Labor Code § 227.3 – Paid Vacation Time After Termination

California Labor Code § 227.3 requires employers to pay terminated employees for their unused paid vacation time at their final rate of pay. If an employee is fired or laid off, the final paycheck should include payment for this unused vested vacation time.

The text of the Labor Code section is as follows:

227.3. 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.

Legal Analysis

If you are terminated from your job, California Labor Code 227.3 LC requires the employer to pay you the cash equivalent of your unused paid vacation time unless otherwise provided by a

collective bargaining agreement, or
employment contract.

Unused paid vacation days generally must be paid out at your final rate of pay.¹

Example: Bill is laid off from his job before he can take his five days of paid vacation. His final rate of pay is $100 per day. Therefore, Bill is owed $500 for his five unused vested vacation days ($100 per day times five days).

Your employer must pay you for your unused vacation time in your final paycheck, which you must receive at the time of your termination (unless you previously contracted otherwise). If your employer is late, you are entitled to a waiting time penalty of your daily rate of pay for each day your wages are late (up to 30 days maximum).²

Note that vacation time cannot expire in California. Therefore, “use it or lose it” policies are unenforceable.³

Travel cash next to a suitcase and a sun hat — Labor Code 227.3 requires your employer to pay you for your unused paid vacation time.

Frequently asked questions

What is the purpose of California Labor Code § 227.3?

California Labor Code § 227.3 requires employers to pay out accrued but unused paid vacation time upon an employee’s termination. The purpose is to ensure that employees receive the vacation pay they have earned.

Can employees waive out of California Labor Code § 227.3?

No, employees cannot waive their rights to receive payment for accrued but unused paid vacation time. Any agreement to waive this right would be considered void and unenforceable. If an employer fails to pay however, it is up to the employee to enforce LC 227.3 by filing a wage claim.

What if the employer did not willfully underpay?

Even if an employer did not willfully violate LC 227.3, they are still required to pay out accrued but unused paid vacation time. Ignorance of the law is not a valid defense.

Can an employee be fired for pointing out a violation of California Labor Code § 227.3?

No, an employer cannot legally fire an employee for pointing out they were underpaid. Such an action would be considered retaliation and is prohibited under California law.

What if an employee is fired or laid off before taking an unpaid vacation?

If an employee is terminated before taking an unpaid vacation, LC 227.3 does not apply. This law specifically pertains to the payment of accrued but unused paid vacation time upon an employee’s termination.

See our related article, Cash out vacation time in California – Here’s how to do it.

Legal References

California Labor Code 227.3 – General Occupations. See, for example, Henry v. Amrol, Inc. (Cal. App. Dep’t Super. Ct., 1990), 222 Cal. App. 3d Supp. 1. Minnick v. Automotive Creations, Inc. (Cal. App. 4th Dist., 2017) 13 Cal.App.5th 1000.
California Labor Code 203 LC.
Suastez v. Plastic Dress-Up Co. (1982) 31 Cal. 3d 774.