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Ninth Circuit:
Furloughed Employees Must Be Provided Vacation Pay
Labor Code Section Requiring Payment of Wages Upon Discharge Held to Encompass Value of Accrued Vacation Days Although Only Short COVID-Related Lay-Off Was Envisioned
By a MetNews Staff Writer
Hyatt hotel employees in California who were furloughed in March 2020 upon the outbreak of the COVID-19 pandemic, and continued to accrue vacation time and benefits, were entitled to receive accrued vacation pay immediately, rather when they were permanently laid off three months later, under a Ninth U.S. Circuit Court of Appeals opinion partially reinstating a class action.
“We conclude that the prompt payment provisions of the California Labor Code required Hyatt to pay Plaintiffs their accrued vacation pay in March 2020,” Senior Circuit Judge A. Wallace Tashima wrote for a three-judge panel in an opinion filed Friday. “We therefore reverse the district court’s grant of summary judgment to Hyatt as to the vacation pay claim and remand for the district court to consider whether Hyatt acted willfully in failing to comply with the prompt payment provisions.”
If it did act willfully, it is liable for penalties.
Labor Code Provision
At issue was whether California Labor Code §101(a) was violated. That provision says, in part:
“If an employer discharges an employee, the wages earned and unpaid at the time of discharge are due and payable immediately.”
Labor Code §227.3 converts unused vacation time into wages, providing that “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.”
Fischer’s Ruling
District Court Judge Dale S. Fischer of the Central District of California said in her Feb. 14, 2022 order granting summary judgment that in March 2020, the hotel chain’s employees were not discharged.
She noted that in a letter to thousands of employees in California, Hyatt instructed that they not report to work, would receive vacation pay now (at the next payroll period) or could hold onto the vacation days, and specified that “we are not separating anyone’s employment at this time.”
A separation of most employees did occur on June after it became clear that the medical emergency, rendering hotels virtually vacant, would not be short-lived.
Fischer declared:
“The Court finds that ‘termination’ in the context of Section 227.3 requires a complete severance of an employer-employee relationship. Here, there was no complete severance. Hyatt continued to pay the employer and employee health insurance premiums. Plaintiffs remained eligible to redeem complimentary hotel room stays, and Plaintiffs continued to accrue vacation time. The Court finds Hyatt’s indefinite layoff or furlough of its employees was not a ‘termination’ within the meaning of Section 227.3.”
Plaintiff/Appellant’s Contention
In her opening brief on appeal, named plaintiff Karen Hartstein argued that Fischer “granted summary judgment to Hyatt on the vacation pay claims based on an overly simplistic analysis that disregarded longstanding interpretations of California law,” adding:
“Instead, the court relied on a novel and unduly narrow reading of ‘termination’ as used in Labor Code §227.3, holding that an employer need only pay vested vacation upon the ‘complete severance’ of an employee’s employment….No other court has construed the applicable provisions of the Labor Code so narrowly, and that construction would defeat the Legislature’s goal of ensuring the full and immediate payment of all unpaid wages due to employees who cease working as a result of their employer’s decision to terminate their employment.”
Hyatt responded:
“As the District Court correctly concluded, Hyatt did not ‘terminate’ its employees in March 2020 when it temporarily furloughed them while continuing to pay their health benefits, allowing them to accrue additional vacation benefits, and hoping (along with the rest of the country) that the pandemic would soon ease and the employees could return to work.”
It added:
“Cases make clear—consistent with the plain language of the statutory scheme—that vacation pay need not be treated as wages until ‘termination…or the ‘end of employment’….And requiring compensation for vacation pay when employees might soon return to work (and thus might wish to take a vacation) makes little practical sense.”
Tashima’s Opinion
Tashima, in rejecting Fischer’s reasoning, relied on non-binding authority: an opinion letter issued by the California Division of Labor Standards Enforcement (“DLSE”) and its Policies and Interpretations Manual. They set forth that where a temporary layoff lacks a specific return within the normal pay period—as Hyatt’s layoff did—the immediate-payment mandate of §201 applies.
The senior judge wrote:
“Taking into consideration the agency’s ‘expertise and special competence,’ we adopt the DLSE’s interpretation of §201. Although Hyatt’s actions are understandable given the uncertainty during the early period of the pandemic, the March 2020 layoff was a discharge within the meaning of § 201, triggering the prompt payment requirement, because there was no specific return date within the normal pay period.”
The opinion also restores claims under California’s Labor Code Private Attorney General Act. Fischer discounted claims for alleged wage-and-hour violations because they were tied to the allegation that §201 was violated.
Second Issue
Hartstein also contested Fischer’s granting of summary judgment in favor of Hyatt on her claim that upon the furloughing of her and others, Hyatt was obliged to provide the cash value of a benefit: free use of hotel rooms, awarded once a year to employees.
Fischer said in her order:
“The Court declines to find Hyatt’s complimentary hotel rooms are ‘wages’ within the meaning of the California Labor Code, and therefore finds they need not have been included in calculating Plaintiffs’ regular rate of pay. Under the complimentary hotel room program…[t]he program is more aptly characterized as ‘gifts made...as a reward for service,’…which are excluded from the regular rate of pay for purposes of calculating overtime—rather than a bonus or a wage.”
Tashima agreed that “gifts and discretionary bonuses” are not wages.
The case is Harstein v. Hyatt Corp., 22-55276.
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