Most states, including Pennsylvania, New Jersey and New York, allow employers to have some form of a “use it or lose it” vacation policy, in which an employer must “use” vacation time in the year earned or “lose it.”

But California is not like most states.

Late last year the California Court of Appeal determined that Lexmark International’s “use it or lose it” vacation policy violated the California Labor Code, because vacation is viewed by California law as a form of deferred compensation that is fully earned and vested when the labor is performed.  As a result, the court slammed Lexmark with $8.3 million in back pay and damages awarded to a class of 178 employees, for unpaid vacation time going back to 1991 (the court also tolled the statute of limitations).

Employers with operations in California and “use it or lose it” vacation policies, obviously need to reform their practices in light of the Lexmark ruling.  In addition, the case serves as a reminder that California’s labor laws are unique and more protective than most any state in the union, and employers should review all applicable state laws (regardless of the state) before adopting any policy that deprives an employee of wages or accrued benefits.

Michael Homans is a Labor & Employment attorney and founding partner of HomansPeck LLC. For more employment law updates, including news and links to important information pertaining to legal developments that may affect your business, subscribe to Michael’s blog, or follow him on Twitter @EmployLawUpdate.