Sabbatical or Vacation? Answer Determines Final Paycheck Amount
In a recent decision, a California Court of Appeal evaluated the differences between paid sabbaticals and regular paid vacations. The distinction is important for California employers, who typically do not pay an employee for an unused sabbatical upon termination.
California employers are not required to offer employees paid vacations. If employers do choose to offer this benefit, Labor Code section 227.3 requires employers to pay all accrued, unused vacation wages out to employees at the time of employment termination. Paton v. Advanced Mirco Devices, Inc., 197 Cal. App. 4th 1505 (2011).
AMD's Sabbatical Program
Advanced Micro Devices (AMD) established a sabbatical program as an employee benefit in 1988. All full-time, salaried employees were eligible for an eight-week paid sabbatical after seven years of service. The purpose of the sabbatical was "time away from work for enrichment and revitalization." Employees were not expected to pursue any work-related study or other activities during the sabbatical.
AMD placed several restrictions on the use of sabbaticals: employees had to take their sabbaticals within two years of eligibility; had to give appropriate notice of the sabbatical (which could be delayed for business needs); and had to demonstrate achievement of certain performance standards. AMD's policy stated that the sabbatical benefit would forfeit upon termination of employment.
The sabbatical program was in addition to AMD's regular vacation benefit. AMD employees began employment with two weeks of vacation per year, and after eight years of service could accumulate as much as eight weeks per year of vacation.
Plaintiff Paton worked for AMD for approximately eight years. He planned to take his sabbatical, but AMD asked him to defer it due to business needs. AMD subsequently placed Paton on a performance improvement plan, which further delayed his ability to take the sabbatical. Paton felt that the goals in his performance improvement plan were unattainable, and he resigned. AMD refused to pay him for the unused eight-week sabbatical in his final paycheck, and Paton filed a claim for nonpayment of wages.
Four Factors Create a Sabbatical
To determine whether a leave is properly classified as a sabbatical (which an employer need not pay out at termination) or a vacation, the court first reviewed prior cases and Opinion Letters from the Division of Labor Standards Enforcement to develop a basic definition of regular vacation. The court determined that vacation "is paid time off that accrues in proportion to the length of the employee's service, is not conditioned upon the occurrence of any event or condition, and usually does not impose conditions upon the employee's use of the time away from work." The court also noted that a vacation benefit is not an inducement to remain employed, in contrast with a bonus or stock options.
The court then went on to identify four factors that will distinguish a sabbatical from a vacation:
- Sabbaticals are granted infrequently, such as after seven years of service, as an inducement to employees to keep their jobs.
- The duration of the sabbatical should be sufficient to achieve its purpose. When the sabbatical is "unconditional" – for the purpose of reenergizing the employee – the sabbatical should be longer than a normal vacation period.
- A sabbatical will always be longer than an employee's regular vacation entitlement.Additionally, the "regular vacation" period should be comparable to that offered in the industry, since employers could otherwise offer an extremely short "vacation" period as a counterpoint to a two-week sabbatical.
- Since a sabbatical is a benefit designed to retain employees, the employee taking a sabbatical should be expected to return to work at its conclusion.
Applying these factors to AMD's sabbatical program, the court concluded that there was insufficient evidence to demonstrate clearly whether the eight-week absence was a sabbatical or a vacation. Employees at AMD could accrue up to eight weeks in vacation time, so the sabbatical was not for a significantly longer duration. Additionally, neither party presented evidence of common vacation accruals in AMD's industry. Consequently, the court referred the case back to the trial court to weigh the four specific factors in light of AMD's actual policy.
Always pay out accrued, unused vacation or PTO to an employee upon termination of his or her employment.
Consider industry standard practices when setting vacation accruals. If you currently offer employees a sabbatical program, or are considering offering sabbaticals as an inducement to continued employment, consult with legal counsel to ensure compliance with the four factors set out by the Paton court.