In most layoff situations, especially these days, the layoff is legitimate and a necessary evil in cutting costs.  However, just because an employee has not been wrongfully terminated in a layoff does not mean they have no California employment law rights.  One common example is receiving all unpaid vacation pay.

Vacation Pay

Under California employment laws, once employees have accrued vacation time, they must either be allowed to use it to take time off or have it paid out at termination.  This is commonly referred to as California's "no use-it-or-lose-it" rule.

Employees should also be aware that even if an employer calls it "Paid Time Off (PTO)" or a "personal day" instead of "vacation" it most likely must still be paid out.  Under California law, vacation pay is defined as any hours an employer provides an employee to take off for any reason.

One example of something which might not qualify as vacation pay is sick pay, which most employers only allow use of when an employee is sick.  Otherwise, most forms of PTO is the same thing as vacation pay.

Payment Must Be Made on Exact Termination Date

Whether you are owed accrued vacation pay, hourly wages, salary, commissions, or some other form of wages, an employer who terminates an employee MUST pay ALL money out on the last day of employment-no exceptions.

If this is not done, then an employee is entitled to "waiting time" penalties equal to one day of wages for each day the wages remain unpaid, including weekends and holidays, up to a maximum of thirty days.  These issues come into play even where the employer does not dispute that the employee is owed money.  For example, if the employer puts the check in the mail or does not pay all of the wages until the next payday, the employee is automatically entitled to penalties from their last day until they actually receive the check.

For example, if your employer does not pay out all of your vacation pay and you make $60,000 per year, after thirty days you would be entitled to approximately $7,000 in penalties even if the vacation is eventually paid out to you.

These are tough times for many laid-off employees.  They should make sure they receive all of the wages they are owed, since every dollar counts in making it through their unemployment.

Over the past couple of months I have been dealing with a case against a major national bank on behalf of one of its former employees.  The case involves his "discretionary" annual bonus, which most employers would say is just that-discretionary.  However, the term discretionary is misleading because except in some very limited circumstances a party to a contract does not have absolute discretion.

This is because all contracts in California have an "implied covenant of good faith and fair dealing".  This is one of the least sexy concepts in contract or employment law, so I will summarize it quickly.  This doctrine acts as a check on parties in contracts where one side has the right to exercise broad discretion that effects the other party's rights.  The law says that in such a case when the party exercises their discretion it generally must be done "fairly".

This is especially important in our case because on Wall Street investment bankers and other professionals are usually paid a (relatively) small salary and then an extremely large annual bonus at the end of the year.  In our case, the employee was used to making over $750,000 and suddenly his employer decided at the end of last year to give him a bonus of less than $50,000 for 2007 with no warning whatsoever and despite the fact that he was performing better than his peers.

It turns out that the employer was planning to lay him off in a few weeks, so they decided to give his usual bonus to his co-workers.  This is the classic case where the implied covenant comes up in California employment law cases.  If an employee performs acceptable work during the year with the expectation that he would receive a bonus similar to his peers and what he received in prior years, the employer does not exercise discretion in "good faith" by paying him hundreds of thousands of dollars less than they do to similar employees.

This might be an extreme case for most employees, but the same concepts can be applied to any bonus and even Christmas bonuses in certain circumstances.

It is fairly common for sweeping employment law legislation to be introduced in the California legislature and I usually do not pay much attention to these bills because they usually do not become law.

One of two things almost always happens: (1) the republicans introduce a pro-employer bill that will never pass the democratically-controlled legislature or (2) the democrats introduce a pro-employee bill that passes but is then vetoed by Governor Schwarzenegger.

However, I gave an interview to a reporter this past week for law360.com to discuss some recently-introduced legislation aimed at severely limiting employees' rights to meal periods in California that led me to some interesting discoveries.

In researching one of the bills, SB 1192, which was introduced by State Senator Bob Margett on February 12, 2008, I was reminded why I try to ignore these bills, the people who introduce them and the political process in general.

The Details of SB 1192

SB 1192 proposes the following changes to existing law:

SOL Change

The bill changes the statute of limitations for recovering penalties for missed meal periods from four years (under Murphy v. Kenneth Cole) to one year. This would severely limit employees' right to recovery, which means an employer would have a lot less to lose by breaking the law.

The penalty is one hour of pay for each break not provided, but presumably an employer makes much more profit from one hour of an employee's work than they pay the employee. Therefore, employers might be willing to risk having to pay more later for that work.

For example, if an employee brings a lawsuit to recover one year of missed meal periods, the employer might have to pay another $12 of pay to an employee for each day worked that year, because they made $30 of profit from that hour of work by the employee.

Violation of California meal period laws is widespread, but only a small minority of employees do anything about it, which makes the small risk of paying one year of penalties worthwhile to an employer.

However, if faced with four years of penalties, an employer might think twice about taking the risk.

Anti-Employee Definition of "Provide"

SB 1192 modifies the law to state that an employer is only required to make a rest period available "without interfering with its use".

Under this interpretation, employers will argue that if an employee signs a document when they begin employment saying "you are provided with a lunch break" then their obligation is met.

Unless the employer actively prevents the employee from taking the break, such as instructing them not to take a lunch break they are in the clear. This would put the onus on employees who are too busy to take a lunch break to complain about it to their employer in order to get any relief.

Often employers are well aware that the requirements they place on employees mean that taking a lunch break is out of the question. However, they also know that employees are hesitant to complain about the situation because they do not want to seem like a "slacker" or "lazy", so they work through their lunch breaks.

Time for Taking Break Expanded

This bill changes the law to state that lunch breaks may be given "commencing at any time before the start of the sixth hour of work".

This would seem to allow employers to mandate that employees take their lunch breaks immediately upon starting work. Essentially employers would be able to get away with telling their employees to come to work 1/2 later than normal and count that as their meal period.

This change completely negates the rationale behind requiring employers to provide meal breaks in the first place.

Purpose of SB 1192 Misrepresented to the Public

After introducing the legislation, Senator Margett issued a press release entitled "Senator Margett Calls for Flexibility In Meal Periods For All California Employees and Employers".

The release only mentions the last change discussed above regarding the timing of meal periods and totally misrepresents its effect. He tries to pass this off as a bill that has the sole purpose of allowing employees to take their meal period during their 5th hour of work instead of before the 5th hour, which current law requires in most situations.

The Senator repeatedly tries to make it sound like the only reason he introduced SB 1192 is that "too many employees must take their lunch breaks at unreasonable hours". In fact, as I outlined above, this bill has the opposite effect, allowing employers to require that breaks be taken at unreasonable hours.

Senator Margett has essentially told the public he introduced a bill that expands employees' rights when it really destroys the rights they have under current law.

As the end of the year approached, Governor Schwarzenegger vetoed several employee protections the California legislature passed in 2007. While he felt it was important to give full protections to military spouses whose husbands or wives were on leave, he deemed other employees to be less deserving of similar rights.

This is the first in a series of posts on several important employee rights bills that the legislature passed this year, but the Governor vetoed last month.

AB 1707

Assembly Bill 1707 created a $750 penalty provision against employers who refuse to provide employees access to their personnel files.

Employees in California have a statutory right to view almost anything in their personnel files. However, there has never been any penalty in place for employers who refuse to comply with this law.

If an employer refuses to grant access to the employee's file, the employee could bring a lawsuit, but other than ordering the employer to open the records, the court has not real power to punish employers who willfully break this law.

This modest penalty would have provided an employer with more incentive to comply with the law, but since the bill was vetoed employees are left with no threat of any monetary penalty to use against employers who know they really have nothing to lose for refusing to follow the law.

AB 435

Assembly Bill 435 is similar to AB1707. It was a bill that proposed allowing employees to recover double damages from their employers if they do not pay their employees the minimum wage.

Like the law granting access to personnel files, California's minimum wage law allows employees to sue to recover their unpaid wages, but there is no additional penalty they can recover from their employer if they win.

Essentially, the law is currently set up so that an employee who is already making less than minimum wage to begin with must pay an attorney to sue in court and recover their wages, with nothing extra awarded for their trouble (and no further penalty to the employer for not paying).

This law was an attempt by the legislature to provide for stiff penalties against employers who prey on the employees who need the money the most (sometimes not paying their employees at all), but apparently Mr. Schwarzenegger believed no such penalties were needed under the law.

Q: I have worked for a company over 20 years and now I am retiring. I never took a vacation the last ten years I worked there. Each year I lost all of the vacation time I did not use. My son told me that is illegal in California. Is that true?

--Need a Vacation (CA)

A: Your son is correct. In California, so-called "use-it-or-lose-it" vacation policies are illegal. Once an employee accrues (earns) their vacation time, they cannot lose it and it must be paid out at the end of employment.

Recent Case Helps Employees

A recent California court decision has fixed a quirk in California law that used to only let employees recover four years of accrued but unpaid vacation time. The court in that decision held that when an employee leaves employment with an employer, he can recover all vacation time he accrued but never received payment for during his employment.

In your case, this is a substantial development, because you can now recover vacation time accrued but not used over the last twenty years.

Additional Penalties

In addition to your vacation wages, you may be able to recover additional money, such as attorney's fees, interest on your unpaid wages and "waiting time" penalties.

In California, employees whose employer does not pay out all of their vacation pay at the time their employment ends can recover "waiting time" penalties. Under this law, employees can recover one day of wages for each day their wages go unpaid for a maximum of thirty days' additional wages.

Also keep in mind that these are calendar days not workdays. So, over the course of 30 days the penalties would actually equal approximately six weeks of wages.

Q: My employer terminated me today (December 31, 2006). I was supposed to receive a $10,000 performance bonus for 2006, but one of the terms of my bonus agreement says that I have to be employed on January 1, 2007 to get my bonus. The company is not doing very well and I think I was actually terminated so that they did not have to pay me the bonus. Can they get away with this?

--Unhappy New Year (CA)

A: I am sorry that this happened to you. Unfortunately, this is more common than most people think, but usually it is not so blatant. Often when managers start looking at their budgets at the end of the year and want to "trim the fat", they do this sort of thing to quickly save some cash at the expense of their employees.

You promised your employer you (1) would perform at a certain level during 2006 and (2) be employed on January 1, 2007. They in turn promised to give you a year-end bonus if you kept your promises to them.

In your situation, the only reason that you did not satisfy all of the conditions your employer placed on your bonus is because they essentially canceled the deal before you could finish.

This situation is similar to a common law school hypothetical. Say one person promises another person to give them $10,000 if they walk across a bridge. At the very last second before the person crossing the bridge reaches the other side, the other person yells out that he is canceling the offer.

California courts often look at situations like yours and determine what is "fair". It is likely that a court would decide that you complied with your bonus contract and it was only your employer's act of canceling your contract that kept you from finishing performance.

If so, you would be awarded your bonus as well as attorney's fees, costs, interest and possible penalties.