Boothby v. Atlas Mechanical, Inc.

• Decision Date: 02 June 1992
• Docket Number: No. C009284,C009284
• Citation: 6 Cal.App.4th 1595,8 Cal.Rptr.2d 600
• Court: California Court of Appeals Court of Appeals
• Parties: , 30 Wage & Hour Cas. (BNA) 1548, 15 Employee Benefits Cas. 2030 Harold F. BOOTHBY, Plaintiff and Appellant, v. ATLAS MECHANICAL, INC., Defendant and Respondent.

Page 600

8 Cal.Rptr.2d 600

6 Cal.App.4th 1595, 30 Wage & Hour Cas. (BNA) 1548,

15 Employee Benefits Cas. 2030

Harold F. BOOTHBY, Plaintiff and Appellant, v. ATLAS MECHANICAL, INC., Defendant and Respondent.

No. C009284.

Court of Appeal, Third District, California.

June 2, 1992.

Certified For Partial Publication ^*

Review Denied Aug. 13, 1992.

Gregory D. Thatch and Larry C. Larsen, Sacramento, for plaintiff and appellant.

Patricia K. Poyner, Atty. for Div. of Labor Standards Enforcement, Dept. of Indus. Relations, Berkeley, as amicus curiae, on behalf of plaintiff and appellant.

Sedgwick, Detert, Moran & Arnold and Nicholas W. Heldt, San Francisco, for defendant and respondent.

NICHOLSON, Associate Justice.

Paid vacation provided by an employment agreement vests as the employee labors. (Suastez v. Plastic Dress-Up Co. (1982) 31 Cal.3d 774, 779, 183 Cal.Rptr. 846, 647 P.2d 122.) Because vested vacation is nonforfeitable, an employer must compensate Here, an employee sued his former employer for, among other things, vacation allegedly earned over several years but unused, for which his employer did not pay him at termination. The trial court ruled the employee could not accumulate vacation from year to year absent an agreement permitting accumulation. However, accumulation of vacation time does not depend on an agreement which expressly permits it. Rather, unused vacation accumulates unless the employment agreement legally prevents it. Accordingly, we reverse and remand for proceedings to determine the substance of the employment agreement and whether it expressly and validly prohibited accumulation of vacation time or attempted an illegal forfeiture of vested vacation time.

                the employee for all vested vacation time remaining unused at termination.  (Id. at p. 781, 183 Cal.Rptr. 846, 647 P.2d 122;  Lab.Code, § 227.3;  further statutory references are to the Labor Code.)   However, an employment agreement may provide that the employee does not earn additional paid vacation if a specified amount of vested vacation remains unused.  Such a provision does not attempt forfeiture of vested vacation and is therefore permissible
                

FACTS AND PROCEDURAL HISTORY

Harold Boothby worked for Atlas Mechanical, Inc. (Atlas) from 1968 to 1972 and then again from 1974 to 1983, when he resigned. Atlas gave management personnel, such as Boothby, two weeks of paid vacation per year during the first five years of employment and three weeks per year after five years. By unwritten policy, Atlas attempted to prevent accumulation of vacation from year to year. The asserted reasons for this policy were to encourage employees to take vacations "so that they could return to work refreshed" and to prevent hardship to the company when employees take large amounts of vacation time at once. Boothby alleged he did not use 22 weeks of his earned vacation while working for Atlas and did not receive any payment in place of the vacation.

Boothby sued Atlas, claiming Atlas must pay him $24,200 for the vacation time he earned but did not use. Atlas moved for summary judgment or summary adjudication of issues contending its vacation policy "limits eligibility to a maximum of one year['s] entitlement. Any other vacation that has been previously earned, but not used, is lost." It also asserted Boothby knew he could not accumulate vacation. Boothby contended (1) Atlas orally promised him he could accrue vacation beyond one year's entitlement and (2) section 227.3 and Suastez, supra, 31 Cal.3d 774, 183 Cal.Rptr. 846, 647 P.2d 122, entitled him to accumulate vacation as a matter of law.

The trial court denied the motion for summary judgment but issued an order of summary adjudication of issues. It held Boothby could recover vacation pay for the years preceding the year in which he resigned only if he could prove he and Atlas agreed to accumulate vacation from year to year. Acknowledging no such agreement existed and that he could not prevail under the trial court's view of the law, Boothby stipulated to judgment in favor of Atlas. (See Connolly v. County of Orange (1992) 1 Cal.4th 1105, 1111, 4 Cal.Rptr.2d 857, 824 P.2d 663 [allowing appeal from stipulated judgment when stipulation entered after adverse determination of critical issue].)

DISCUSSION

I Forfeiture of Vested Vacation Pay and Accumulation of Vacation Time

Section 227.3 prohibits forfeiture of vested vacation pay at termination. The employer must compensate the terminating employee for unused vested vacation time. (Suastez, supra, 31 Cal.3d at p. 781, 183 Cal.Rptr. 846, 647 P.2d 122.) Section 227.3 provides: "Unless otherwise provided by a collective-bargaining agreement, whenever a contract of employment or employer policy provides for paid vacations, and an employee is terminated without having taken Atlas claims section 227.3 does not prohibit forfeiture of vested vacation, other than at termination, by failure to use the vacation time within a prescribed period. It asserts "use it or lose it" vacation policies validly prevented employees from accumulating vacation before enactment of section 227.3, and section 227.3 has no effect on such policies. Atlas concludes Boothby cannot recover pay for unused vacation earned before 1983 because either he took vacation during those years or his right to paid vacation for those years was divested due to his failure to take it.

off his vested vacation time, all vested vacation shall be paid to him as wages at his final rate in accordance with such contract of employment or employer policy respecting eligibility or time served; provided, however, that an employment contract or employer policy shall not provide for forfeiture of vested vacation time upon termination. The Labor Commissioner or a designated representative, in the resolution of any dispute with regard to vested vacation time, shall apply the principles of equity and fairness."

In 1935, the Court of Appeal held a vacation is "on the one hand a beneficent surcease from regular duty for two weeks each year, that a period of freedom, rest or diversion for the employee may be enjoyed, and upon the other a gain to the employer through a recuperated and better satisfied employee." (Nicholson v. Amar (1935) 7 Cal.App.2d 290, 291, 45 P.2d 697.) In Nicholson, a city employee, though entitled to two weeks of vacation each year, took no vacation for several years. When he terminated his employment with the city, he claimed additional pay in place of vacation. (Ibid.) The court rejected the claim stating he waived the right to a paid vacation by failing to take it. The court concluded allowing accumulation of vacation would negate the benefits of temporary freedom from work for the employee and a recuperated employee for the employer. (Ibid.)

Since enactment of section 227.3 in 1972, the California Supreme Court has considered the concept of paid vacation. While prior law, as Nicholson emphasized, addressed the effect of a paid vacation in its benefits to both employee and employer, current law, as the Supreme Court now emphasizes, centers on the employee's earned right to vested vacation pay. (Suastez, supra, 31 Cal.3d at pp. 780-781, 183 Cal.Rptr. 846, 647 P.2d 122.) The court "has adopted the view that vacation pay is simply a form of deferred compensation." (Id. at p. 780, 183 Cal.Rptr. 846, 647 P.2d 122.) Although Suastez does not specifically determine the vitality of employer policies preventing accumulation of vacation from year to year, it recognizes and embraces earned vacation as a form of compensation.

In Suastez, the plaintiff, after termination, claimed a pro rata share of vacation pay for vacation he had not taken during the year he was terminated. (31 Cal.3d at p. 777, 183 Cal.Rptr. 846, 647 P.2d 122.) The employer refused to pay the claim because employees were not eligible for any vacation pay earned during the year of employment unless they were still employed on the next anniversary of the day they began work. The employer argued the vacation pay was not vested under section 227.3 and need not be paid upon termination. (Id. at p. 778, 183 Cal.Rptr. 846, 647 P.2d 122.)

Rejecting the employer's argument, the court held the right to vacation pay vested under section 227.3 as it was earned. (31 Cal.3d at p. 779, 183 Cal.Rptr. 846, 647 P.2d 122.) The court stated: "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. [Citations.] 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 The Suastez court concluded: "The right to a paid vacation, when offered in an employer's policy or contract of employment, constitutes deferred wages for services rendered. Case law from this state and others, as well as principles of equity and justice, compel the conclusion that a proportionate right to a paid vacation 'vests' as the labor is rendered. Once vested, the right is protected from forfeiture by section 227.3." (Suastez, supra, 31 Cal.3d at p. 784, 183 Cal.Rptr. 846, 647 P.2d 122, emphasis added.) This treatment of vacation pay as a vested right is in contrast to the Nicholson view of vacation as a fleeting benefit to be seized before it dissipates along with the end of the year in which it should have been taken.

an annual vacation is the employee's year-long labor. Only the time of receiving these 'wages' is postponed. (Ibid.) [p] 'Many tribunals have taken the view that vacation pay...