Legal Issues with Unlimited PTO in California

Posted on Thursday January 26, 2023

Many employees have difficulty choosing how to use a couple of weeks they have of paid time off (PTO) per year, and unlimited PTO might sound like an incredible opportunity. In recent years, many major tech companies in California have started offering unlimited PTO, and many other employers have followed suit to try to remain competitive. 

If your employer has offered unlimited PTO, some legal issues might arise. You should always discuss any concerns with an experienced San Diego employment lawyer right away. 

Unlimited PTO vs. Accrued PTO

Unlimited PTO is fairly straightforward – as long as an employee completes their work, they can take time off from work whenever they want and as much as they want. In this situation, the PTO is not tracked, and employees do not accrue any other type of vacation time. 

If an employer has an accrual system, employees will build up vacation time as they work, and they usually need to get approval to take that PTO at a certain time. If the employment relationship ends and the employee has unused vacation accrued, the employer must compensate the employee for those unused days. This compensation is considered part of an employee’s wages under California law.

Possible Problems With Unlimited PTO

Giving employees unlimited vacation time confuses the accrual and compensation requirements under the California Labor Code. Companies that offer unlimited PTO claim that because employees do not have to accrue time, their available vacation time never “vests.” Under the law, employers must compensate employees for vested PTO. 

While employees might enjoy having unlimited time, does not receiving any compensation for unused time violate their rights under the law? Are employers just trying to get around the law by offering PTO that never vests?

California courts have not settled the matter yet. Recently, the appellate courts distinguished between clear unlimited PTO policies and unwritten unlimited PTO policies. For an employee who has an implied ability to take off whenever they need to, but there is no specifically communicated policy of unlimited time off, the court found the law requiring compensation for unused time still applies. 

On the other hand, if an employer has a clear and written policy regarding unlimited vacation time for employees, and the employer fairly implements the policy, the court suggested that employers do not have an obligation to compensate for unused time. 

Another potential legal complication of unlimited PTO is whether certain employees can use unlimited time for medical or disability leave. If employees with disabilities or medical conditions are permitted to take significant time off with pay, while others are not, it can raise issues regarding unfair treatment under the California Family and Medical Leave Act and similar laws. 

Learn How a California Employment Attorney Can Help

If you believe your employer owes you wages for unpaid vacation time, or you have questions about your rights regarding unlimited vacation time, the employment lawyers at Mara Law Firm can help. Contact us to learn more about our services as soon as possible.