Vacation Time Waivers in Union Contracts

By Michael Early

Under California Labor Code Section 227.3, a California employer must immediately pay a terminated union employee for all “vested vacation time” unless the union representing that employee has negotiated a collective bargaining agreement (“CBA”) that “otherwise provide[s].”  In Choate v. Celite Corp,(2nd Dist. May 2, 2013), the Court of Appeal for the Second District held that a CBA abrogates an employee’s right under section 227.3 to immediate payment for vested vacation time only if the waiver of those rights is “clear and unmistakable.”

In the Choate case, each January, Celite Corporation calculated a yearly “vacation allotment” based on each employee’s length of employment and the number of hours they worked the year before. Under the applicable CBA’s, employees terminated from Celite were entitled to “receive whatever vacation allotment is due them upon separation.”

For 25 years, both Celite and the Union understood this provision in the CBA’s to refer to the “vacation allotment,” and not to include pro rata vacation time vested in the year of termination. Plaintiffs, former Celite employees, filed a class action lawsuit on behalf of all employees who were terminated and not provided their pro rata vacation time for the year of their termination. They also sought waiting time penalties under Labor Code Section 203.

Although both the union and the employer interpreted the CBA’s to waive the employees’ rights to vested vacation time, the Court of Appeal held that this understanding was irrelevant, because the waiver in the CBA’s was not “clear and unmistakable.” Because the CBA’s lacked this clarity, Celite was required to pay terminated employees for all their vested vacation time.

The Court of Appeal also rejected Celite’s contention that plaintiffs’ claims were preempted by Section 301 of the LMRA. Having established a “clear and unmistakable” standard for a waiver of Labor Code Section 227.3, the Court of Appeal concluded that no interpretation of the CBA’s was necessary.

The Court of Appeal nevertheless reversed the trial court’s grant of summary adjudication as to waiting time penalties, finding that Celite’s refusal to pay vested vacation time, although intentional, was not “willful” within the meaning of Labor Code Section 203 because it acted “reasonably” in the “good faith belief” that the CBA’s provisions were enforceable.

Recommendations

Employers should review their CBA’s to determine whether any waiver of vested vacation rights is “clear and unmistakable.” While the Choate decision does not require a CBA to make an express reference to Labor Code Section 227.3, it would be good practice to include such a reference in future agreements.

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