California Employment Law Blog

Defining Discharge: Vacation Pay During Temporary Layoffs

Posted by Timothy B. Del Castillo | Sep 29, 2023 | 0 Comments

Under California Labor Code Section 201, when an employee is discharged, their accrued vacation pay must be paid immediately. But what happens when a global pandemic strikes, and employers have to resort to temporary layoffs with no set return date? Are these employees effectively discharged with the right to their vacation pay? This was the dilemma in Harstein v. Hyatt Corp. (2023), a case that sheds light on the definition of "discharge" for the purpose of vacation pay – a case all California employers should become familiar with.

In March 2020, as COVID-19 raged across the world, Hyatt Corporation temporarily laid off close to 7,000 of its employees. It was a stark period of uncertainty, and Hyatt didn't specify when these employees would return to work. Several months later, in June 2020, the formal termination notices were issued. 

One of Hyatt's employees filed a lawsuit raising the critical question: When should the accrued vacation pay have been disbursed – during the temporary layoff in March 2020 or upon formal termination in June 2020?

Hyatt contended that accrued vacation pay was only due when employees were formally terminated in June 2020. The employees, on the other hand, argued that the temporary layoff, characterized by its indefinite nature and the absence of a specific return date within the standard pay period, should trigger Hyatt's obligation to pay accrued vacation pay. To them, the prompt payment provisions of Section 201 should have been invoked back in March 2020 when the uncertainty of returning to work loomed large.

The trial court initially sided with Hyatt, ruling that the employer-employee relationship was not severed during the temporary layoff in March 2020. However, upon appeal, the Ninth Circuit held that the prompt payment provision of Section 201 should have been activated in March 2020 when Hyatt implemented the temporary layoff.

To bolster their analysis, the Court of Appeal sought guidance from the California Division of Labor Standards Enforcement (DLSE), a state agency entrusted with enforcing labor laws. The DLSE had previously issued an Opinion Letter in 1996 addressing an employer's obligation to pay wages during a "temporary layoff." Their stance was unequivocal: if an employee is laid off without a specific return date within the standard pay period, the wages earned up to and including the layoff date are due and payable under Section 201.

The Court found the DLSE's interpretation compelling, aligning it with the overarching public policy to prevent employees from enduring undue financial hardship and potentially relying on state aid.

In the end, the Ninth Circuit Court of Appeals ruled in favor of the employees, establishing that a temporary layoff without a specific return date within the standard pay period qualifies as a "discharge" under Section 201.

This significant decision acts as an important reminder for employers that accrued vacation pay becomes immediately payable upon employee termination, including a layoff with an indefinite duration. In a world where economic stability can be precarious, employers must be vigilant to ensure that in moments of crisis, the correct legal steps are taken to avoid even more unnecessary hardship. 

About the Author

Timothy B. Del Castillo

Tim Del Castillo is Founding Partner of Castle Law: California Employment Counsel, PC.


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