Document 225108

Paid Time Off: How to Draft and Administer an
Effective PTO Policy that Complies with Both
California and Federal Law
Presented by:
Marc L. Jacuzzi
Simpson, Garrity, Innes & Jacuzzi, PC
Tuesday, May 8, 2012
10:30 a.m. to 12:00 p.m. Pacific
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What is PTO?
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Combining all (or some) categories of paid
leave into one bank, particularly paid sick
leave and paid vacation.
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Paid holidays are not included if
operations close on the holidays.
Should Your Organization
Adopt a PTO Policy?
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Problems with unscheduled one-day
absences?
Desire to establish enticing benefits plans.
CA - payout upon termination.
Why do employees use
sick leave when they are
not ill?
Employees understand well the
effect of a contingent benefit vs.
a non-contingent benefit.
What is a contingent benefit?
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A contingent benefit is one that the employee does
not receive unless a qualifying event occurs.
For example:
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Bereavement leave is contingent upon the death of a
specified close family member.
Jury duty leave is contingent upon being called upon and
selected to serve on a jury.
Holidays – you have to be employed as of 12/25 to get the
Christmas holiday pay.
Sick leave is contingent upon being ill or going to the
doctor.
What happens to contingent
benefits if the contingency never
comes to pass?
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The benefit never accrues.
The benefit is essentially lost to the
employee.
The employee gets nothing.
Contingent benefits can be set up as “use it
or lose it” benefits.
Employees are smart.
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They understand that if they don’t use their
sick leave, it will go away.
They feel that they have been cheated when
their paid sick leave is lost.
They want to maximize their fun time – they
don’t want to use vacation time for personal
business (court, car repairs, home repairs,
other personal errands)
So they “cheat” to take advantage
of accrued sick leave
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My Mom had “eye trouble” for years before
she retired: “If I don’t use up my sick leave it
will drop off the books at the end of the year,
so ‘I just can’t see going to work today’”
So, what are non-contingent
benefits?
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Those benefits the right to which accrue by
virtue of continued employment without the
requirement that any additional event occur.
Examples:
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Vacation
Personal days
Floating holidays
These cannot be forfeited and must be
cashed out at termination.
What does this have to do with
paid time off policies?
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PTO is legally the same as vacation. An employee
may use the time for any reason s/he likes, subject
to notice and scheduling requirements.
In California, PTO, like vacation pay, “vests” as it is
earned – that is, PTO vests as it is accrued over
time. There are no other contingencies.
“Use it or lose it policies” are unlawful. (Suastez v.
Plastic Dress-up Co. (1982) 31 Cal. 3d 774.
Accrued (vested) vacation/PTO must be cashed out
at termination of employment. (Labor Code §227.3)
Don’t confuse enjoyment/
scheduling limitations with
contingencies
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Vacation/PTO vests as it is earned, as a matter of
California law, but you can establish policies for how
it is used.
For example:
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Employees may not schedule vacation time off during the
first 6 months of employment or during the first year of
employment.
Employees may not schedule vacation time off during peak
business cycles.
Employees may not take off more than two consecutive
weeks of vacation.
PTO v. Vacation + Sick Leave
Policies
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All the time becomes “vacation” – that is there is no
contingency on its use and it cannot be forfeited,
you cannot set any part of it up on a “use it or lose
it” basis.
It might be more expensive if all time is actually
used.
You might have better control over scheduling.
Employees may still try to cheat, because they often
see the PTO as all vacation and don’t want to use it
for illness.
Pros
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Typically better scheduling because
employees save time for “vacation” purposes
and use in longer blocks of time.
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Employees like increase vacation
entitlements.
Drafting considerations:*
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Who is eligible?
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Full time employees?
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Part time employees?
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Commissioned employees?
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what rate to use for PTO.
Inactive employees?
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absence of 2 or more weeks. Will you define this
differently?
Drafting considerations :
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Will there be a waiting time period before
accrual begins?
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PTO is essentially a matter of contract (with the
legal limitations that it vests as it is earned and
cannot be forfeited) you can decide when
employees begin to earn vacation.
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E.g., “Beginning in the 13th month of employment,
employees earn .5 days of PTO for each month of
employment.”
How will PTO accrue?
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Will PTO accrue as time (most common) or as
dollars?
State a rate that is based on time worked (by the
hour, day, week, month).
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Be clear – state the rate and give examples.
Will the accrual rate be pro rated under any
circumstances?
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If PTO accrues based on hours worked, does that include
overtime hours? Be specific.
What circumstances? Part time employment?
Consider local ordinances, e.g. SF Paid Sick Leave
Is a limitation on accrual
desirable?
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Caps: Use it or lose it policies are unlawful, accrual
caps are lawful.
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For example:
“PTO accrual is capped at 150% of annual PTO accrual
rate. If the employee's earned but unused PTO reaches the
maximum, the employee will not accrue any additional PTO
until the employee uses PTO such that the accrued
balance falls below the cap. At that time, the employee will
resume accruing PTO. For example, if the employee earns
PTO at the rate of 10 days per year, his/her accrual is
capped if s/he reaches an accrual balance of 15 days.”
Cash out: Annually? Bi-Annually? Other?
Mandatory scheduling (“If you won’t schedule your
PTO, we’ll do it for you!”)
What will be the increments for
use?
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Full days?
Half days?
2 hours?
Hourly?
Minutes?
Consider how this may apply differently to exempt
and non-exempt employees.
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Exempt employees are not paid based on hours worked
and should not have use increments of less than half days.
Combating Absenteeism
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Complete tracking
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Surprisingly, studies show many absences
unreported! (Maybe up to 4% of payroll costs!!)
Implement electronic or paper system and
track all time off.
Tracking Absences
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Stop “informal” make up time policies.
Track duration, reasons, time of notification of
absence.
Counsel for abuses (Absenteeism patterns –
e.g., Mondays and Fridays)
Unexcused occurrences policies. (Often more
problems then worth.)
Rewards Programs
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Production vs. “perfect attendance.”
FML – As long as non-FMLA leaves are
treated the same as FML leaves perfect
attendance policies do not violate FML.
But… ADA workers’ comp, local laws may
prohibit counting “protected absences” when
determining perfect attendancy.
Consider scheduling/enjoyment
restrictions.
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Except in the case of illness, do you need a certain
amount of advance notice for scheduling?
Whose approval is necessary?
When would you need a doctor’s note to curb abuse
of unscheduled time off?
Are there limitations on the amount of time that can
be taken consecutively?
Are there certain periods of time which will be
blacked out and during which PTO cannot be
scheduled?
Are there minimum number of days?
Statutory Considerations
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San Francisco Paid Sick Leave
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PTO can be used to meet SF PSL requirements.
“Kin care” – Labor Code §233 – an employee
must be allowed to use up to half of his/her
annual sick leave accrual to care for illness of
specified close relatives.
FMLA/CFRA when you can require
employees to use accrued vacation and sick
leave differ.
FML regs and PTO:
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FMLA regulations state than an employee may
choose to substitute accrued paid leave (e.g., PTO)
for unpaid FMLA leave (i.e., have the paid leave run
concurrently with the unpaid FMLA leave).
(825.207(a)).
The FMLA regulations further provide that an
employer may require an employee to substitute
accrued paid leave for FMLA leave. (825.207(a)).
Employee’s ability to substitute accrued paid leave
is determined by the terms and conditions of the
employer's normal leave policy. (825.207(a)).
FML regs and PTO:
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Whenever paid leave will be substituted for FMLA leave,
employer must inform employee that s/he must satisfy
any procedural requirements of the paid leave policy
(e.g., notice ) only in connection with receiving the pay
(i.e., failure to comply with paid leave policy does not
affect FMLA rights)(825.207(a)).
If employee is receiving private or state disability pay or
workers comp pay during FMLA, then the FMLA leave is
not “unpaid”—i.e., neither the employee or the employer
can require the substitution of PTO. (825.207(d) & (e)).
Employer and employee can mutually agree, however, to
supplement disability benefits with paid leave (825.207
(d) & (e)).
CFRA, PDL and PTO:
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Employer or employee may require use of vacation,
other PTO (7297.5(b)(1) & (b)(2)) or sick leave (for
employee’s own SHC). Employer or employee may
mutually agree to use sick leave for any other
reason. (7295.5(b)(3).) No Cal. regulation stating
that employee’s ability to use paid leave is
determined by terms of leave policy. No Cal.
regulation on supplementing disability benefits with
other forms of paid leave.
Employees can elect to use vacation/PTO during
PDL; but employers cannot require it. Employers
can require using sick leave. (Gov. Code §12945(a)
& 7291.11(b)(2).) CA employers must give
employees notice of SDI/PFL benefits at hire &
when given notice of qualifying event.
SDI and Private Short Term
Disability Benefits
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Under SDI there is no legal requirement that
you integrate PTO (or sick leave) with SDI.
Employees cannot double dip – so the
employer will be asked to affirm that the
combination of PTO payout plus SDI benefits
do not exceed the total gross weekly
compensation.
For private short term disability programs, be
sure to read the policy terms and take those
into account when drafting.
When can you change accrual
rates?
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An employer may unilaterally terminate a
policy that contains a specified condition, if
the condition is one of indefinite duration, and
the employer effects the change after a
reasonable time, on reasonable notice, and
without interfering with the employees' vested
benefits.
For Example:
Consider Asmus vs. Pac Bell
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California Supreme Court, decided June 1, 2000, 23 Cal. 4th 1.
"Once an employer's unilaterally adopted policy--which requires
employees to be retained so long as a specified condition does
not occur--has become a part of the employment contract, may
the employer thereafter unilaterally terminate the policy, even
though the specified condition has not occurred?" We conclude
the answer to the certified question is yes. An employer may
unilaterally terminate a policy that contains a specified condition,
if the condition is one of indefinite duration, and the employer
effects the change after a reasonable time, on reasonable notice,
and without interfering with the employees' vested benefits.
What was at issue? The “Management Employee Security
Policy”
Pac Bell’s MESP
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In 1986, Pacific Bell issued the following
"Management Employment Security Policy" (MESP):
"It will be Pacific Bell's policy to offer all
management employees who continue to meet our
changing business expectations employment
security through reassignment to and retraining for
other management positions, even if their present
jobs are eliminated. This policy will be maintained so
long as there is no change that will materially affect
Pacific Bell's business plan achievement."
Business conditions changed:
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In January 1990, Pacific Bell notified its managers
that industry conditions could force it to discontinue
its MESP. In a letter to managers, the company's
chief executive officer wrote: "[W]e intend to do
everything possible to preserve our Management
Employment Security policy. However, given the
reality of the marketplace, changing demographics
of the workforce and the continued need for cost
reduction, the prospects for continuing this policy
are diminishing--perhaps, even unlikely. We will
monitor the situation continuously; if we determine
that business conditions no longer allow us to keep
this commitment, we will inform you immediately."
What came next?
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Nearly two years later, in October 1991, Pacific Bell
announced it would terminate its MESP on April 1,
1992, so that it could achieve more flexibility in
conducting its business and compete more
successfully in the marketplace. That same day,
Pacific Bell announced it was adopting a new layoff
policy (the Management Force Adjustment Program)
that replaced the MESP but provided a severance
program designed to decrease management
through job reassignments and voluntary and
involuntary terminations.
The lawsuit:
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Plaintiffs were 60 former Pacific Bell management
employees who were affected by the MESP
cancellation.
California law permits employers to implement
policies that may become unilateral implied-in-fact
contracts when employees accept them by
continuing their employment.
The court held: once the promisor determines after a
reasonable time that it will terminate or modify the
contract, and provides employees with reasonable
notice of the change, additional consideration is not
required.
What role did the contingent
nature of the benefit play in the
decision?
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What was the contingency? If the employee’s
present job were terminated, then Pac Bell
would offer reassignment and retraining.
Pac Bell could not have changed the policy
after the contingency had come to pass – that
is, it could not have unilaterally withdrawn the
MESP for any management employee who
had already had his/her position eliminated.
Vested benefits cannot be forfeited.
What to do when PTO is
exhausted?
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Exempt employees can only be “docked
wages” (i.e., go home with less than a full
week’s salary) for full days of absence. For
half day absences when the employee’s
accrual is zero – take the balance into the
negative.
For non-exempt employees, consider:
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Time off as unpaid
Discipline for excessive absenteeism
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Do not base discipline on legally protected absences.
Address this issue, in writing, in the policy.
How to Communicate the PTO
terms?
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IN WRITING!!
Consider the case of Lisa Owen v. Macy’s,
Inc., decided 6/29/09 by the California Court
of Appeals.
The facts:
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July 6, 2009 In 2006, Lisa Owen, a former sales associate sued
Macy’s, alleging that the store did not pay her all of the accrued,
vested vacation pay to which she claimed that she was
entitled. (Plaintiff started work at Robinson’s-May, which was
acquired by Macy’s.) The R-M employee handbook stated that
“all eligible sales associates earn and vest in paid vacation after
they have completed six months of continuous employment.” that
is, new employees at R-M had to wait six months before they
began to earn any vacation. Ms. Owen claimed this delayed
vacation accrual policy violated California law. Both the trial
court and the court of Appeal disagreed, with judgment for
Macy’s affirmed on appeal. Owen v. Macy’s, Inc. (filed June 29,
2009) B207719 (Los Angeles Sup. Ct. No. BC 355629).
The principles:
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The Appellate Court, Second Appellate District (L.A.), made
clear that the law permits an employer (1) to offer no vacation
time whatsoever; (2), adopt a policy specifying the amount of
vacation pay that an employee is entitled to be paid as wages;
(3) that a company has complete discretion to determine the
point at which vacation benefits begin to accrue; (4) and that
employers may also warn employees, in advance, that
employees will cease to accrue vacation time in excess of an
announced limit (a cap on accrual).
The Appellate Court stated that none of these provisions violates
California Labor § 227.3, in which vacation pay vests as its
earned and cannot be taken away subsequently by an
employer. Suastez v. Plastic Dress-Up Co. (1982) 31 Cal.3d
774. This case highlight the employer’s legal right to determine
the timing and extent of vacation benefits when choosing to
provide vacation benefits to its employees. It further highlights
the critical importance of having a written policy – the semantics
may make or break the case if the policy is challenged. Do not
rely on people’s recollections or differing explanations of terms.
This has been complicated,
let’s take a vacation!
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*This webinar is designed to provide accurate and
authoritative information about the subject matter
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or other professional services.
*This webinar provides general information only and does
not constitute legal advice. No attorney-client relationship
has been created. If legal advice or other expert
assistance is required, the services of a competent
professional should be sought. We recommend that you
consult with qualified local counsel familiar with your
specific situation before taking any action.
QUESTIONS
Marc L. Jacuzzi, Esq.
(650) 650-615-4860 fax (650) 615-4861
[email protected]
Speaker Biography
Marc Jacuzzi
Marc L. Jacuzzi, Esq. is a shareholder at the South San Francisco-based
law firm of Simpson, Garrity, Innes & Jacuzzi P.C. Mr. Jacuzzi has broad
experience in employment law matters. He has represented numerous
employers as defendants in civil rights actions (including claims under the
Age Discrimination in Employment Act (ADEA), the Americans with
Disabilities Act (ADA), Title VII of the Civil Rights Act, the California Fair
Employment and Housing Act (FEHA), and other state discrimination
statutes), trade secret misappropriation claims, wage claims, wrongful
termination claims; unfair business practices claims (Section 17200), noncompetition claims (Section 16600), contract disputes and various tort
claims filed with the Equal Employment Opportunity Commission (EEOC),
the Division of Labor Standards Enforcement (DLSE), various other state
agencies and in various State and Federal Courts.
Mr. Jacuzzi's practice also involves employment law counseling. He
regularly advises clients regarding all aspects of the employer/employee
relationship including hiring and termination issues, wage and hour
requirements, employee classification issues, civil rights/discrimination
issues, commission plans, employment contracts, employee handbooks and
policies, confidential information agreements, reductions in force, leaves of
absence issues, employment audits, M&A employment issues, violence in
the workplace issues and international employment issues. Mr. Jacuzzi has
also conducted numerous in-house training programs on a number of
employment law topics.