commissioner. The commissioner denied the claim. ⁶

Suastez filed a second suit in the superior court. Plastic Dress-Up moved for summary judgment based on the parties' stipulations of fact and the transcript of the first hearing. Suastez, in turn, filed a cross-motion for summary judgment.

The trial court granted Suastez's motion, holding that section 227.3 required the company to pay Suastez the vacation pay due him "on the basis of time served." The court also awarded costs to Suastez. Plastic Dress-Up appeals from this decision.

II.

Section 227.3 provides, in part, that whenever an employee is discharged "without having taken off his vested vacation time, all vested vacation shall be paid to him as wages at his final rate in accordance with ... [the] employer policy respecting eligibility or time served ...." It cautions further "that an employment contract or employer policy shall not provide for forfeiture of vested vacation time upon termination." The only issue raised by this appeal is when vacation time becomes "vested" under section 227.3.

The company argues that, under its vacation policy, employees are not eligible for any vacation pay unless they are still employed on the anniversary of the day they began work. ⁷ Employment on that date, the company contends, is a condition precedent to the "vesting" of vacation rights. Hence, employees terminated before their anniversary have no "vested vacation time" under the statute. For example, if an employee were terminated two days before his or her anniversary date, no vacation pay would be forthcoming even though the worker had been employed the previous 363 days.

Suastez counters that an annual paid vacation is earned by labor performed throughout the year, and "vests" as it is earned. Thus, he argues, an employee who works for some part of a year has a "vested" right to a proportionate share of his or her vacation pay.

When considering the meaning of the phrase "vested vacation time" as used in section 227.3, it is important to keep in mind the nature of vacation pay. It is established that vacation pay is not a gratuity or a gift, but is, in effect, additional wages for services performed. (People v. Bishopp (1976) 56 Cal.App.3d Supp. 8, 11, 128 Cal.Rptr. 923; see generally Giacomini, Advising Cal. Employers (Cont.Ed.Bar 1981) § 1.25, p. 23; 51 C.J.S., Labor Relations, § 243, p. 1078.) In an early, oft-cited case determining employees' rights to vacation pay under a collective bargaining agreement, Judge Augustus Hand wrote, "A vacation with pay is in effect additional wages. It involves a reasonable arrangement to secure the well being of employees and the continuance of harmonious relations between employer and employee." (In re Wil-Low Cafeterias (2d Cir. 1940) 111 F.2d 429, 432.) The consideration for an annual vacation is the employee's year-long labor. Only the time of receiving these "wages" is postponed. (Ibid.)

"Many tribunals have taken the view that vacation pay is simply an alternate form of wages, earned at the time of other wages, but whose receipt is delayed." (Local U. No. 186, Packinghouse F. & A. Wkrs. v. Armour & Co. (6th Cir. 1971) 446 F.2d 610, 612, cert. den., 405 U.S. 955, 92 S.Ct. 1170, 31 L.Ed.2d 231; see, e.g., Schneider v. Electric Auto-Lite Company (6th Cir. 1972) 456 F.2d 366, 371; United States v. Munro-Van Helms Company (5th Cir. 1957) 243 F.2d 10, 13; Valeo v. J. I. Case Co. (1963) 18 Wis.2d 578, 583-587 , and cases cited therein.)

This court, too, has adopted the view that vacation pay is simply a form of deferred compensation. "It would seem clear that the purpose of [providing vacation pay] is to offer a reward of additional wages for constant and continuous service. As Judge Magruder in Goodall-Sanford, Inc. v. United Textile Workers [ (1st Cir. 1956) ] 233 F.2d 104, pointed out, there is an 'increasingly complex use of compensation in the form of "fringe benefits," some types of which inherently are not payable until a time subsequent to the work which earned the benefits....' (233 F.2d at p. 110.)" (Posner v. Grunwald-Marx, Inc. (1961) 56 Cal.2d 169, 186, 14 Cal.Rptr. 297, 363 P.2d 313.)

In this respect, vacation pay is similar to pension or retirement benefits, another form of deferred compensation. Those benefits, too, "do not derive from the beneficence of the employer, but are properly part of the consideration earned by the employee." (In re Marriage of Fithian (1974) 10 Cal.3d 592, 596, 111 Cal.Rptr. 369, 517 P.2d 449.)

This court has never before considered the question of when vacation pay vests under section 227.3. It did, however, recently have occasion to review and reconsider when pension rights "vest." In Miller v. State of California (1977) 18 Cal.3d 808, 815, 135 Cal.Rptr. 386, 557 P.2d 970, this court held that "the right to pension benefits vests upon the acceptance of employment [citations], even though the right to immediate payment of a full pension may not mature until certain conditions are satisfied. As we stated in Kern [v. City of Long Beach (1947) 29 Cal.2d 848, 855, 179 P.2d 799], 'It is true that an employee does not earn the right to a full pension until he has completed the prescribed period of service, but he has actually earned some pension rights as soon as he has performed substantial services for his employer. [Citations.] He is not fully compensated upon receiving his salary payments because, in addition, he has then earned certain pension benefits, the payment of which is to be made at a future date.' " Although the right to a pension may still be, in whole or in part, subject to forfeiture upon the happening of certain contingencies, that does not prevent the right from vesting. (Ibid.)

Similarly, since the consideration for an annual vacation is the labor performed throughout the year, an employee whose employment is terminated midyear has not earned a full vacation. Nonetheless, the employee has earned some vacation rights " 'as soon as he has performed substantial services for his employer' " (Miller, supra, 18 Cal.3d at p. 815, 135 Cal.Rptr. 386, 557 P.2d 970, quoting Kern v. City of Long Beach (1947) 29 Cal.2d 848, 855, 179 P.2d 799). The right to some share of vacation pay vests, like pension rights, on acceptance of employment. Nonperformance of a condition subsequent, such as Plastic Dress-Up's requirement that employees remain until their anniversary, can, at most, result in a forfeiture of the right to a vacation; it cannot prevent that right from vesting.

Courts in other jurisdictions which have considered whether discharged or striking employees have a "vested" right to a pro rata share of vacation pay have uniformly held that the right vests as services are rendered. " 'It is beyond dispute that an agreement to pay vacation pay to employees made to them before they performed their services, and based upon length of service and time worked, is not a gratuity but is a form of compensation for services, and when the services are rendered, the right to secure the promised compensation is vested as much as the right to receive wages or other form of compensation.' " (Livestock Feeds, Inc. v. Local U., Etc. (1954) 221 Miss. 492, 502-503 , quoting Textile Workers Union v. Paris Fabric...