Wage Statements Need Not Reflect Value of Accrued Vacation

Seyfarth Synopsis: Accrued vacation pay is not a category that must appear on employee wage statements.

California Labor Code section 226 requires employers to report various categories of information on employee wage statements. Among those categories are gross wages earned and net wages earned. Many wage statements do not report accrued vacation time or its monetary value. The Court of Appeal, in Soto v. Motel 6 Operating, LP, recently decided that the value of accrued unused vacation need not appear on wage statements, as vacation pay does not qualify as wages earned until the time that employment terminates.

The Facts

Lidia Soto sued her employer, Motel 6, claiming that Motel 6 violated Section 226(a) by failing to report accrued vacation pay in employee wage statements. Motel 6 sought dismissal of Soto’s claim, arguing that Section 226(a) does not require an employer to report the value of accrued vacation pay. Soto responded that vacation pay is a “wage” that must appear in itemized wage statements. The trial court dismissed the case, concluding that Section 226(a) does not require a wage statement to include the value of accrued vacation.

The Court of Appeal’s Decision

The Court of Appeal affirmed the trial court’s ruling. The Court of Appeal noted that the “highly detailed” provisions of Section 226(a) enumerate “nine separate categories” to appear on wage statements. Neither vacation time, nor its associated value, is among these categories. The Court of Appeal determined that this omission reflected a legislative intent that accrued vacation time need not appear in itemized wage statements.

The Court of Appeal also rejected Soto’s argument that accrued vacation benefits constitute wages that must appear as “gross wages earned” and “net wages earned” on itemized wage statements. The Court of Appeal determined that paid vacation “is a form of deferred wages for services rendered, similar to a pension or retirement benefit.” The employee is not entitled to vacation pay until the time that employment ends. (Whether an employee receives vacation pay in the meantime is subject to whether the employer decides to permit a vacation.) During employment, an employer cannot determine the value of vacation time, which, by statute, can depend on the employee’s final rate of pay. Thus, “although vacation time vests as the labor is provided, unused vacation time does not become a quantifiable vacation wage until the employee separates from the employment.”

The Court of Appeal supported its conclusion by citing Section 227.3, which generally requires that employers pay terminating employees, “as wages,” all vested, unused vacation time. The Court of Appeal reasoned that this language leads to the “reasonable inference” that the value of accrued vacation time is not a “wage” until the employee separates from employment. Vacation pay therefore does not qualify as “wages earned” until employment terminates.

The Court of Appeal also relied on the purpose of Section 226(a)—to inform employees how their wages are calculated. “Consistent with this purpose, an employer is required to identify only those statutory items that are part of the employee’s current monetary compensation.” Because vacation pay is not owed until an employee’s termination, including some purported value of accrued vacation time on a wage statement would not further this legislative purpose.

What Soto Means for Employers

Soto’s holding affirms that Section 226 does not impose wage-statement obligations on employers beyond the specific categories it explicitly describes. This result is especially sensible in that a failure to comply with Section 226(a) would give rise to substantial civil penalties. Soto likely will prove useful in defending against other creative wage-statement claims that plaintiffs use in their efforts to expand the requirements of Section 226 beyond its plain meaning.

It must be noted that rules on vacation pay, of course, do not necessarily apply to sick leave, as we have reported elsewhere.