California: Waiver of Vacation Rights in Collective Bargaining Agreements Must Be Clear and Unmistakable

Last week a California appellate court held that collective bargaining agreements that waive the statutory right of terminating employees to receive payment for all vested vacation must contain “clear and unmistakable” language for the waiver to be effective.  A copy of the court’s opinion in Choate v. Celite Corporation can be downloaded here.

California Labor Code Section 227.3 has long provided that upon an employee’s termination, the employer must pay the employee for all vested vacation.  But the statutory requirement does not apply when “otherwise provided by a collective bargaining agreement.”

Employees of Celite Corporation worked under a collective bargaining agreement that provided between one and five weeks of vacation annually.  Each January, each employee received a yearly “vacation allotment” based on the employee’s length of employment and the number of hours that the employee worked during the previous year.  Terminating employees were entitled to “receive whatever vacation allotment is due them upon separation.”  Both Celite and the union understood this phrase to mean the vacation allotment provided each January.

Celite laid off three employees on March 1, 2007.  In accordance with past practice, Celite immediately paid them their entire 2007 “vacation allotment,” but did not pay them for any vacation accrued during January and February of 2007.  The employees filed a class action against Celite to recover that accrued but unpaid vacation time and also sought waiting time penalties for Celite’s alleged “willful” failure to pay them all vested vacation pay upon termination.  Celite denied that it owed the employees any additional vacation pay or waiting time penalties, citing the collective bargaining agreement provision waiving the Section 227.3 vacation payout requirement.

The trial court found in favor of the employees, determining that Celite’s reliance on the collective bargaining agreement was unreasonable because the purported waiver of the company’s statutory obligations under Section 227.3 was not stated in “clear and unmistakable” terms.

The Court of Appeal agreed that any waiver of the statutory requirement to pay terminating employees for all vested vacation must be “clear and unmistakable,”  meaning the waiver must go beyond broad general language, and must specifically mention either the statutory protection being waived or, at a minimum, the statute itself.  The agreement at issue did not do so, and therefore did not effectively waive Celite’s statutory obligation to pay the employees for pro rata vacation accrued during the first two months of 2007 before they were laid off.

But the court found that Celite did not owe waiting time penalties to the employees, because in failing to pay the employees for pro rata vacation earned during 2007, Celite had relied on the collective bargaining agreement in good faith.  There had been no previous appellate opinions deciding the standard for waivers under section 227.3 and, as a result, the company’s failure to comply with section 227.3 was not “willful.”

Most statutory employment rights are not waivable.  But when a statutory right can be waived by a collective bargaining agreement and both the employer and the union agree to waive it, they must ensure that the waiver language is “clear and unmistakable” and specifically identifies the statutory provision being waived.

Aaron Buckley – Paul, Plevin, Sullivan & Connaughton LLP – San Diego, CA

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