Vacation or Sabbatical?

In most jurisdictions, it would not matter whether an employee's paid absence from work was considered vacation or a sabbatical. But, in California, if an employer's policy establishes vacation, the right to paid leave accrues day by day and is never lost. If the policy establishes a sabbatical, the employer can impose conditions and impose a forfeiture if the employee does not use it before employment terminates.

A recent case from the Sixth District Court of Appeal in San Jose explains the difference. See Paton v. Advanced Micro Devices, Inc., Case No. H034618 (Aug. 5, 2011). California Labor Code section 227.3 provides that, if an employee is terminated without having taken his vested vacation time, “all vested vacation shall be paid to him as wages at his final rate” and the employer's policy “shall not provide for forfeiture of vested vacation time upon termination.” In Suastez v. Plastic Dress-Up Co., 31 Cal.3d 774, 647 P.2d 122 (1982), the California Supreme Court explained what "vested vacation" means. Paid vacation is part of an employee's wages. The consideration for the vacations days is the employee's year long labor. Although the time for receiving those wages is postponed until the employee takes vacation, the right to them vests as they are earned. The employer's imposition of a condition subsequent, such as that the employee remain employed for a year in order to take advantage of the accrued vacation, did not prevent the benefit from vesting.

By contrast, a sabbatical is extended paid leave granted infrequently to allow employees to recharge their batteries and devote themselves to self-improvement. In the academic world where the concept originated, a faculty member would engage in a project intended to promote his or her professional development and, in turn, enhance the institution's status as an institute of higher learning.

Because sabbaticals in the business world can serve similar purposes to vacations, the California Labor Commissioner was concerned that employers would label their policies sabbaticals in order to avoid the vesting of vacation pay. In three opinion letters, the Labor Commissioner laid down principles to be used for determining whether paid time off amounted to a true sabbatical. See Opinion Letter Nos. 1986.12.13, 1987.07.13 and 1987.10.06. From those letters and its own analysis, the Court of Appeal in Paton distilled the following factors to be utilized in determining whether paid time off qualifies as a sabbatical: (1) a sabbatical can only be granted infrequently, presumptively no earlier than after seven years of service, although shorter periods may be appropriate in particular situation, (2) the duration of a sabbatical must extend beyond what is normally offered as vacation, (3) the employer must offer regular vacation in addition to sabbaticals, and (4) there must be a feature that demonstrates that the employee taking the sabbatical is expected to return to work for the employer after the leave is over.

The Paton opinion reversed the summary judgment that the trial court had granted to the employer, because a reasonable jury could have concluded that the employer's policy did not establish a true sabbatical. The Court of Appeal was concerned about the true purpose of the program, noting: "It would not be unreasonable for a jury to decide that a four-week sabbatical is not 'normally' longer than vacation of four-weeks, or that an eight-week sabbatical is not longer than that 'normally' allowed for vacation where eight-weeks equals the length of time an employee could be gone on vacation if he took the maximum amount he could accrue all at once. And, although we know that defendant also offered a vacation policy, we do not know how defendant's vacation policy compared to vacation benefits offered by defendant‟s competitors."

Further information about the Labor Commissioner's views appear in the Division of Labor Standards Enforcement, Enforcement Policies and Standards Manual, at page 15.4.

Does the Wal-Mart decision matter?

Business and employee advocates seem to agree that the Supreme Court's decision in Wal-Mart Stores, Inc. v. Dukes (No. 10-277 June 20,2011) is a landmark decision of some sort. The U.S. Chamber of Commerce says that it "is without a doubt the most important class action case in more than a decade." According to the ACLU, the decision "increases the likelihood that discrimination will now go unremedied in many cases." Newspaper editorial boards concur. The L.A. Times says that, because of the decision, "serious allegations against Wal-Mart dating back a decade won't be tested in court, and similar lawsuits against other employers will never be undertaken at all." A Wall Street Journal article says that the decision "is likely to reverberate in other class actions, making lower courts scrutinize whether large groups of employees are similar enough to sue together."

The fact of the matter is that the decision breaks no new ground and is unlikely to have any long term effects on discrimination cases. This is an example of the Supreme Court's correction of an error by the Ninth Circuit in applying established class action rules, not of the articulation of a new standard. It was not appropriate to use the class action device to to address pay and promotion decisions at 3,400 individual stores involving hundreds of thousands of employees. In fact, all nine justices agreed that the Ninth Circuit's decision to recognize the class alleged in the case was wrong.

Employers should not expect that large class actions will become less frequent, particularly in the wage and hour area, where an unlawful pay practice can lead to multi-million dollar awards to employees. Wal-Mart itself has had a string of such cases go against it recently. On June 10, 2011, a Pennsylvania appellate panel affirmed the award of over $150 million in damages and penalties for wage and hour violations. Braun v. Wal-Mart Stores, Inc., 2011 PA Super 121. In December 2008, it agreed to pay up to $640 million to settle a number of wage and hour class actions around the country.

Discrimination class actions will also continue, where the plaintiffs can show that groups of employees with the same protected characteristic have different terms and conditions of employment than others. Ebbert v. Nassau County (Case No. 05-CV-5445 April 32, 2009) is a good example. Nassau County paid police communications workers (over 90 percent of whom were women) less then it paid fire communications workers (100 percent of whom were men). The county could not come up with a sufficiently convincing explanation for the disparity to win a summary judgment motion. On June 9, 2011, it submitted a proposed settlement of $7 million for court approval to settle the class action.