In a case of first impression, California's Sixth District Court of Appeal sets down a new four-part test for distinguishing between sabbaticals and vacation in Paton v. Advanced Micro Devices, Inc. The decision is important because it provides guidance to California employers regarding the circumstances under which unused Paid Time Off (PTO) benefits must be paid out upon termination.

In the case before the court, the plaintiff became eligible for, but never took, an eight week paid sabbatical. According to the employer's sabbatical program, the paid leave would be forfeited if not used while the employee remained with the company. After the plaintiff resigned and did not receive any pay-out for his unused sabbatical, he brought a class action lawsuit claiming that the sabbatical was the legal equivalent of extra vacation for long-term employees. As a result, the employee argued, an eligible employee who did not use the eight weeks of paid time off should be paid for any unused portion upon termination, just as he would be paid for accrued and unused vacation.

The appellate court reversed summary judgment in favor of the employer, finding that the question of whether the employer's particular sabbatical program granted a legitimate sabbatical (which does not have to be paid out upon termination), or was a subterfuge for additional vacation time, could not be answered based upon the facts before it. In reaching its decision, the court set out a four-part test for determining whether paid time off qualifies as a sabbatical and, by extension, when paid time off must be treated as vacation.

The factors of this new test are: (1) frequency of the leave; (2) length of the leave; (3) whether the leave must be in addition to regular vacation; and (4) whether the leave must be for the purpose of enhancing the employee's value as an employee upon his or her return to work.

Applying the four factors to the case before it, the appellate court found there was conflicting evidence regarding the employer's purpose in establishing the sabbatical program, and remanded the case for trial on that issue.

To learn more about the decision and its implications for employers, please continue reading Littler's ASAP, California Appellate Court Answers the Question "What Is Vacation?", by Margaret Gillespie.

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