When Are Furloughed Workers Entitled to Vacation Payouts in California?

California law entitles employees to all wages owed at the time of termination, including accrued but unused vacation time. (Cal. Labor Code Section 227.3.) This rule sounds simple enough, but what about situations where the issue of termination is uncertain?

A federal judge in the Central District recently considered whether furloughed employees, like terminated employees, are entitled to payout of accrued vacation time under Labor Code Section 227.3 in Hartstein v. Hyatt Corporation.

In March 2020, Hyatt Hotels furloughed much of its workforce in response to the COVID-19 shutdown. Hyatt stopped paying the employees but advised them that it did not intend to sever employment. Hyatt continued to pay employees’ insurance premiums, employees remained eligible for complimentary hotel stays, and the employees continued to accrue vacation time. However, Hyatt did allow furloughed employees to cash out earned, unused vacation upon request.

In June 2020, Hyatt made the furlough permanent. It paid out the value of all unused vacation to the now-terminated employees, and made a second payment to those who elected to receive an initial payout in March of all additional accrued vacation.

A group of former employees sued, claiming Hyatt should have paid all furloughed employees the value of their accrued vacation in March. Hyatt contended its March furlough was not a termination since the employment relationship continued. Plaintiffs argued that termination and indefinite furlough are essentially the same.

The Court found that Labor Code Section 227.3 “requires a complete severance of an employer-employee relationship.” In this case, the Court determined that complete severance had not occurred, since Hyatt continued to pay the employer and employee health insurance premiums, plaintiffs remained eligible to redeem complimentary hotel stays, and plaintiffs continued to accrue vacation time. According to the Court, Hyatt was therefore not required to pay out all unused vacation at the time of the initial furlough. Plaintiffs plan to appeal the decision.

Despite the ruling, employers should consider immediately paying out accrued vacation to indefinitely furloughed employees. Worker advocates should be aware of when indefinite furloughs are announced and whether any employment benefits continue after the announcement.

If you have any questions regarding this topic, please contact your labor law counsel.