Monetary Value of An Employee's Accrued Vacation Time Is Not Required To Be Included on Employee's Wage Statement (Until the Final Paycheck)

Soto v. Motel 6 Operating, L.P. - California Court of Appeal, Fourth Appellate District - Division One

Facts:  Lidia Soto ("Soto") worked for Motel 6 for nearly two and a half years as a nonexempt employee.  Upon leaving her position with Motel 6, she brought a representative PAGA action against her former employer on the grounds that Motel 6 violated California Labor Code Section 226(a).  Soto claimed that Motel 6 violated Section 226(a) by failing to provide nonexempt employees with a wage statement that set forth "all vacation and PTO (paid time off) wages accrued during the applicable pay period."

Motel 6 demurred and claimed that Section 226(a) does not require that employers itemize the monetary value of vacation balances before the employment relationship is terminated.  Soto countered and argued that Section 226(a) requires itemization of earned "wages" and other California cases have recognized that vacation pay is a "wage".  The trial court ultimately sustained the demurrer and held that Section 226(a) does not require a wage statement to include the value of vacation or PTO wages accrued and earned.  Soto subsequently appealed.

Holding:  The Court of Appeal began its analysis with a nod to the fact that the legislative intent underlying Section 226 must be considered.  Section 226 requires "employers [to] provide accurate statements of wages to their employees."  Prior caselaw established that Section 226 "play[s] an important role in vindicating [the] fundamental public policy" which favors "full and prompt payment of an employee's earned wages..."  

While Soto had argued that Section 226 required the monetary amount of earned vacation pay to be listed on each itemized wage statement, the Court of Appeal pointed to a federal district court which had previously rejected that argument.  In that federal case, that court held that neither the statutory language nor the statutory purpose of Section 226 supported that argument.

In this case, the Court of Appeal pointed out that Section 226(a) contained nine separate categories that must be listed on a wage statement.  However, accrued paid vacation was not included.  As a result, the Court held that when a statute, such as Section 226(a), omits a particular category from an itemized list, a reasonable inference can be drawn that the legislative intent was to not include that category within the statute.

In regard to Soto's argument that the earned vacation time was actually a "wage", the Court disagreed and held that although vacation time vests as labor is provided by the employee, unused vacation time does not become a quantifiable vacation wage until the employee actually separates from the employment position.  The Court pointed to Section 227.3 of the California Labor Code which states that "upon termination", vested vacation must be paid to the employee "as wages". 

Judgment:  The Court of Appeal affirmed the lower court's ruling and held that California Labor Code Section 226(a) does not require employers to include the monetary value of accrued vacation time in an employee's wage statement until a payment is due at the termination of the employment relationship.

The Takeaway:  This was one of the more interesting cases that I have come across in a while which deals with vacation time.  I think it is important to note that the Court of Appeal is not saying that employers do not have to itemize the monetary value of vacation time that an employee earns.  The Court makes it clear that this is required...but only upon the termination of the employment relationship.  During the course of the employment relationship, however, an employer is not required by law to itemize the monetary value of vacation time an employee earns, however.  That is not to say that an employer can voluntarily choose to do this.  The Court here simply confirmed that under the California Labor Code, this is not a requirement placed upon the employer.

As with many of these cases, I again caution readers that the law varies from state to state and circuit to circuit.  So even though this is the law in California (and might be the same elsewhere), make sure to double check the laws in your jurisdiction. 

Majority Opinion Judge:  Judge Haller

Date:  October 20, 2016

Opinion:  hr.cch.com/eld/SotoMotel6102016.pdf