Filed 4/1/20
CERTIFIED FOR PARTIAL PUBLICATION*
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION THREE
TERESA McPHERSON et al., B290869
Plaintiffs and Respondents, Los Angeles County
Super. Ct. No. BC609090
v.
EF INTERCULTURAL
FOUNDATION, INC.,
Defendant and Appellant.
APPEAL from a judgment of the Superior Court of
Los Angeles County, Michael J. Raphael, Judge. Affirmed in part
and reversed in part with directions.
Seyfarth Shaw, Christian Rowley, Candace Bertoldi and
Kiran A. Seldon for Defendant and Appellant.
Law Offices of Courtney M. Coates and Courtney M. Coates
for Plaintiffs and Respondents.
* Under California Rules of Court, rules 8.1100 and 8.1110,
this opinion is certified for publication with the exception of parts
2.d., 3, 5, and 6 of the Discussion.
Paul Hastings, Paul W. Cane, Jr., Zachary P. Hutton and
Brian A. Featherstun for California Employment Law Council
and Employers Group as Amici Curiae on behalf of Defendant
and Appellant.
_________________________
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
1 Undesignated statutory references are to the Labor Code.
2
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.)
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
2 We also remand to the trial court to consider whether to
modify the attorney fee award to plaintiffs.
3
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
3 Plaintiffs had worked part-time or seasonally for EHP—
between three and 10 years—before becoming full-time, salaried
employees.
4 We refer to both area managers and the west coast
manager as “area managers.” The same vacation policy applied
to both positions.
4
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
5 An earlier version or versions of the handbook included the
same or a similar vacation policy.
5
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
6 Employees residing in California who paid California
payroll taxes were paid 100 percent of the value of that time.
6
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
7 When it issued its December 11 statement of decision,
the court had not seen some of the parties’ additional briefing,
including EF’s proposed statement of decision as to controverted
issues not addressed in the court’s tentative ruling. The court
considered the mistakenly missed briefing when it issued its
statement of decision on the second phase of the trial.
8 The trial court ordered plaintiffs to prepare a “portion of
a statement of decision” calculating their damages based on the
court’s findings. The court stated the combination of its tentative
ruling and plaintiffs’ proposed statement of decision would serve
as the proposed statement of decision for the second phase of
trial. That became the final statement of decision under rule
3.1590 of the California Rules of Court.
7
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 statements
to employees.” It found “EF had a ‘policy [that] provides for
paid vacations’ under section 227.3.” The court reasoned that,
“[b]ecause vacation time vests under California law if an
employee is told the precise amount she has a right to (e.g.,
‘two weeks annually’), it does not make sense that vesting can be
avoided if the employee would in fact receive the same amount if
she asked for it, but is simply not told that precise amount would
be approved. Either way, the employer has a policy of providing
at least that much vacation.” The court found “there could be no
dispute that plaintiffs would receive (at least) a couple of weeks
of paid vacation annually under EF’s policy, and there likewise
could not be a serious belief that EF would approve as much as
several months[ ] of paid vacation—the plaintiffs would not have
dared ask for anything like that. [¶] If a policy of undefined
8
vacation could avoid vesting, an employee could lose
compensation that another identically situated employee was
given, contrary to California law that vacation is to be treated
as a wage.”
The court further reasoned “offering vacation time in an
undefined amount simply presents a problem of proof as to what
the employer’s policy was. That policy is implied through conduct
and the circumstances, rather than through an articulated
statement. The Court must determine the amount of vacation
time that the employer’s policy actually made available to
plaintiffs, if necessary using principles of ‘equity and fairness’
(section 227.3) based on the circumstances.” (Footnote omitted.)9
The court initially found that “EF’s policy was to approve
the amount of vacation provided in the employee handbook for
plaintiffs, even though EF may not have expressly stated that
amount would be approved.” It thus concluded plaintiffs could
“recover vacation as proven under the policy in EF’s employee
handbook, including the cap on accrual.”
In its second statement of decision, the court reconsidered
this conclusion. The court noted “[p]laintiffs testified that,
through about forty work-years in total for the three of them,
they actually were approved to take between one and twenty
vacation days per year.” Based on that testimony, the court
concluded that “[s]ince twenty days’ annual vacation was
9 The court noted section 227.3 requires the Labor
Commissioner to apply the “ ‘principles of equity and fairness’
to resolve ‘any dispute with regard to vested vacation time.’ ”
The court concluded section 227.3 therefore also permitted the
court to “use equity and fairness to determine, for purposes of
vesting, the amount of vacation time that an employer’s policy
allowed.”
9
approved at least once, . . . at least that much vacation was
actually available to plaintiffs under the EF policy applied
to them.”
The court determined application of the employee
handbook’s vacation policy to plaintiffs was “not the best course
in this case.” It noted the parties’ second-phase arguments
“concern[ed] the application of the statute of limitations to the
annual ‘payouts’ [of vacation accrued over the carryover limit]
under the handbook policy.” The court concluded the application
of the statute of limitations “in this situation seems too arbitrary
to best serve the purpose of determining what amounts of
vacation actually vested,” noting neither EF nor plaintiffs
“thought at the time that the handbook actually applied to
the plaintiffs.”
The court concluded “the best approach is a more
straightforward one: 20 days of vacation vested annually for
each plaintiff, and any unused portion is payable at termination.
See Church v. Jamison (2006) 143 Cal.App.4th 1568.” The court
based its conclusion on law and equity under section 227.3. As a
legal determination, the court found the evidence demonstrated
20 days’ annual vacation was available to plaintiffs under EF’s
policy. Under principles of equity and fairness, the court stated
it was “attempting to provide plaintiffs with adequate
compensation for unused vacation time, without over-
compensation, in circumstances where the amount of vacation
time available was not expressly defined.”
b. Brenden’s release and severance
At trial EF argued Brenden’s claims were barred by the
written release of known and unknown claims she signed as a
condition of her severance. The court concluded section 206.5,
10
subdivision (a)10 rendered Brenden’s purported release of her
vacation wage claims “ ‘null and void’ ” because “there was no
vacation-pay dispute that was being settled at the time of
the release.” The court acknowledged the statute “has been
interpreted as meaning, ‘wages are not “due” if there is a good
faith dispute as to whether they are owed.’ ” The court found the
case law also supported its interpretation that a release is invalid
under section 206.5 if it “pre-emptively waives then-unrecognized
claims,” as was the case here.
The court also rejected EF’s contention Brenden’s damages
should be reduced by the $11,362.50 severance payment because
it was consideration for the release of wage claims the court had
found invalid. The court found persuasive Brenden’s argument
that the severance amount paid her also to release non-wage
claims and thus she need not return it.
c. Heimann’s Virginia residency
EF argued California’s wage and hour laws did not apply
to Heimann because she lived in Virginia. The court agreed with
EF that California’s wage and hour laws do not cover all work
with some connection to California. But it disagreed “that the
standard is so high that the employee’s work must be ‘entirely’ in
California.” The court had “no doubt” that Heimann was covered
by California’s employment laws. It found her work was focused
10 Section 206.5, subdivision (a) provides: “An employer
shall not require the execution of a release of a claim or right on
account of wages due, or to become due, or made as an advance
on wages to be earned, unless payment of those wages has
been made. A release required or executed in violation of the
provisions of this section shall be null and void as between the
employer and the employee. Violation of this section by the
employer is a misdemeanor.”
11
on people and activities in California and required her to reside
temporarily in California for significant periods.
d. McPherson’s salary
EF argued McPherson’s employment ended September 30,
2015, when her program manager contract expired. McPherson
argued it ended November 19, 2015, when she received her
termination letter. The court concluded EF terminated
McPherson’s employment on November 6, 2015, the day EF
management told her she would not be continuing with the
company, and it owed her unpaid wages from November 1
through November 6, 2015. The court found that—had EF
intended McPherson’s employment to end on September 30, 2015,
even while it considered her proposal for a new position—
“it merely had to either (a) expressly tell her that or (b) make a
decision on extending her by September 30, rather than taking
until November to do so.” The court also found EF’s payment of
McPherson’s salary in October 2015 “an important reason why an
objective employee in McPherson’s position would have concluded
she was still employed.”11
e. Amount of unused vacation wages owed
EF did not track the number of vacation days plaintiffs
used during their employment. Plaintiffs did not use the online
tracking system that employees subject to the handbook’s
vacation policy used. The court found Heimann “highly credible.”
It adopted her testimony on the number of vacation days she took
during her employment.
11 The court concluded EF did not owe McPherson waiting
time penalties on the unpaid wages. EF had a good faith belief
that wages were not owed based on the expiration of McPherson’s
contract on September 30, 2015.
12
The court found Brenden and McPherson credible, but
was “less convince[ed] that their recollection and accounts of
their vacation usage should be credited wholesale.” Without
recordkeeping, there was no way for the court to determine
“with certainty” the amount of vacation each actually took. The
court found “eight days’ vacation are to be added to each of the
amounts that these two plaintiffs recall that they took each year,
to best reflect how much vacation she actually took, based on
their testimony.”
The court concluded plaintiffs were not owed waiting time
penalties. The court found EF had a reasonable, good faith belief
that vacation wages were not owed, as no California authority
specifically has addressed “undefined-amount vacation policies.”
The court ordered plaintiffs to prepare a proposed
statement of decision calculating the mathematical application
of the court’s findings to determine each plaintiff’s damages.
5. Judgment and appeal
On April 17, 2018, the court entered judgment in the total
sum of $88,594.65, including prejudgment interest, in favor of
plaintiffs. McPherson was awarded $9,780.98 in regular and
vacation wages and interest; Heimann was awarded $52,149.10
in vacation wages and interest; and Brenden was awarded
$26,664.57 in vacation wages and interest.12 On May 17, 2018,
the court awarded plaintiffs $397,742.33 in attorney fees. On
June 20, 2018, EF filed a notice of appeal from the April 17
judgment.
12 The vacation wages were based on 44.27 days of accrued
vacation for McPherson, 199.7 days for Heimann, and 106 days
for Brenden.
13
EF filed a motion with its reply brief asking us to take
judicial notice of documents that are part of the legislative
history of section 227.3. EF argued the documents are necessary
to respond to plaintiffs’ contentions about the meaning of
“ ‘accrued’ ” and “ ‘vested’ ” and the statute’s provision about
“ ‘principles of equity and fairness.’ ” Plaintiffs opposed the
motion, asserting EF did not introduce the documents in the
trial court, the plain language of section 227.3 is unambiguous,
and the letters and statements from individual legislators EF
submitted are not proper subjects for judicial notice. We
deferred our ruling pending consideration of the merits of EF’s
appeal. We now grant EF’s motion and take judicial notice of
the exhibits attached to its application.
DISCUSSION
EF asks us to reverse the judgment because (1) California
law does not prohibit “ ‘unlimited’ or ‘uncapped’ time off policies
like EHP’s”; (2) neither EHP’s policy nor the parties’ contracts
gave plaintiffs “vested vacation rights”; and (3) the trial court
“arbitrarily created vested vacation rights” and “adopt[ed] an
incorrect and unworkable legal standard.” EF also asks us to
reverse the judgment on the separate grounds (a) as to Brenden
that she released her vacation wage claims, (b) as to Heimann
that section 227.3 did not apply to her after she moved to
Virginia in 2005, and (c) as to McPherson that she is not entitled
to unpaid wages from November 2015 because her employment
ended September 30, 2015, and she performed no work in
November 2015.
1. Standard of Review
On appeal from a judgment based on a statement of
decision after a bench trial, we review the trial court’s
conclusions of law de novo and its findings of fact for substantial
evidence. (Thompson v. Asimos (2016) 6 Cal.App.5th 970, 981.)
14
Under the deferential substantial evidence standard of review,
we “liberally construe[ ]” findings of fact “to support the judgment
and we consider the evidence in the light most favorable to the
prevailing party, drawing all reasonable inferences in support of
the findings.” (Ibid.) “We may not reweigh the evidence and are
bound by the trial court’s credibility determinations.” (Estate of
Young (2008) 160 Cal.App.4th 62, 76.) Testimony believed by the
trial court “may be rejected only when it is inherently improbable
or incredible, i.e., ‘ “unbelievable per se,” ’ physically impossible
or ‘ “wholly unacceptable to reasonable minds.” ’ ” (Oldham v.
Kizer (1991) 235 Cal.App.3d 1046, 1065.) “ ‘The ultimate
determination is whether a reasonable trier of fact could have
found for the respondent based on the whole record.’ ” (Estate of
Young, at p. 76.)
“A judgment or order of a lower court is presumed to be
correct on appeal, and all intendments and presumptions are
indulged in favor of its correctness.” (In re Marriage of Arceneaux
(1990) 51 Cal.3d 1130, 1133.) “Under the doctrine of implied
findings, the reviewing court must infer . . . that the trial court
impliedly made every factual finding necessary to support its
decision.” (Fladeboe v. American Isuzu Motors Inc. (2007) 150
Cal.App.4th 42, 48.) We affirm a judgment if correct on any
ground. (Mike Davidov Co. v. Issod (2000) 78 Cal.App.4th 597,
610.)
We review questions of statutory construction de novo.
(Kirby v. Immoos Fire Protection, Inc. (2012) 53 Cal.4th 1244,
1251 (Kirby).) “Our primary task when faced with a question
of statutory construction is to determine the intent of
the Legislature, and we begin by looking to the statutory
language. . . . ‘The words of the statute must be construed
in context, keeping in mind the statutory purpose.’ ” (McCarther
v. Pacific Telesis Group (2010) 48 Cal.4th 104, 110 (McCarther).)
15
“ ‘ “If there is no ambiguity in the language, we presume
the Legislature meant what it said and the plain meaning of
the statute governs.” [Citations.] In reading statutes, we are
mindful that words are to be given their plain and commonsense
meaning. [Citation.] We have also recognized that statutes
governing conditions of employment are to be construed broadly
in favor of protecting employees.’ ” (Kirby, supra, 53 Cal.4th at
p. 1250.)
2. The court did not err when it concluded EF owed
plaintiffs vacation wages under section 227.3
EF styles the legal question before us as “whether EHP’s
practice of permitting [p]laintiffs to take ‘uncapped’ time off
without accruing vacation wages complies with California law.”
It argues that if we conclude this practice is lawful, then EF had
no obligation to pay plaintiffs vacation wages at their termination
because “nothing ‘vested’ in the first place.” In essence, we must
determine if EHP’s policy to provide certain employees unaccrued
paid time off is subject to section 227.3. On the particular,
unusual facts of this case, we conclude it is.
a. Section 227.3 and the case law interpreting it
No California authority has addressed whether a
nonaccrual, unlimited paid time off13 policy is subject to
section 227.3. We first describe current California law on paid
vacation policies.
13 We refer to “paid time off” and “vacation” interchangeably.
(See Dept. of Industrial Relations, Div. of Labor Standards
Enforcement (DLSE) Opn. Letter No. 1990.09.24 (Sept. 24, 1990)
p. 3, archived at [“Any employer
policy which provides leave time is presumed to be vacation
unless clearly defined otherwise.”].)
16
California law does not require employers to provide
employees with paid vacation. (Owen v. Macy’s, Inc. (2009) 175
Cal.App.4th 462, 468 (Owen).) “[W]henever” an employer does
have a policy of providing its employees with paid vacation,
however, section 227.3 requires the employer to pay as wages
any “vested” vacation time a terminated employee has not used.
Section 227.3 provides,
“Unless otherwise provided by a collective-
bargaining agreement, whenever a contract of
employment or employer policy provides for
paid vacations, and an employee is terminated
without having taken off his vested vacation
time, all vested vacation shall be paid to him
as wages at his final rate in accordance with
such contract of employment or employer policy
respecting eligibility or time served; provided,
however, that an employment contract or
employer policy shall not provide for forfeiture
of vested vacation time upon termination.
The Labor Commissioner or a designated
representative, in the resolution of any dispute
with regard to vested vacation time, shall apply
the principles of equity and fairness.”
Our Supreme Court addressed the question of when the
right to vacation “ ‘vest[s]’ ” under section 227.3 in Suastez v.
Plastic Dress-Up Co. (1982) 31 Cal.3d 774, 776 (Suastez). The
Court held, “The right to a paid vacation, when offered in an
employer’s policy or contract of employment, constitutes deferred
wages for services rendered. Case law from this state and others,
as well as principles of equity and justice, compel the conclusion
that a proportionate right to a paid vacation ‘vests’ as the labor
is rendered. Once vested, the right is protected from forfeiture
17
by section 227.3. On termination of employment, therefore, the
statute requires that an employee be paid in wages for a pro rata
share of his vacation pay.” (Id. at p. 784.)
There, the company’s policy permitted employees to take
one to four weeks of paid vacation annually depending on their
length of employment, but employees were not eligible to take
vacation until the anniversary of their employment. (Suastez,
supra, 31 Cal.3d at p. 776 & fn. 2.) When plaintiff’s employment
ended before his anniversary date, the company refused to pay
him any pro rata share of vacation for that year. (Id. at p. 777.)
The company argued employees terminated before their
anniversary date had no right to vacation pay under section 227.3
because employment on that date “is a condition precedent to the
‘vesting’ of vacation rights.” (Suastez, supra, 31 Cal.3d at p. 778.)
The employee contended annual vacation is earned by work
performed throughout the year and vests as it is earned. (Id.
at p. 779.)
The Court agreed with the employee. It noted vacation pay
“is, in effect, additional wages for services performed.” (Suastez,
supra, 31 Cal.3d at p. 779.) The Court explained, “The
consideration for an annual vacation is the employee’s year-long
labor. Only the time of receiving these ‘wages’ is postponed.”
(Ibid.) In other words, “vacation pay is simply a form of deferred
compensation.” (Id. at p. 780.) The Court likened “vacation pay”
to “pension or retirement benefits, another form of deferred
compensation” the right to which “ ‘vests upon the acceptance
of employment [citations], even though the right to immediate
payment of a full pension may not mature until certain
conditions are satisfied.’ ” (Ibid.)
The Court recognized that “since the consideration for an
annual vacation is the labor performed throughout the year,
an employee whose employment is terminated midyear has not
18
earned a full vacation. Nonetheless, the employee has earned
some vacation rights ‘ “as soon as he has performed substantial
services for his employer.” ’ ” (Suastez, supra, 31 Cal.3d at
p. 780.) The Court explained that because the “right to some
share of vacation pay vests, like pension rights, on acceptance of
employment,” the “[n]onperformance of a condition subsequent,
such as [the company’s] requirement that employees remain until
their anniversary, can, at most, result in a forfeiture of the right
to a vacation; it cannot prevent that right from vesting.” (Id.
at p. 781.) Because section 227.3 prohibits forfeiture of vested
vacation time on termination, the company’s policy was
impermissible. (Suastez, at p. 781.)
The company nevertheless argued its eligibility
requirement was “a condition precedent that prevents those
rights from vesting at all.” (Suastez, supra, 31 Cal.3d at pp. 781-
782, italics omitted.) The Court rejected that contention,
reasoning “once it is acknowledged that vacation pay is not
an inducement for future services, but is compensation for past
services, the justification for demanding that employees remain
for the entire year disappears.” (Id. at p. 782.) Moreover, the
Court interpreted the passage in section 227.3 that “all vested
vacation shall be paid to [the employee] . . . in accordance with
[the] contract of employment or employer policy respecting
eligibility or time served” to mean “the amount of vacation pay an
employee is entitled to be paid as wages,” not the time of vesting
as the company had argued. (Id. at pp. 782-783.)
Because “vacation pay vests as it is earned, under . . .
section 227.3,” after Suastez, employer policies such as those
“ ‘allowing the forfeiture of vacation pay before one full year of
service or which require[ ] employees to “use or lose” vacation
pay by a specific date’ ” are prohibited. (Owen, supra, 175
Cal.App.4th at pp. 469-470.) Employers legitimately may limit
19
the amount of vacation pay an employee accrues, however, by
precluding accrual of additional vacation time once employees
have reached an announced maximum. (Boothby v. Atlas
Mechanical, Inc. (1992) 6 Cal.App.4th 1595, 1602 (Boothby).)
Under such a “ ‘no additional accrual’ policy,” the employee
does not forfeit vested vacation pay because “no more vacation
is earned” once the maximum is reached; thus, “no more vests.”
(Ibid.)
An employer also may adopt a policy that expressly
provides new employees do not earn vacation time “during their
initial employment.” (Owen, supra, 175 Cal.App.4th at p. 464;
Minnick v. Automotive Creations, Inc. (2017) 13 Cal.App.5th
1000, 1003.) Again, because “no vacation pay is earned” during
the waiting period, “none is vested.” (Owen, at p. 464.) Under
such a policy, “employees cannot claim any right to vested
vacation during their initial employment, because they know
in advance that they will not earn or vest vacation pay during
this period.” (Id. at p. 465.)14 But “once an employee becomes
eligible to earn vacation benefits he or she is simultaneously
entitled to payment for unused vacation upon separation.”
(Minnick, at p. 1007.)
14 The policies found permissible in both Owen and Minnick
expressly provided in writing that new employees did not earn
vacation until after they had been employed for a specific length
of time. (Owen, supra, 175 Cal.App.4th at p. 465 [employees
“ ‘earn and vest in paid vacation after they have completed
six months of continuous employment’ ”]; Minnick, supra, 13
Cal.App.5th at p. 1002 [“ ‘You must complete one year of service
with the company to be entitled to one week vacation.’ ”].)
“[T]he policy language reasonably inform[ed] employees that
their vacation accrual begins after the completion of” the stated
period. (Minnick, at p. 1008.)
20
b. Section 227.3 applies to EF’s policy because it
was neither unlimited in practice nor conveyed
as unlimited
It is undisputed EF had a policy of providing paid vacation
or time off to area managers, including plaintiffs, triggering the
first prong of section 227.3: “whenever . . . [an] employer policy
provides for paid vacations . . . .” It also is undisputed that EF
did not promise plaintiffs a specific amount of paid vacation that
they would accrue over time or expressly tell them they were
limited to a maximum amount of paid time off. EF and amici
contend the second prong of section 227.3—“and an employee is
terminated without having taken off his vested vacation time”—
does not apply to unlimited vacation policies because no vacation
time vests “if there is no fixed vacation bank.” In other words,
they contend an accrued, fixed amount of vacation time is a
precondition to the vesting of vacation wages.
Once EF opted to provide plaintiffs with paid vacation,
by default that paid time off constituted additional wages
attributable to the services plaintiffs rendered during the year,
vesting as they labored under Suastez. (Suastez, supra, 31 Cal.3d
at pp. 779, 782, 784; see Minnick, supra, 13 Cal.App.5th at
p. 1007 [under Suastez “all vacation pay is vested when earned”].)
EF argues plaintiffs earned no vacation time—and thus none
vested—to invoke section 227.3 because they did not labor
“in exchange for a promise of a specific amount of vacation,”
as in Suastez.
Under Owen, Minnick, and Boothby, an employer’s policy
certainly may limit an employee’s ability to earn vacation during
a specified period—whether at the start of employment or after a
certain amount of vacation time has accrued. No vacation wages
vest during such a period because the employee earns no vacation
during that specified time. (Owen, supra, 175 Cal.App.4th at
21
pp. 464, 471-472; Minnick, supra, 13 Cal.App.5th at p. 1002;
Boothby, supra, 6 Cal.App.4th at p. 1602.)15 It is unclear,
15 EF and amici rely on McCarther, supra, 48 Cal.4th 104
in support of their contention that section 227.3 does not apply
to unlimited vacation policies. There, our Supreme Court held a
sick leave policy that provided an uncapped number of paid days
off was not subject to section 233 because employees did not
“ ‘accrue[ ] increments of compensated leave.’ ” (McCarther,
at p. 116.) Section 233 requires employers who provide paid sick
leave to allow employees “to use . . . accrued and available sick
leave . . . in an amount not less than the sick leave that would be
accrued during six months at the employee’s then current rate
of entitlement” to care for an ill family member. (§ 233, subd. (a);
McCarther, at pp. 110-111.) The statute defines sick leave as
“accrued increments of compensated leave.” (§ 233, subd.
(b)(3)(A).) The Court interpreted the term “ ‘accrued’ ” to have
the “commonsense meaning of ‘accumulated.’ ” (McCarther,
at p. 115.)
We do not find McCarther’s analysis of uncapped paid sick
leave applicable to the vacation policy before us. First, section
233 plainly states it applies only to sick leave policies with
“accrued increments of compensated leave.” In contrast, the
plain language of section 227.3 does not require vacation time to
be accrued incrementally. Nor does section 227.3—unlike section
233—require vested vacation time to be calculated based on a
precise, stated formula. The Court in McCarther concluded
the Legislature intended to limit section 233 “to employers that
provide a measurable, banked amount of sick leave,” rather than
uncapped sick leave, because the statute requires the amount of
sick leave employers must allow employees to use for kin care
to be calculated using a precise formula based on accrued time.
(McCarther, supra, 48 Cal.4th at p. 111.) Finally, paid sick leave
is conditional; paid vacation is not. Sick leave does not vest
until the qualifying event—the employee’s illness—occurs.
An employee’s right to paid time off, in contrast, has no
preconditions; it vests as the employee labors. (See Paton v.
22
however, whether an employer that has a paid time off policy
may limit an employee’s ability to earn vacation indefinitely.
(The policies in Owen and Minnick did not permit employees to
earn vacation for an initial probationary period—their first six
and 12 months, respectively.) But once paid vacation is offered,
any limit on an employee’s entitlement to it must be expressed
in a clear, written policy from the get-go. (Owen, at pp. 464-465;
Minnick, at p. 1002; cf. Boothby, supra, 6 Cal.App.4th at p. 1598
[“accumulation of vacation time does not depend on an agreement
which expressly permits it[;] . . . unused vacation accumulates
unless the employment agreement legally prevents it”].)
In any event, we need not decide whether vacation wages
are earned under an unlimited policy—whether “uncapped time
off equate[s] to ‘vested vacation’ ”—as that is not the policy here.
Not only was EF’s policy not in writing, but the record
demonstrates EF never told plaintiffs it had an “unlimited”
vacation policy or that their paid time off was not part of their
compensation. EF may call its vacation policy “unlimited” or
“uncapped,” but substantial evidence supports the trial court’s
finding that it was not.
Advanced Micro Devices, Inc. (2011) 197 Cal.App.4th 1505, 1519
[unlike paid vacation, other types of paid leave, such as sick
leave, bereavement leave, or paid holidays vest upon the
occurrence of an event or condition or are limited to use for
a specific purpose].) Moreover, because paid sick leave is not
considered a form of “wages,” employers are not required to pay
employees their unused sick leave on termination—accrued
or not. (§ 246, subd. (g)(1).) In any event, we need not decide
whether section 227.3 is sufficiently similar to section 233,
as we conclude EF’s policy was not unlimited.
23
i. EF’s vacation policy had an implied limit
EF’s policy in practice was to give plaintiffs some fixed
amount of vacation time. As the court said, EF expected
plaintiffs to take vacation in the range typically available
to corporate employees (such as two to six weeks), not an
“unlimited” amount—for example, more than would be available
under a traditional accrual policy—along the lines amici
describe.16 See part 2.c. post. The trial testimony supports
the court’s finding.
EHP operations manager Nicole Halverson testified she
expected area managers would take “between two and four
weeks” of vacation per year. When the court asked Halverson
if area mangers, in her experience, ever took more than four
weeks off, she responded, “potentially.” She could not say with
certainty, however, whether she was aware of any area managers
who had taken more than four weeks off. She believed one of her
area mangers may have “gotten somewhat close to that.” Smith
also approved 20 days (four weeks) of vacation for Heimann
before she retired; he believed that amount was reasonable and
16 By “unlimited,” we do not suggest EF intended to permit
area managers to take vacation 365 days a year. After all, the
premise behind vacation pay is that it is deferred payment for the
employee’s labor. And, as our Supreme Court has acknowledged,
section 227.3 “does not purport to limit an employer’s right to
control the scheduling of its employees’ vacations.” (Suastez,
supra, 31 Cal.3d at p. 778, fn. 7.) But as amici have described
them, and the trial court noted, one would expect unlimited time
off policies at least to afford employees the ability to take longer
or more frequent periods of time off than a traditional accrual
policy or allow employees to work fewer hours in lieu of having
more vacation days.
24
wanted “to make the last few months that she was working with
[EHP] good.”
Plaintiffs—who collectively worked for a total of almost 40
years—presented evidence they took about two weeks of vacation
each year on average,17 but the record established they never
sought or received more than four weeks (20 work days), as the
trial court found. Moreover, substantial evidence supports the
court’s implicit finding that plaintiffs’ schedules precluded them
from taking advantage of EF’s purported unlimited time off
policy. (Cf. Dept. of Industrial Relations, DLSE Opn. Letter
No. 1991.01.07 (Jan. 7, 1991) p. 2, archived at [where policy places a cap on the accumulation of
accrued vacation, “ ‘an employee must be given a fair opportunity
to take vacation at reasonable periods of time so that he or she
can stay below the cap and continue vacation accruals’ ”].)
For example, the trial court asked Heimann why she
took two weeks of vacation each year rather than four weeks or
something else. She responded, “Basically, it was approximately
all the time I could take off based on my schedule. And I knew
I was entitled to at least two weeks off because no one ever told
me exactly how much vacation time I had.” She also testified
that it would have been “nice to be able to take unlimited time
off,” but professed “the restrictions of the job probably wouldn’t
17 According to their testimony and trial exhibits, plaintiffs
took fewer than two weeks in some years—e.g., six to nine days—
and more than two weeks in others—e.g., 11 to 14 days. Brenden
took less vacation on average than the other plaintiffs because
her husband’s busy season and children’s school schedule
prevented her from taking vacation during EF’s nonpeak season.
25
have allowed [her] to take unlimited time off because [she] would
not have been able to complete all [her] duties.”
McPherson testified similarly: “We were allowed to
take vacation and get paid for that vacation. Certainly wasn’t
unlimited and to the contrary it was very difficult to take much
vacation at all due to the rigors of the job.” Former EHP regional
director Joyce Dallam, who supervised area managers, testified,
“It was very difficult for anyone to take any extended period
of time. And most times, . . . [area managers] would take days
added onto trips that the company gave us.” For example, area
managers often added three or four extra days to the company’s
annual November conferences, held in attractive travel
destinations.
The testimony also established that EHP’s “peak season”
started around April and lasted until the middle or end of
August. Some regions, including McPherson’s and Brenden’s,
also ran shorter winter programs in December, January, and/or
February. During the peak season plaintiffs worked more than
100 hours a week, seven days a week, up to 18 hours per day.
Although plaintiffs’ heaviest workload was during the April to
August peak season, they presented evidence they worked full-
time all year. Plaintiffs may have had more flexibility to take
time off in the nonpeak season, but there was “still a lot of work
. . . happening,” and no evidence they took extended vacations
or substantially reduced their hours during that time.
McPherson moved from the area manager position to the
program manager position in part because she “could no longer
bear the burden of the[ ] hours.” She testified, “It was inhuman
the amount of hours it required to have any kind of life.”
Area managers also were encouraged to recruit host families
throughout the year and to get work for the summer season
finished earlier in the spring.
26
The court heard testimony from EF representatives,
plaintiffs, and former and current EF employees about the
nature of plaintiffs’ work. We can infer the court found credible
plaintiffs’ description of the amount of work their jobs required
and their inability to take significant time off.
Moreover, the record simply does not show plaintiffs reaped
the benefits that amici contend unlimited time off policies provide
to employees.18 In contrast to the hypotheticals amici pose, there
is no evidence plaintiffs’ schedule permitted—or EF would have
approved—10 or 15 weeks off (or even three or four weeks at
a time), significantly reduced hours during the off-peak season,
or months of vacation spread throughout the off-peak season.
18 Indeed, plaintiffs appear to have received fewer benefits
under the “unlimited” time off policy than if the handbook’s
accrual-based vacation policy had applied to them. The record
does not suggest plaintiffs took more time off than they would
have accrued had they been subject to the handbook’s policy.
Under the handbook, plaintiffs would have been entitled to take
20 days’ vacation after working for EHP for just one year. But
there was no evidence plaintiffs ever took more than 20 days’
vacation per year or that they would have had insufficient
accrued time to take the vacations they did, had the handbook
applied. Moreover, at the time of their terminations, plaintiffs
would have been entitled to between five and six weeks’ vacation
per year (26 to 30 days). And, had they accrued vacation time
they could not carry over, they would have been paid for it each
year. Significantly, there is no evidence plaintiffs sought out
or negotiated for “unlimited” paid time off as an employment
benefit, as amici assert is the current trend.
27
The record thus supports a finding that EF’s paid time off
policy had an implied “cap” and was by no means “unlimited.”19
As the trial court said, an employer cannot avoid section 227.3
by leaving the amount of vacation time undefined in its policy
while impliedly limiting the time actually available for approval.
ii. EF did not communicate the “unlimited” nature
of its paid time off policy
Substantial evidence also supports the trial court’s finding
that EF did not expressly convey the “unlimited” nature of its
paid time off policy. In stark contrast to the accrual-based
vacation policy in the EF handbook, which the parties agree did
not apply to plaintiffs, EF conveyed its “unlimited” paid time off
policy quite informally. According to the testimony, supervisors
had a “side conversation” with newly hired area mangers to tell
them about the vacation policy, or in some instances conveyed the
policy by email. This is all plaintiffs were told: as area managers
they could take paid vacation outside of the busy season, but
their vacation did not accrue.20 The only other parameters EF
clearly told plaintiffs were (1) they had to notify their supervisor
before taking time off and ensure they could complete their work,
and (2) they did not need to track their days off in the online
system because they did not accrue vacation.
19 In so concluding we do not suggest EF engaged in a
subterfuge to avoid section 227.3 or that the trial court found
it did so.
20 The testimony established area managers could take time
off during the peak season in limited circumstances with advance
approval. Brenden received advance approval for a one week
cruise to Alaska to celebrate her 30th wedding anniversary one
June, for example.
28
But no one at EF, for example, told plaintiffs they did not
accrue vacation because they—unlike employees subject to the
accrual policy—could take as much vacation as they wanted.
Although plaintiffs understood they could take time off when
their schedule permitted, they testified they did not understand
the policy to be “unlimited,” as EF contends it was.21
Heimann testified no one told her she had unlimited
vacation or time off as either an area manager or the west coast
manager. She said, “It would have been nice to know that.”
“It would have been nice to have been able to take as much time
as other salaried employees that had the same tenure as myself.”
She knew she could take paid time off, but understood, “if I didn’t
use the time, that I would lose it.” McPherson also testified
she never was told she could “take as much vacation as [she]
wanted.” She said, “I would have loved to have had as much
[vacation] as my operations manager was receiving.” Former
EHP employee Autumn Mostovoj, who supervised area managers
at one point, also testified no one told her area managers were
entitled to “unlimited vacation” or “unlimited time off at their
discretion.” In fact, she found the policy “so confusing and
so vague” that she used the vacation policy in the handbook
to guide her even though she knew it did not apply to EHP
area managers.
If EF intended to limit plaintiffs’ ability to earn vacation
pay or treat their paid time off as something other than deferred
21 Hart testified plaintiffs “were permitted to take as much
or as little time off as they wanted.” He clarified they could take
as much time as they wanted “[w]ithin reason to be able to still
perform the duties of the job,” so as “[t]o not fall totally behind
of their workload.”
29
wages, its “unlimited” policy had to be express and clear. (Cf.
Owen, supra, 175 Cal.App.4th at p. 470 [employer “[b]y making
it clear in advance that vacation is not part of a new employee’s
compensation” did not “run afoul of the rule that prohibits an
employer from reducing an employee’s wages for services after
the service has been performed” (italics added)]; Minnick, supra,
13 Cal.App.5th at p. 1007 [if “clearly stated” a policy that
provides a waiting period before employee earns vacation is
enforceable (italics added)].) It was not.
EF never expressly told plaintiffs that their ability to take
paid vacation was not part of their compensation. EHP’s 2000
and 2003 employee handbooks, “designed to address the unique
needs of an at-home EF EHP employee,” refer to “[f]lextime,”
but they do not mention paid time off or vacation as part of that
flextime. The paragraph on flextime states: “Since AMs [area
managers] and RDs [regional directors] work at home, they are
not required to hold specific ‘office hours.’ Instead, hours are
determined more by the seasonal nature of the product. As with
all salaried employees, AMs and RDs work the necessary number
of hours to complete their work successfully.”22 The paragraph
does not tell employees they may take unlimited paid time off
as part of that “flextime,” or that their ability to do so is part of
EF’s promise to allow flextime, not a promise of additional wages.
And, as exempt employees, area managers were not subject to
overtime, but expected to work as many hours as needed “to
complete their work successfully.” EF may not have promised
22 We understand this paragraph to refer to flexible daily
hours, not an ability to take unlimited time off. For example,
an area manager need not work the traditional 9:00 a.m. to
5:00 p.m., but could work during any hours in the day or night.
30
plaintiffs a specific amount of vacation time, but it promised
them paid time off in some amount. Plaintiffs worked for EF
in exchange for wages. Absent evidence to the contrary, under
Suastez, those wages included the promised paid time off arising
from the services they rendered during the year.
Moreover, EF’s policy gave plaintiffs no clear direction
as to their rights or EF’s obligations under its “unlimited” paid
time off policy. For example, EF did not warn plaintiffs of the
consequences of failing to schedule a sufficient amount of time
off, e.g., that they essentially would leave money on the table by
working more hours for the same pay than those who scheduled
more time off. (Cf. Owen, supra, 175 Cal.App.4th at p. 470
[“courts have approved employer vacation policies that warn
employees, in advance, that they will cease to accrue vacation
time accumulated in excess of an announced limit” (italics
added)].) And its policy was not written down anywhere, so
plaintiffs had nothing to consult. (See generally Owen, and
Minnick, supra, 13 Cal.App.5th 1000 [affirming express, written
vacation policies with waiting periods].)
Having failed to set out its purported unlimited vacation
policy—or any limitations it imposed on earning vacation wages
—in a clear, express writing (or otherwise), EF has not
demonstrated that section 227.3 does not apply to its policy
of providing paid vacation to plaintiffs. (See Kirby, supra, 53
Cal.4th at p. 1250 [courts must broadly construe employment
statutes in favor of employees].)
c. Section 227.3 does not necessarily apply to all
“unlimited” paid time off policies
Amici assert unlimited time off policies—which they
contend do not result in vested vacation pay—“offer significant
benefits to both employees and employers.” According to a 2019
31
study amici provide, “[u]nlimited paid time off” is the “emerging
benefit” that interests employees most.
Amici explain, through persuasive hypotheticals,23 how the
unlimited policies they describe intentionally allow for different
employees doing the same job to take varying amounts of paid
time off so that each employee may organize his or her time
differently. Some may work longer hours and on weekends to
be able to take more frequent and longer vacations throughout
the year, while others may take fewer and shorter vacations to
avoid working evenings and on weekends. In industries with a
defined season, like accounting, employees may take significant
time off during the off-season, having worked long hours during
the busy season. As amici note, under an unlimited time off
policy, “[e]mployees are trusted to fulfill their job responsibilities
and are otherwise free to come and go.”
23 Amici posit a hypothetical unlimited-leave policy where
attorneys in a law firm can take unlimited time off during
the year as long as they bill 2,000 hours. In the example, one
associate—devoted to skiing and surfing—averages nine hours
of work a day, six days a week. At that pace, the attorney “can
take 15 weeks of paid time off to ski and surf, and still meet his
billable-hour budget.” At the other end of the spectrum, another
attorney—a parent with family demands—averages eight hours
of work on weekdays and does not work on weekends. Because
he chooses to work fewer hours to spend time with his family,
it will take him 50 weeks to bill 2,000 hours, so he takes just
two weeks of vacation. The attorneys obviously benefit from the
described unlimited-leave policy: the surfer-skier can take more
than three months of vacation every year—an amount unheard of
in a traditional accrual policy—and the parent can work fewer
hours each week, freeing up evenings and weekends, in lieu of
taking more vacation that he most likely would have accrued
under a traditional policy.
32
We appreciate the benefit and understand the appeal
the unlimited time off policies amici describe may have to some
employees. In concluding section 227.3 applies to EF’s vacation
policy, we do not hold that section 227.3 necessarily applies to
truly unlimited time off policies. Such a policy may not trigger
section 227.3 where, for example, in writing it (1) clearly provides
that employees’ ability to take paid time off is not a form of
additional wages for services performed, but perhaps part of
the employer’s promise to provide a flexible work schedule—
including employees’ ability to decide when and how much
time to take off; (2) spells out the rights and obligations of
both employee and employer and the consequences of failing to
schedule time off; (3) in practice allows sufficient opportunity for
employees to take time off, or work fewer hours in lieu of taking
time off; and (4) is administered fairly so that it neither becomes
a de facto “use it or lose it policy” nor results in inequities, such
as where one employee works many hours, taking minimal time
off, and another works fewer hours and takes more time off.
Unlimited paid time off under such a policy—depending on
the facts of the case—very well may not constitute deferred
compensation for past services requiring payment on termination
under section 227.3.
d. Substantial evidence supports the court’s calculation
of plaintiffs’ vacation wages
EF assigns several errors to the trial court’s finding that
“20 days of vacation vested annually for each plaintiff, and any
unused portion is payable at termination.” Substantial evidence
supports the court’s finding.
i. The court’s finding that 20 days of vacation
vested annually was proper
EF contends the court erred by determining how much
vacation vested annually based on the amount of vacation
33
“ ‘actually available’ ” to plaintiffs. EF again relies on McCarther
where the Supreme Court rejected the Court of Appeal’s
reasoning that an employer could calculate the amount of
kin care required under section 233 based “on the amount of
sick leave that the employee actually utilizes in one year.”
(McCarther, supra, 48 Cal.4th at pp. 112-113.) As we have
discussed, the Legislature made clear its intent that kin care
available under section 233 be precisely ascertainable, while
section 227.3 includes no such limitation on determining the
amount of paid vacation due under the statute. (McCarther, at
p. 111 [Legislature intended to limit section 233 “to employers
that provide a measurable, banked amount of sick leave,” because
the statute requires the amount of sick leave employers must
allow employees to use for kin care to be calculated based on
incrementally accrued time.].) We thus find McCarther’s holding
inapplicable to section 227.3, which does not require the amount
of annual paid vacation time to be precisely ascertainable from
the employer’s policy.
EF also argues the trial court arbitrarily chose the highest
number of vacation days approved for one plaintiff and imposed
its own policy judgment that EF should have expressly defined
the amount of vacation plaintiffs could take. We reject EF’s
contentions. As the court said, EF’s failure to define its vacation
policy was “a problem of proof.” Having concluded EF’s policy
was subject to section 227.3—a conclusion we affirm—the court
had to determine the amount of vacation time that vested
each year as plaintiffs worked. The court’s consideration of
the parties’ conduct to determine that amount, where EF’s policy
did not expressly provide for it, was proper. (See, e.g., Civ. Code,
§ 1655 [“Stipulations which are necessary to make a contract
reasonable, or conformable to usage, are implied, in respect to
matters concerning which the contract manifests no contrary
34
intention.”]; Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317,
336-337 [absent express agreement, parties’ conduct may
evidence their understanding of particular employment terms,
which “must be determined from the ‘totality of the
circumstances’ ”]; Binder v. Aeta Life Ins. Co. (1999) 75
Cal.App.4th 832, 852-855 [determining parties’ implicit meaning
of “good cause” based on circumstances and conduct where
parties impliedly agreed to terminate employment only for
good cause].)
In Binder, the employer agreed not to terminate the
employee except for good cause, but there was no “particularized
agreement” on what constituted good cause. (Binder, supra,
75 Cal.App.4th at pp. 852, 853-854.) The trial court, therefore,
was required “to supply a meaning which [was] reasonable under
the circumstances” by considering the parties’ conduct and the
surrounding circumstances. (Id. at pp. 852, 855.) The court
had to do the same here. EF agreed to provide paid vacation
to plaintiffs, but there was no “particularized agreement” on the
amount of annual vacation to which plaintiffs were entitled. The
court thus considered the parties’ conduct and the circumstances
to imply that term.
Substantial evidence supports the court’s finding that EF
impliedly agreed plaintiffs were entitled to at least 20 days’ paid
vacation annually under its undefined policy. EF’s management
expected area managers would take up to four weeks’ vacation,
and EF actually approved 20 days’ vacation at least once.
Moreover, as EF created the “problem of proof,” the court’s
decision to calculate the amount of vested vacation time plaintiffs
earned each year based on the maximum amount of paid vacation
that had been approved was reasonable. (Cf. Civ. Code, § 1654
[“language of a contract should be interpreted most strongly
against the party who caused the uncertainty to exist”].
35
Because we conclude substantial evidence supports the
court’s finding that 20 days of annual paid vacation was available
to plaintiffs, we need not reach the issue of whether the
Legislature intended section 227.3’s “ ‘principles of equity and
fairness’ ” provision to apply in these circumstances.24
ii. The court did not err in calculating the amount
of vacation wages EF owed plaintiffs
Substantial evidence also supports the court’s findings
on the amount of vacation time each plaintiff actually used and
the amount of vested time each had not used at the time of her
termination. The court assessed plaintiffs’ credibility, considered
the records submitted in evidence, and took into account failures
of recollection elicited through cross-examination. The court
found Heimann’s testimony particularly credible. As for
McPherson and Brenden, the court added eight days to the
amounts of vacation each of them recalled they took each year
to account for misrecollections. Plaintiffs’ testimony is not
unbelievable to reasonable minds; thus, we are bound by the
court’s credibility determinations.25
24 We do not find the court’s decision not to apply the
handbook (and the accrual caps) inequitable or arbitrary. Had
the handbook applied to plaintiffs, they would have received
20 days’ vacation after one year and more than 20 days’ vacation
after their fourth year of service. And, they would have been paid
for any time they did not use and could not carry over.
25 EF contends plaintiffs have “invented” a standard to
require vacation wages be paid when “there is a ‘reasonably
ascertainable floor and ceiling for vacation entitlement.’ ” Amici
contend the court’s calculation method will result in setting an
employer’s liability for vacation wages on the amount of vacation
its employees “chose to take” instead of its policy. EF’s and
36
iii. Plaintiffs’ vacation wages are not time-barred
Finally, EF argues we should follow this district’s decision
in Sequeira v. Rincon-Vitova Insectaris (1995) 32 Cal.App.4th
632, 636-637, and find the statute of limitations bars plaintiffs’
claim for vacation wages that vested more than four years before
their termination. We are not bound by Sequeira and decline to
follow it. As the parties note, more recent court opinions have
held a plaintiff’s cause of action for unpaid vacation wages does
not accrue until the employee leaves her employment. (Church
v. Jamison, supra, 143 Cal.App.4th at pp. 1572, 1576; Soto v.
Motel 6 Operating, L.P. (2016) 4 Cal.App.5th 385, 391-392.)
The trial court did not err when it followed Church and awarded
plaintiffs vacation wages for the entire length of their
employment.
3. On this record, section 206.5 precluded Brenden’s
general release from releasing her vacation wage
claims
When EF terminated Brenden’s employment, she
negotiated and received a severance payment equal to three
months’ salary ($11,362.50). The letter agreement Brenden
signed included a general release of all claims, including those
“under any federal or state labor . . . law[ ],” as well as an
express waiver of her rights under Civil Code section 1542.26
Amici’s contentions are unfounded. The court’s approach to
determine the amount of vested vacation time here was limited
to the specific facts before it. We do not read the court’s ruling,
or plaintiffs’ argument, to propose a standard to be applied to all
“unlimited” vacation policies.
26 At the time, Civil Code section 1542 provided, “A general
release does not extend to claims which the creditor does not
know or suspect to exist in his or her favor at the time of
37
The agreement also stated: “You acknowledge that you have
received your salary through September 30, 2015. No additional
payments will be due or made to you for salary, bonus,
commissions, benefits, severance, vacation, personal days,
or otherwise other than as specified in this agreement.” EF
contends this release Brenden signed as a condition of receiving
her severance payment—a payment to which she was not
otherwise entitled—bars her vacation pay claims, and as a
matter of law section 206.5 thus did not invalidate the release.
Section 206.5 prohibits an employer from requiring an
employee to release a claim for wages that are due and unpaid
unless it has paid those wages. (§ 206.5, subd. (a).)27 Section
206.5 thus provides an exception to a general release of wage
claims—known or unknown. That exception is limited, however.
Wages are not considered “due” under the statute if the employer
and employee have “a bona fide dispute” as to whether they are
owed. (Chindarah v. Pick Up Stix, Inc. (2009) 171 Cal.App.4th
796, 803 (Chindarah).) Section 206.5 therefore does not preclude
an employer and employee from “ ‘compromis[ing] a bona fide
dispute over wages.’ ” (Chindarah, at pp. 801, 803 [finding
release valid and explaining that, although statutory right to
receive overtime is unwaiveable, no statute prevents an employee
from releasing “his claim to past overtime wages as part of a
executing the release, which if known by him or her must have
materially affected his or her settlement with the debtor.” (Stats.
2004, ch. 183, § 28.)
27 Under section 206, “In case of a dispute over wages, the
employer shall pay, without condition . . . all wages . . . conceded
by him to be due, leaving to the employee all remedies he might
otherwise be entitled as to any balance claimed.”
38
settlement of a bona fide dispute over those wages”].)
Accordingly, an employer may obtain a valid release as part of
a compromise of an employee’s wage claim, without paying the
full amount of wages claimed, if the employer has a good faith
dispute that it does not owe the unpaid wages. (Watkins v.
Wachovia Corp. (2009) 172 Cal.App.4th 1576, 1587 (Watkins).)
The trial court concluded Brenden’s release was invalid
under section 206.5 as to her vacation pay claims because “no
vacation-pay dispute . . . was being settled at the time of the
release.” In other words, no bona fide dispute as to vacation pay
existed between EF and Brenden. The court relied on Watkins in
reaching its conclusion. There, another panel of this court found
an employee validly released her wage claims when she “believed
she possessed a claim for further overtime pay” and elected to
receive “enhanced severance benefits” in exchange for releasing
all her claims against her employer. (Watkins, supra, 172
Cal.App.4th at pp. 1586-1587.) The trial court here reasoned
the court in Watkins “would have no reason to emphasize the
employee’s belief that she possessed an overtime pay claim if that
belief were not required for a valid release. That requirement
makes some sense, in that otherwise an employer could—with
regard to any employee—pay all the wages that it believed ‘due’
as consideration for a broad waiver of all other claims.”
We agree. California courts may “routinely enforce
releases of disputed wage claims” as EF contends, but as
plaintiffs note, in those cases the releases arose from pending
wage disputes or litigation where actual controversies existed
between the parties. (Watkins, supra, 172 Cal.App.4th 1576;
Chindarah, supra, 171 Cal.App.4th at p. 803; Villacres v. ABM
Industries Inc. (2010) 189 Cal.App.4th 562, 569, 589 [court-
approved settlement of wage claims applied to later litigation
of same cause of action]; Nordstrom Com. Cases (2010) 186
39
Cal.App.4th 576, 579 [court-approved settlement of commissions
claims]; Aleman v. Airtouch Cellular (2012) 209 Cal.App.4th 556,
564-565, 578 [enforcing one plaintiff’s release of all claims
made while lawsuit for reporting time and split-shift wages was
pending where releasing plaintiff argued “ ‘she was undisputedly
entitled’ ” to reporting time and split-shift pay, but defendant
disputed the claims]; Shine v. Williams-Sonoma, Inc. (2018)
23 Cal.App.5th 1070, 1077 [plaintiff collaterally estopped from
bringing reporting-time pay claim against employer based on
settlement of earlier-filed class action for failure to provide meal
and rest periods, overtime and minimum wages, timely wages,
and final paychecks because reporting-time claim—which is a
claim for wages due—could have been raised in earlier action
and employer disputed it owed reporting-time pay].)
EF contends the trial court’s own findings that EF had a
good faith dispute as to whether it owed vacation wages, and its
payment to Brenden of “the amount of wages that it conceded
was due at the time,” takes Brenden’s release outside of section
206.5 as a matter of law. We disagree. The court’s finding of a
“good faith dispute” concerned its conclusion that waiting time
penalties under section 20328 were unwarranted because EF
28 An employer who willfully fails to pay an employee her
wages after her employment ends must continue to pay the
wages in the form of waiting time penalties. (§ 203, subd. (a);
Cal. Code Regs., tit. 8, § 13520.) Waiting time penalties cannot
be assessed against an employer who has “a good faith dispute
that any wages are due,” however. (Cal. Code Regs., tit. 8,
§ 13520.) For purposes of section 203, an employer has a “ ‘good
faith dispute’ ” if it “presents a defense, based in law or fact
which, if successful, would preclude any recovery” by the
employee. (Cal. Code Regs., tit. 8, § 13520, subd. (a).)
40
“had a good faith dispute as to whether vacation wages were due”
given the “absence of on-point authority about undefined-amount
vacation policies.” In other words, the trial court concluded
EF did not willfully withhold wages from plaintiffs, including
Brenden.
That finding, however, does not require us to conclude a
bona fide dispute over wages existed for purpose of determining
if section 206.5 invalidated Brenden’s release of her vacation pay
claims. A “dispute” is “[a] conflict or controversy . . . .” (Black’s
Law Dict. (11th ed. 2019) p. 593.) It necessarily requires two
competing sides. So, for there to have been a releasable bona fide
“dispute” over Brenden’s vacation wages, there must have been a
disagreement between the parties about her right to those wages.
But when Brenden signed the severance agreement neither she
nor EF knew EF owed her unpaid vacation wages. No conflict
existed between them over vacation pay or any other earned,
but unpaid wages, for that matter. There is no evidence that—
during the severance payment negotiations or when she signed
the release—Brenden asserted an entitlement to vacation wages
that EF disputed or that EF told Brenden she was not entitled
to vacation wages that she asserted were owed.
The opening paragraph of the severance agreement
confirms it was not a settlement of a disputed wage claim:
“We want you to know that your work here has been appreciated
and in order to assist you as you make the transition to new
employment, we would like to offer you the following package.”
Paragraphs containing the severance payment, release, and other
provisions follow. The release is made “[i]n exchange for salary
continuation,” but nowhere does the agreement state its purpose
includes resolving a wage dispute between the parties. (See, e.g.,
Reynov v. ADP Claims Services Group, Inc. (N.D.Cal., Apr. 30,
2007, No. C 06-2056 CW) 2007 U.S. Dist. Lexis 31631 at p. *3
41
(Reynov), relied on by EF [agreement’s stated purpose to provide
employee “ ‘certain benefits that you would not otherwise
receive, and resolve any remaining issues between you and
[employer]’ ”].) Hart even increased Brenden’s severance
payment from two months’ to three months’ salary after
Brenden asked him, “Can you see it in your heart to give me
three months[’] salary?”
In other words, Brenden did not accept the severance
payment after negotiating “the consideration [she was] willing to
accept in exchange” for her release of “claims for disputed wages.”
(Nordstrom Com. Cases, supra, 186 Cal.App.4th at p. 590
[“Employees may release claims for disputed wages and
may negotiate the consideration they are willing to accept in
exchange.”].) Because Brenden released a claim for past wages
EF owed her where no dispute over those wages existed, the trial
court did not err in finding the release void as to her vacation pay
claim under section 206.5.
We do not find Brenden’s release is invalid in any other
respect. We also do not hold a subjective belief in or enumeration
of the specific wage claim necessarily is required at the time
an employee signs a release of wage claims.29 We reject EF’s
29 For example, in one of the unpublished federal cases on
which EF relies the district court found a general release valid
as to an employee’s allegedly unknown overtime claim based
on his misclassification as an exempt employee. (Reynov, supra,
2007 U.S. Dist. Lexis 31631.) Although there was evidence
the employee was aware of his overtime claim, the court found
the employee’s claimed lack of knowledge did not invalidate
the release because the employer’s defense that the employee
was exempt and not owed overtime created a good faith dispute.
(Id. at p. *10 & fn. 4.) There, however, the employee had
complained to an attorney about the employer’s “ ‘Labor Code
42
contention that finding the release here void under section 206.5
will result in nullifying express waivers of Civil Code section
1542. An employee may agree to waive her rights and release
unknown claims to settle a bona fide disagreement over whether
her employer owes her wages. Based on the existing case law,
however, there must exist at least a “bona fide” or “good faith”
dispute between the parties at the time the employee releases
a claim for past wages for the release to be valid under section
206.5.
We also conclude the trial court did not err when it
found EF not entitled to an offset of Brenden’s damages for
the severance payment. As plaintiffs contend, EF may enforce
the general release as to non-wage claims not affected by section
206.5. The court reasonably could conclude the consideration EF
paid Brenden also purchased the release of nonwage claims—age
discrimination or contract-based claims, for example—and thus
no offset was required.30
Violations,’ ” and preemptively retained the attorney to represent
him “ ‘in all claims for violations of the Labor Code and any other
related laws’ ” against the employer a month before quitting his
job and signing the release in issue in exchange for a severance.
(Id. at p. *3.) An actual dispute over whether the employer
violated the Labor Code thus existed between the parties.
The employer also paid the severance in part to “resolve any
remaining issues” between it and the employee. (Id. at p. *3.)
30 Although the trial court did not decide the issue, as
Brenden argued to the trial court and argues on appeal, EF also
waived its defense of offset by failing to plead it as an affirmative
defense in its answer. (Walsh v West Valley Mission Community
College Dist. (1998) 66 Cal.App.4th 1532, 1546 [answer must
plead as an affirmative defense any matter “ ‘not put in issue
43
4. The trial court erred when it found section 227.3
applied to Heimann after she moved to Virginia
EF appeals from the judgment awarding Heimann vacation
wages on the separate ground that section 227.3 did not apply
to her after she moved to Virginia in 2005. EF thus argues that,
if we affirm the trial court’s finding that section 227.3 applied to
EF’s unlimited paid time off policy, Heimann’s damages award
must be reduced to exclude vacation wages earned after she
moved. Although substantial evidence31 supports the trial court’s
factual findings that Heimann’s work “focused on activities and
people actually in California,” and she temporarily resided in
California for “weeks or months consecutively,”32 we conclude
by the plaintiff,’ ” or “ ‘not responsive to essential allegations
of the complaint’ ”].)
31 Heimann testified she moved to Virginia in June 2005,
where she continued to work as EHP’s west coast manager until
she retired in October 2014. She managed a staff located in
California, who helped her collect money from students for their
optional trips. Heimann opened and maintained for EHP a
California bank account where hundreds of thousands of dollars
were deposited for the trips. She also supported EHP programs
in Washington and Vancouver, but 90 percent of her job focused
on groups in California.
Heimann worked from her home in Virginia, but returned
to California annually for the busy summer season. EHP paid
for Heimann to live in a dormitory at California State University
Long Beach (CSULB) or a hotel. She also had an office at
CSULB, where the EHP program was held. Each summer she
hired two or three seasonal employees whom she managed in
California.
32 Heimann worked in California for two to two and one-half
months consecutively during the summer, from mid-June
44
the court erred in its application of Sullivan v. Oracle Corp.
(2011) 51 Cal.4th 1191 (Sullivan) to find section 227.3 applied
to Heimann after she became a Virginia resident.
California’s Legislature expressly has declared that “[a]ll
protections, rights, and remedies available under state law . . .
are available to all individuals regardless of immigration status
. . . who are or who have been employed, in this state.” (§ 1171.5,
subd. (a); Sullivan, supra, 51 Cal.4th at p. 1198.) Although the
Legislature enacted section 1171.5 to protect undocumented
workers “from sharp practices,” our Supreme Court has
interpreted that section as expressing the Legislature’s desire to
protect all individuals employed in the state regardless of their
residency. (Sullivan, at p. 1997 & fn. 3 [“no reason exists to
believe the Legislature intended to afford stronger protection
under employment laws to persons working illegally than to
legal nonresident workers”].)
In Sullivan, our Supreme Court answered certified
questions from the United States Court of Appeals for the Ninth
Circuit “about the applicability of California law to nonresident
employees who work both [in California] and in other states for
a California-based employer.” (Sullivan, supra, 51 Cal.4th at
p. 1194.) After performing a conflict-of-laws analysis, the Court
held California’s overtime law applied to nonresident employees
who performed full days and weeks of work in California.
(Sullivan, supra, 51 Cal.4th at pp. 1201, 1206, italics added.)
In so holding, the Court examined California’s “strong interest
through late August. She also traveled to California for meetings
in January or February and in April or September. She spent
days or weeks in California in total outside the summer season.
45
in governing overtime compensation for work performed in
California.” (Id. at p. 1201.)
The Court cautioned that, although it had found
California’s overtime laws applied to nonresidents performing
work within California’s borders, “one cannot necessarily assume
the same result would obtain for any other aspect of wage law.”
(Sullivan, supra, 51 Cal.4th at p. 1201, italics added.) The Court
explained, “California’s interest in . . . an out-of-state business’s
. . . treatment of its employees’ vacation time, for example, may
or may not be sufficient to justify choosing California law over
the conflicting law of the employer’s home state.” (Ibid.)
In concluding section 227.3 applied to Heimann, the trial
court agreed Sullivan did not mean to apply California wage laws
to “all work with some connection to California,” but found “the
standard [was] not so high that the employee’s work must be
‘entirely’ in California.” Sullivan, however, does not support
the court’s implicit finding that California wage laws should be
applied to work performed outside of California by a nonresident
even if that work is “focused on activities and people actually
in California.” Indeed, Sullivan reached the opposite result.
Although the Court held California’s overtime law applied to
overtime work the nonresident plaintiffs performed in the state,
it also held California’s unfair competition law (UCL) did not
apply to “overtime work performed outside California for
a California-based employer by [the] out-of-state plaintiffs.”
(Sullivan, supra, 51 Cal.4th at pp. 1208-1209.) The Court
concluded neither the language of the UCL nor its legislative
history indicated the Legislature intended the UCL to apply
to “ ‘ “occurrences outside the state.” ’ ” (Id. at p. 1207.)
As with the UCL, “[n]either the language of [section 227.3]
nor its legislative history provides any basis for concluding the
Legislature intended [section 227.3] to operate extraterritorially.”
46
(Sullivan, supra, 51 Cal.4th at p. 1207 [presumption against
extraterritorial application of state law].) Most of Heimann’s
work may have been to support programs in California, but as
a Virginia resident she did not perform most of her work in
California. Based on the record, at most Heimann worked in
California for about 12 to 13 weeks per year—about two months
or so in the summer and additional days, or perhaps a week at
a time, in January or February and in April or September. She
thus spent at least 75 percent of her time performing work in
Virginia from June 2005 to October 2014.
At a minimum, therefore, section 227.3 does not apply
to work Heimann performed in Virginia or in any other state
outside of California. (Norwest Mortgage, Inc. v. Superior Court
(1999) 72 Cal.App.4th 214, 222 (Norwest Mortgage) [“we do not
construe a statute as regulating occurrences outside the state
unless a contrary intention is clearly expressed or reasonably
can be inferred from the language or purpose of the statute”].)
That leaves the question of whether section 227.3 applies to
vacation time Heimann earned during the time she temporarily
worked in California each year. No California decision has
considered whether section 227.3 applies to a nonresident
employee of a non-California employer who periodically worked
in California. In ruling section 227.3 applied to all work
Heimann performed for EHP while a Virginia resident, the trial
court overstated Sullivan’s description of California’s interest in
applying its wage laws. Quoting from Sullivan, the trial court
stated, “ ‘California has, and has unambiguously asserted,
a strong interest in applying its [wage and hour] law . . . to all
work performed, within its borders.’ ” The trial court replaced
“overtime” with “wage and hour” and omitted “to all nonexempt
workers.” Our Supreme Court actually declared, “California has,
and has unambiguously asserted, a strong interest in applying its
47
overtime law to all nonexempt workers, and all work performed,
within its borders.” (Sullivan, supra, 51 Cal.4th at p. 1203.)
The trial court’s substitution and omission change the
meaning of the quotation. The statement referred only to
California’s asserted interest in applying its overtime laws to
all nonexempt workers performing work in the state—not all
of its wage and hour laws to all work performed in the state.
Moreover, earlier in its opinion the Court expressly stated it
was not deciding “the applicability of any provision of California
wage law other than the provisions governing overtime
compensation.” (Sullivan, supra, 51 Cal.4th at p. 1201.)
The Court also found “of doubtful validity” the employer’s
“assumption that, if out-of-state employers must pay overtime
under California law, they must also comply with every other
technical aspect of California wage law,” including “the accrual
and forfeiture of vacation time.” (Id. at pp. 1200, 1202.)
We share the Court’s doubt. We cannot conclude California
intended section 227.3—a law that governs the payment of
unused vested vacation time when an employee’s employment
ends—to apply under the circumstances here: where a
nonresident, exempt employee of a non-California employer
has periodically performed work within California, has received
no California wages, and has paid no California income taxes
on any wages earned.
First, we do not believe California has an interest in
ensuring an employee who voluntarily leaves California to
become a resident of another state is paid vacation wages at
the end of her employment by a non-California employer when
48
she worked temporarily within the state.33 Heimann was not
a California wage earner from mid-2005 until her retirement.
She described herself as “relocating” to California every summer.
But the record does not support a finding that Heimann was a
part-time resident of California as she and the trial court seem to
imply. For purposes of the Revenue & Taxation Code, a resident
is an individual in the state “for other than a temporary or
transitory purpose.” (Rev. & Tax. Code, § 17014, subd. (a)(1).)
An individual in California “to complete a particular transaction,
or perform a particular contract, or fulfill a particular
engagement,” requiring her presence here for “a short period,”
is considered in the state for a temporary or transitory purpose.
(Cal. Code Regs., tit. 18, § 17014, subd. (b).) The Franchise Tax
Board gives the example of an executive who lives in New York
with his family, but travels to California for business for one
or two weeks at a time, for a total of six weeks a year, as a
nonresident. (Cal. Franchise Tax Bd., Pub. No. 1031, Guidelines
for Determining Resident Status (2018), at p. 5.) Essentially,
“the state with which a person has the closest connection during
the taxable year is the state of his residence.” (Cal. Code Regs.,
tit. 18, § 17014, subd. (b).)
Heimann gave up her status as a California resident
when she moved to Virginia. She lived in California during the
summer for a particular, limited business purpose—to oversee
student trips for the summer program. EF paid for Heimann
33 We do not suggest that California’s interest in protecting
its employees from forfeiting vacation wages is not a strong one.
We simply conclude there is no indication that California
intended to apply its vacation pay law under these
circumstances.
49
to stay in a hotel or a dormitory for the summer. She did
not maintain a home in California or own any property here.
Heimann had her mail temporarily forwarded from Virginia
to California each summer, but there is no evidence she
permanently changed her address or residence status. She also
gave up her California driver’s license and registered to vote
in Virginia after she moved. Heimann opened and maintained
a California bank account on behalf of EHP as part of her job, but
nothing in the record shows she had a personal bank account in
California after she moved. There is no evidence that Heimann
maintained any close ties to California after she moved so that
she could be considered a “resident” for part of the year.
Moreover, a part-time resident must pay California taxes
on all income earned while a California resident, regardless
of source, and on income earned from California sources while
a nonresident.34 (Rev. & Tax Code, §17041, subd. (i)(1)(A) & (B)
[tax imposed on part-time residents and nonresidents].) If
Heimann were a part-year California resident, as she seems to
contend, she would have been required to pay California income
taxes on income she earned from EF during her California stay.
She did not.35 It is undisputed that (1) Heimann was not paid
34 Heimann received no wages from a California source—
her income from EF was from a Massachusetts source. (Cf.
Appeal of Blair S. Bindley (Cal. OTA, May 30, 2019, No. 2019-
OTA-179P) 2019 WL 3804280, at pp. *1, 3, 6-7 [self-employed
Arizona resident who performed work in Arizona for California
LLC’s had taxable California-source income].)
35 Heimann testified she did not pay California income tax
on income earned after she moved and did not file a California
50
California wages for work she performed here while a Virginia
resident; (2) she has not paid California income taxes since the
2005 tax year; and (3) she has paid Virginia state income tax
on her wages since 2005.
Nor was Heimann operating under a California
employment contract after she moved to Virginia. EHP retained
its area managers (including the west coast manager) from year
to year, orally informing the manager about the company’s intent
to retain her, followed up with a letter agreement. Heimann
testified she usually (but not always) received offer letters for
her west coast manager position annually. The record includes
an October 2007 offer letter from EHP’s director of operations
in Massachusetts sent to Heimann at her Virginia address,
confirming her salary for that fiscal year. Nothing in the record,
however, demonstrates Heimann received or accepted her annual
employment renewal in California after 2005 so that she would
have expected California law to apply to her employment after
she moved.
The exclusion of a nonresident, temporary worker from
section 227.3 does not implicate the same concerns as the
exclusion of nonresidents from California’s overtime laws.
Although section 227.3 serves the important goal of ensuring
California workers do not forfeit vacation wages when their
employment ends, it does not protect workers’ and the public’s
health and safety or “expand[ ] the job market by giving
employers an economic incentive to spread employment
throughout the workforce” as do California’s overtime laws.
tax return after the 2005 tax year. At oral argument counsel
confirmed Heimann never paid California income tax after she
moved to Virginia.
51
(Sullivan, supra, 51 Cal.4th at p. 1198.) As the Sullivan Court
explained, “[t]o exclude nonresidents from the overtime laws’
protection would tend to defeat their purpose by encouraging
employers to import unprotected workers from other states.”
(Ibid.) No such concern exists with section 227.3 on the facts
here. EF did not “import” Heimann to work in California to avoid
section 227.3. Heimann voluntarily moved from California, and
EF let her keep her position even though it meant having to pay
for Heimann to stay in California during the summer.
California’s overtime law and vacation pay law also apply
differently to nonresidents as a practical matter. California’s
wage laws governing nonexempt employees—overtime, meal and
rest breaks, etc.—apply as the employee performs work within
the state. The moment the nonresident employee has worked
more hours in a day or week than permitted, the overtime law’s
application is mandatory unless a statutory exception applies.
(§ 510, subd. (a).) Nor may the employee and employer contract
around the right to overtime. (Sullivan, supra, 51 Cal.4th at
p. 1198, citing § 1194.)
The right to paid vacation, on the other hand, is governed
by contract. California does not require employers to provide
paid vacation to employees. (Owen, supra, 175 Cal.App.4th at
p. 468.) Thus, section 227.3 does not come into play unless (1) the
employer’s contract or policy provides employees paid vacation,
(2) the employee’s employment has terminated, and (3) the
employee has unused, vested vacation time. An employer,
therefore, will not know if it must pay unused vacation wages
under California’s law to a non-California employee until she
quits, retires, is laid off, or is fired, and that may not happen
until long after the employee has performed any work in
California. By contrast, an employer can determine immediately
whether California’s overtime law is implicated.
52
It simply is not practical to require a non-California
employer to apply section 227.3 to a non-California resident who
periodically works in California. As EF notes, applying section
227.3 in these circumstances would create an administrative
nightmare the Legislature surely could not have intended.
For example, an employer whose employee works on projects in
different states not only would have to keep track of how much
proportionate vacation time the employee earned in each state
based on how long she worked in that state, but also treat those
portions of vested vacation time differently depending on the law
of the state where the vacation vested.
The employer also would have to determine which earned
vacation days from which state the employee had used. Let’s
assume an employee earned three weeks of vacation based on
work performed in the state of Virginia, earned one week of
vacation based on time worked in California, took one week of
vacation that year, and then retired. Does the employer owe
the employee nothing under section 227.3 because the employee
used up the one week of vacation earned while in California? Or,
must the employer split the used week between the time earned
in California and in Virginia so that a portion of that week is
considered unused and owing to the employee under section
227.3? How would the employer decide whether the employee
had any unused vacation pay earned from work in California
when her employment ended? Applying section 227.3 under
these circumstances would require the Legislature or courts
to become involved in the administration of a non-California
employer’s contractual vacation policy with nonresidents.
We do not find this tenable.
These practical problems simply do not arise from
Sullivan’s application of an hourly wage law to nonresidents
temporarily working in the state. An employer like that in
53
Sullivan could not be faced with applying two different overtime
laws to an employee because the employee obviously cannot
perform the same hours of work in two different states.
Because we conclude section 227.3 does not apply to
vacation Heimann earned, but did not use, after she moved
to Virginia in 2005,36 we need not engage in a conflict of laws
analysis. (See Norwest Mortgage, supra, 72 Cal.App.4th at
p. 228.)
Accordingly, Heimann’s damages for unpaid vacation
wages must be reduced by the amount of vacation time she
earned, but did not use, after she became a Virginia resident.
5. Substantial evidence supports the trial court’s
finding that EF terminated McPherson’s employment
on November 6, 2015
EF also appeals from the judgment awarding McPherson
her unpaid salary for November 1 through 6, 2015. EF contends
36 In any event, Heimann did not meet her burden to prove
she had any unused, vested vacation pay arising from work
she performed in California after she moved to Virginia. She
presented no evidence the vacation time she earned but did
not use was attributable to the proportion of vacation time she
earned while working in California from mid-2005 through 2014.
At most, Heimann earned a week (five work days) of vacation
based on the roughly 12 weeks she spent in California. (Twelve
weeks is almost 25 percent of a 52-week year, and 25 percent
of 20 days of annual vacation is five days.) Based on Heimann’s
estimates, the least amount of annual vacation she took from
2005 to 2014 was nine days—more than the maximum number
of days she could have earned proportionally from the time she
spent in California each year. Accordingly, if EF first applied the
vacation time Heimann earned from work in California to what
she used each year, Heimann would have no unused, vested
vacation time to pay out during that period.
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the award must be reversed because (1) McPherson’s one-year
program manager position expired on September 30, 2015, the
end date stated in her offer letter, which coincided with the end
of EF’s fiscal year, and (2) McPherson performed no work during
November. The trial court concluded McPherson was terminated
not on September 30 but on November 6, 2015. Substantial
evidence supports the trial court’s findings and judgment in
McPherson’s favor.
EF contends McPherson’s employment automatically
ended on September 30 because it was a “fixed-term employment
contract.” EF relies on Schimmel v. NORCAL Mutual Ins. Co.
(1995) 39 Cal.App.4th 1282, 1285 (referring to nature of fixed-
term employment contract in considering question of tort liability
for nonrenewal of a fixed term insurance policy). Schimmel cited
section 2920, which provides “employment is terminated by . . .
[¶] [e]xpiration of its appointed term.” Here, however, the trial
court concluded that—based on EHP’s conduct—“an objective
employee in McPherson’s position would have concluded she was
still employed” after September 30. The court heard extensive
testimony and considered several exhibits on this issue. We infer
it resolved any credibility issue in McPherson’s favor. The
evidence, summarized below, supports the court’s findings.
McPherson admitted the program manager position was
a fixed, one-year trial position that would end on September 30,
2015. She also understood, through conversations with EHP
management, that she and EHP would evaluate the pilot
program at the end of the year to decide whether to continue it.
On September 15, 2015, after Hart told McPherson there was
no budget to continue the program manager position, he invited
her to propose a different position for the 2015-2016 fiscal year.
She did so by email two days later. On September 23, 2015,
Hart left McPherson a voicemail message that he needed more
55
time to review her proposal. He said, “ ‘Terri, I wanted to let you
know if the answer were “no” you would have heard it by now.’ ”
He hoped she had not looked for another job and told her to
“ ‘hang tight.’ ” He hoped his message had “put[ ] [her] at ease.”
We conclude, a reasonable person would—as McPherson did—
consider this statement from EHP’s president a confirmation
that EHP was in fact considering her proposal to continue her
employment for the 2015-2016 year.
McPherson sent Hart an email telling him she could wait.
In the weeks that followed, McPherson continued to do some
work, held off on looking for another job, and emailed Hart more
than once asking about her status. He did not respond. Nor did
EHP tell McPherson her employment would terminate on
September 30, 2015. McPherson never saw an email announcing
her termination, as EHP had done when other employees left.
EF continued to pay McPherson’s salary in October 2015,
although Hart testified the payment was an “oversight.” Hart
did not affirmatively tell McPherson there was no budget to keep
her on in a different position for the 2015-2016 season until
November 6, 2015. As the trial court found, before that date EHP
acted as if McPherson remained employed while EHP considered
whether it was able to extend her employment.
Moreover, the record demonstrates EHP did not have
a practice of letting its employees’ (or at least area managers’)
employment automatically terminate at the end of the fiscal year.
For example, when McPherson’s position changed from area
manager to program manager, she was not terminated and then
rehired. She remained employed after September 30 even
though she did not receive her employment letter for the program
manager position until December 1, 2014. Before McPherson
became a program manager, she received letters each year
renewing her employment for the next fiscal year. The letters
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often did not arrive until October, November, or December.
Instead, before the end of the fiscal year, EHP let McPherson
know whether her contract would be renewed. Hart also
confirmed it was customary to renew area managers’ contracts
after the fiscal year’s end.
Given the parties’ discussion of the possibility of another
position, Hart’s assurances, EHP’s practices surrounding the
renewal or nonrenewal of annual contracts, and EHP’s continued
payment of McPherson’s salary, the trial court reasonably
concluded EF did not terminate McPherson’s employment until
November 6, 2015, when it told her it was doing so.
We also reject EF’s contention that McPherson is not
entitled to her wages from November 1 to 6, 2015, because
she was on vacation in New Orleans and performed no work.
As noted, the trial court reasonably concluded McPherson’s
employment did not end until November 6. Under EF’s paid time
off policy, McPherson was required only to notify her supervisor
when she wanted to take time off, unless it was the busy season.
November was not the busy season, and McPherson informed
Hart of the days she was taking off and where she was going.
That time was legitimate paid time off, according to EF’s policy,
for which McPherson was not compensated.
6. The attorney fees award
EF contends that, if we reverse part of the judgment,
we also must reverse the court’s postjudgment order awarding
plaintiffs attorney fees. Although EF did not file a notice of
appeal from that award—and thus we lack jurisdiction to review
it—“this does not mean that an award of attorney fees to the
party prevailing stands after reversal of the judgment.” (Allen v.
Smith (2002) 94 Cal.App.4th 1270, 1284; see Ventas Finance I,
LLC v. Franchise Tax Bd. (2008) 165 Cal.App.4th 1207, 1233-
1234 [reversing postjudgment order awarding attorney fees
57
because court could not “say with certainty that the [trial] court
would exercise its discretion the same way” in light of partial
reversal of judgment].) Rather, “ ‘[a]n order awarding costs falls
with a reversal of the judgment on which it is based.’ ” (Allen,
at p. 1284.) Accordingly, the trial court should consider whether
to modify the attorney fee award in light of our partial reversal
of the judgment as to Heimann.
DISPOSITION
The judgment is reversed in part as to the amount
of damages awarded Heimann for unpaid vacation wages.
We remand the matter to the trial court with directions to
(1) recalculate Heimann’s damages and prejudgment interest by
excluding from that award any unused vacation time that vested
after she moved to Virginia in June 2005; and (2) conduct further
proceedings on whether to modify the attorney fee award in light
of our partial reversal of the judgment. The judgment is affirmed
in all other respects.
The parties are to bear their own costs on appeal.
CERTIFIED FOR PARTIAL PUBLICATION
EGERTON, J.
We concur:
LAVIN, Acting P. J. DHANIDINA, J.
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