Another form of wages
In California, vacation pay is considered to be another form of wages. Because they are considered wages, they cannot be taken away from an employee by any “use it or lose it” policy. However, California does not require that an employer provide its employees with either paid or unpaid vacation time.
If an employer does have an established policy, practice, or agreement to provide paid vacation, then certain restrictions are placed on the employer as to how it fulfills its obligation to provide vacation pay. Earned vacation time are considered wages, and accrue, or “vest”, as labor is performed. For example, if an employee is entitled to two weeks (10 work days) of vacation per year, after six months of work he or she will have earned five days of vacation. This type of pay accrues (adds up) as it is earned, and cannot be forfeited, even upon termination of employment, regardless of the reason for the termination.
In other states, employers have the right to set a date by which employees must take their accrued vacation. Employers can stipulate that employees who don't take vacation by this date will forfeit the accumulated time-off. “Use it or lose it” policies should be clearly communicated to all employees in employment manuals and employees must be given a reasonable opportunity to use their time.
Plan your vacation time
Employees should make every effort to plan time off well in advance to lessen the likelihood that they will not be able to use their time. Make every effort to cover your work if you need to take time off on short notice or as a deadline for using the time is approaching. If an employer requires you to work during a planned vacation period due to unforeseen work demands, negotiate with your supervisor for a carry-over of your time or some accommodation and ask them to put it in writing.
And, unless otherwise stipulated by a collective bargaining agreement, upon termination of employment all earned and unused vacation must be paid to the employee at his or her final rate of pay. Labor Code Section 227.3 The California Legislature, in order to ensure that vacation plans were fairly and equitably handled, provided that the Labor Commissioner was to “apply the principles of equity and fairness” in resolving vacation claims.