Vacation Time Disguised as a "Sabbatical" May Require Employee Compensation Upon Termination

Many larger companies allow employees to take extended time off from employment under an employer endorsed sabbatical program.  The potential benefits to the employer include employee loyalty, enhanced production due to job satisfaction and an overall improvement in employee morale.  When properly structured, a sabbatical program allows an employee to take an extended leave from work with pay and, at the end of the sabbatical, return to the employee’s prior position without any loss of employment benefits.

Paton v. Advanced Micro Devices, Inc.

In the recent California appellate court decision of Paton v. Advanced Micro Devices, Inc., the court held that a program described by an employer as a sabbatical program can be deemed to be additional vacation time for the employee.  If the time off is deemed to be vacation time as opposed to a sabbatical, the employer could be responsible for paying wages to the employee even if the employment is terminated prior to the employee taking the sabbatical.

Sabbatical vs. Vacation – The Factors

As noted by the Court in Paton, there are a number of factual issues which must be examined to determine whether time off is properly deemed to be a sabbatical as opposed to vacation time.  To properly qualify as a sabbatical:

• The leave of absence must be substantially longer than the normal vacation period offered to employees;
• The sabbatical should be granted only after a substantial period of employment;
• The sabbatical cannot replace or displace the vacation normally earned each year, but must be in addition to a regular vacation plan.
• The sabbatical program should be structured in a manner which indicates that the employee is expected to return to work after the leave of absence
• Sabbatical leave should be granted infrequently, such as every seven years, although in certain circumstances a shorter period may be acceptable.

Conversely, vacation time that is paid by an employer is considered part of an employee’s compensation package and it is deemed to be deferred compensation.  Therefore, a paid vacation is concurrently earned by an employee at the time that ordinary wages are earned.  Because vacation pay is deferred compensation, earning it is not conditional upon anything other than the employee rendering services for the employer.  In particular, vacation pay does not require the employee to be employed for a specific period of time before the employee becomes eligible for such pay.

Terminated Employees May be Owed Accrued “Sabbatical Time” if it is a Disguised Vacation

In Paton, the Court held that there were a number of factual issues which had to be considered before a determination could be made as to whether or not the employer’s program was properly considered a sabbatical program or was instead disguised additional vacation time.  The critical distinction is that an employer is not required to pay for sabbatical time if the employment is terminated without the employee taking the sabbatical.  On the other hand, if the sabbatical program is deemed to be a disguised vacation plan, then the employee is earning deferred compensation for those days off during the term of the employment and the employer is required to pay for the days off at the end of employment as earned, but unpaid leave.

The Lessons for Employers

The lesson to be learned by employers from the decision in Paton is that any sabbatical program offered by the employer should be closely monitored to ensure that it (1) is substantially longer than a regular vacation, (2) is granted only after a substantial length of employment, (3) is in addition to regular vacation time, (4) is structured such that the employee is encouraged to return to work at the end of the sabbatical and (5) is granted infrequently, with every seven years being the generally accepted standard.

An improperly structured sabbatical program could result in substantial exposure for the employer if the time allowed for sabbatical is deemed to be vacation time.  Therefore, it is important that any sabbatical program be properly structured.

If you have any questions about your program, contact an employment lawyer in California.