McPherson v. EF Intercultural Found., Inc.

• Decision Date: 01 April 2020
• Docket Number: B290869
• Citation: McPherson v. EF Intercultural Found., Inc., 47 Cal.App.5th 243, 260 Cal.Rptr.3d 640 (Cal. App. 2020)
• Court: California Court of Appeals
• Parties: Teresa MCPHERSON et al., Plaintiffs and Respondents, v. EF INTERCULTURAL FOUNDATION, INC., Defendant and Appellant.

47 Cal.App.5th 243

260 Cal.Rptr.3d 640

Teresa MCPHERSON et al., Plaintiffs and Respondents,

v.EF INTERCULTURAL FOUNDATION, INC., Defendant and Appellant.

B290869

Court of Appeal, Second District, Division 3, California.

Filed April 1, 2020

Certified for Partial Publication.^*

Seyfarth Shaw, Christian Rowley, San Francisco, Candace Bertoldi and Kiran A. Seldon, Los Angeles, for Defendant and Appellant.

Law Offices of Courtney M. Coates and Courtney M. Coates, for Plaintiffs and Respondents.

Paul Hastings, Paul W. Cane, Jr., San Francisco, Zachary P. Hutton and Brian A. Featherstun, for California Employment Law Council and Employers Group as Amici Curiae on behalf of Defendant and Appellant.

EGERTON, J.

INTRODUCTION

When an employer’s policy allows an employee to take an unspecified amount of paid time off without accruing vacation time, does the employee’s right to that paid time off vest so the employer must pay her for unused vacation under Labor Code section 227.3¹ when her employment ends? Or does section 227.3 apply only to policies providing a fixed amount of vacation that accrues over time? That is the primary issue posed by this appeal by EF Intercultural Foundation, Inc. (EF) from the trial court’s judgment awarding vacation wages to three of EF’s former exempt employees—Teresa McPherson, Donna Heimann, and Linda Brenden.

In the published portion of this opinion, we conclude section 227.3 applies to EF’s purported "unlimited" paid time off policy based on the particular facts of this case. We by no means hold that all unlimited paid time off policies give rise to an obligation to pay "unused" vacation when an employee leaves. Flexible work arrangements and unlimited paid vacation policies may be of considerable benefit to employees and to the employers who want to recruit and retain those employees. Employees and employers are free to contract for unlimited paid vacation, consistent with the Labor Code and governing case law. Here, however, EF never told McPherson and her fellow plaintiffs that they had unlimited paid vacation. EF had no written policy or agreement to that effect, nor did its employee handbook cover these plaintiffs. As it turned out, McPherson, Heimann, and Brenden took less vacation than many of EF’s other managers and exempt employees covered by the employee handbook, whose accrued vacation vested as they worked for EF month after month.

As to Heimann only, we reverse the judgment and remand the case to the trial court to recalculate the amount of vacation wages owed her, excluding vacation wages earned after she moved to Virginia in 2005.² We affirm the judgment in all other respects, addressing EF’s additional contentions in the unpublished portions of the opinion.

FACTS AND PROCEDURAL BACKGROUND

Consistent with our standard of review, we state the facts established by the record in the light most favorable to the judgment. ( Los Angeles Unified School Dist. v. Casasola (2010) 187 Cal.App.4th 189, 194, fn. 1, 114 Cal.Rptr.3d 318.)

1. The parties

EF is a foreign corporation authorized to do business in California. EF Educational Homestay Program (EHP) is a division of EF. EF is a nonprofit that runs educational and cultural exchange programs between the United States and other countries. EHP primarily operates out of EF’s main office in Cambridge, Massachusetts.

EHP employs full-time "area managers" on the east and west coasts to run seasonal homestay programs for international students in their regions. Area managers work from home and in the field. They hire, train, and work with a staff to recruit host families for the students and to operate the programs. Programs mainly run in the summer, but some regions also hold shorter winter programs.

Plaintiffs were full-time, exempt, salaried EF employees who worked in the EHP division.³ Brenden worked as an area manager from 2005 to September 2015. She requested severance when her employment was terminated. She ultimately received three months’ severance and signed a severance agreement that included a general release of claims.

Heimann was an area manager from 1995 to 1998. She became EHP’s west coast manager in charge of transportation and excursions⁴ in 1998. Although Heimann moved to Virginia in 2005, she continued to work for EHP in that same role until she retired on October 31, 2014. Heimann worked from home in Virginia, but traveled to California annually as part of her job. She stayed in Southern California from mid-June through August when the summer program was underway, and returned at the start of the year and in spring or fall for trainings and meetings.

Heimann wanted to take time off before she retired. EHP’s then-president Matthew Smith agreed she could take 20 days. When Heimann was able to take only six days of vacation before she retired, Smith agreed to pay her for the 14 remaining days as "vacation pay."

McPherson worked as an area manager from 2003 to 2004 and again from 2005 to 2014. From late 2014 to fall 2015, McPherson worked in an administrative "program support" position as part of a one-year pilot program (program manager). EHP did not have the budget to extend the program manager position past September 30, 2015, when it was set to expire. McPherson sent EHP a proposal to retain her in a new position for the next season. On September 23, 2015, EHP’s president Robert Hart left McPherson a voicemail that he needed more time to consider the proposal. EHP continued to pay McPherson in October 2015.

On November 6, 2015, Hart told McPherson that EHP had no budget for her proposed position for the 2015-2016 season. Hart then sent her a severance agreement/termination letter on November 19, 2015, stating her employment with EHP had ended as of September 30, 2015.

2. EF’s Vacation Policy

EF has an employee handbook. It covered EHP employees who worked at the main office in Cambridge and "bosses," such as regional directors, as well as operations managers. The 2014 handbook contains a vacation policy that provides salaried employees with a fixed amount of vacation days per month based on their length of service.⁵ Employees could carry over 10 accrued, unused vacation days from one year to the next. If an employee carried over more than 10 accrued vacation days, EF paid the employee 70 to 100 percent of the value of those days.⁶ Once an employee reached the maximum of yearly accruable vacation plus the 10 carryover days, the employee no longer accrued vacation until he or she used a portion of the accrued time. Employees subject to this policy were required to use an online scheduling tool that kept track of their accrued vacation balance to request and obtain approval for vacation.

This accrued vacation policy did not apply to area managers or the west coast manager. Instead, plaintiffs could take time off with pay, but they did not accrue vacation days. Area managers did not use the online system to request time off or to track the number of days they had taken. Instead, they were required to notify their supervisors before taking time off. Taking time off during EHP’s peak season was "strongly discouraged," but was approved in some circumstances.

3. Plaintiffs’ complaint

On February 3, 2016, plaintiffs sued EF alleging it failed to pay them accrued but unused vacation wages. McPherson also alleged EF failed to pay her regular wages earned in November 2015. The complaint asserts causes of action for (1) violation of Labor Code section 227.3 (denial of vacation wages), (2) breach of implied contract, (3) breach of the implied covenant of good faith and fair dealing, (4) violation of Labor Code sections 201 and 203 (unpaid wages at discharge and waiting time penalties), and (5) violation of Business and Professions Code section 17200 et seq. (unfair competition).

In February 2017, EF moved for summary judgment. Plaintiffs shifted the focus of their legal theory for recovery of accrued vacation wages under section 227.3 from EF’s express vacation policy to EF’s unwritten policy of providing plaintiffs "unlimited" vacation, contending it was a "de facto ‘use it or lose it’ policy." The court granted summary adjudication on plaintiffs’ claim for breach of the covenant of good faith and fair dealing, but otherwise denied EF’s motion.

4. Bench trial and court’s statements of decision

The case proceeded to a bifurcated bench trial. The liability phase took place in June 2017. After filing posttrial briefs, the parties presented closing arguments on October 20, 2017. On December 11, 2017, after issuing a tentative ruling and considering further submissions from the parties,⁷ the court issued its statement of decision on the first phase of the trial, finding EF liable for vacation wages. On March 12, 2018, following the second phase of the trial on damages—conducted by documents and oral argument—the court issued its tentative decision, which reconsidered parts of its first statement of decision on liability and addressed plaintiffs’ damages.⁸

a. Plaintiffs’ entitlement to vacation wages under EF’s policy

In its first statement of decision, the trial court termed EF’s policy of providing vacation time that did not accrue as an "undefined" rather than an "unlimited" vacation policy. The court reasoned "[p]laintiffs’ vacation requests here needed to be approved, there is no evidence that more than a typical amount of vacation was requested or approved, and no one told plaintiffs that they had the right to take any large amount of vacation. It appears to the Court that the parties proceeded on an understanding that the policy was that plaintiffs had the right to take an amount of approved vacation that was within the amounts typical of most jobs at the company—perhaps the amount in the employee handbook—even if there was no precise amount expressly stated or agreed upon."

The court then concluded "vacation time vests under a policy where vacation time is provided, even if the precise amount is not expressly defined by the employer in...