Filed 4/1/20

CERTIFIED FOR PARTIAL PUBLICATION*

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION THREE

TERESA McPHERSON et al.,

Plaintiffs and Respondents,

v.

EF INTERCULTURAL 

FOUNDATION, INC.,

Defendant and Appellant.

B290869

Los Angeles County

Super. Ct. No. BC609090

APPEAL from a judgment of the Superior Court of 

Los Angeles County, Michael J. Raphael, Judge. Affirmed in part

and reversed in part with directions.

Seyfarth Shaw, Christian Rowley, Candace Bertoldi and 

Kiran A. Seldon for Defendant and Appellant.

Law Offices of Courtney M. Coates and Courtney M. Coates

for Plaintiffs and Respondents.

* Under California Rules of Court, rules 8.1100 and 8.1110, 

this opinion is certified for publication with the exception of parts 

2.d., 3, 5, and 6 of the Discussion.
2

Paul Hastings, Paul W. Cane, Jr., Zachary P. Hutton and 

Brian A. Featherstun for California Employment Law Council 

and Employers Group as Amici Curiae on behalf of Defendant 

and Appellant.

_________________________

INTRODUCTION

When an employer’s policy allows an employee to take an 

unspecified amount of paid time off without accruing vacation

time, does the employee’s right to that paid time off vest so the 

employer must pay her for unused vacation under Labor Code 

section 227.31 when her employment ends? Or does section 227.3 

apply only to policies providing a fixed amount of vacation that 

accrues over time? That is the primary issue posed by this 

appeal by EF Intercultural Foundation, Inc. (EF) from the trial 

court’s judgment awarding vacation wages to three of EF’s former 

exempt employees—Teresa McPherson, Donna Heimann, and 

Linda Brenden. 

In the published portion of this opinion, we conclude section 

227.3 applies to EF’s purported “unlimited” paid time off policy 

based on the particular facts of this case. We by no means hold 

that all unlimited paid time off policies give rise to an obligation 

to pay “unused” vacation when an employee leaves. Flexible 

work arrangements and unlimited paid vacation policies may be 

of considerable benefit to employees and to the employers who 

want to recruit and retain those employees. Employees and 

employers are free to contract for unlimited paid vacation, 

consistent with the Labor Code and governing case law. Here, 

however, EF never told McPherson and her fellow plaintiffs that 

1 Undesignated statutory references are to the Labor Code.
3

they had unlimited paid vacation. EF had no written policy or 

agreement to that effect, nor did its employee handbook cover 

these plaintiffs. As it turned out, McPherson, Heimann, and 

Brenden took less vacation than many of EF’s other managers 

and exempt employees covered by the employee handbook, whose 

accrued vacation vested as they worked for EF month after 

month. 

As to Heimann only, we reverse the judgment and remand

the case to the trial court to recalculate the amount of vacation 

wages owed her, excluding vacation wages earned after she 

moved to Virginia in 2005.2 We affirm the judgment in all 

other respects, addressing EF’s additional contentions in the 

unpublished portions of the opinion.

FACTS AND PROCEDURAL BACKGROUND

Consistent with our standard of review, we state the 

facts established by the record in the light most favorable to 

the judgment. (Los Angeles Unified School Dist. v. Casasola

(2010) 187 Cal.App.4th 189, 194, fn. 1.)

1. The parties

EF is a foreign corporation authorized to do business 

in California. EF Educational Homestay Program (EHP) is 

a division of EF. EF is a nonprofit that runs educational and 

cultural exchange programs between the United States and other 

countries. EHP primarily operates out of EF’s main office in

Cambridge, Massachusetts.

EHP employs full-time “area managers” on the east and 

west coasts to run seasonal homestay programs for international 

students in their regions. Area managers work from home and 

2 We also remand to the trial court to consider whether to 

modify the attorney fee award to plaintiffs.
4

in the field. They hire, train, and work with a staff to recruit 

host families for the students and to operate the programs. 

Programs mainly run in the summer, but some regions also 

hold shorter winter programs.

Plaintiffs were full-time, exempt, salaried EF employees 

who worked in the EHP division.

3 Brenden worked as an area 

manager from 2005 to September 2015. She requested severance 

when her employment was terminated. She ultimately received 

three months’ severance and signed a severance agreement that 

included a general release of claims.

Heimann was an area manager from 1995 to 1998. She 

became EHP’s west coast manager in charge of transportation 

and excursions4in 1998. Although Heimann moved to Virginia 

in 2005, she continued to work for EHP in that same role until 

she retired on October 31, 2014. Heimann worked from home 

in Virginia, but traveled to California annually as part of her job.

She stayed in Southern California from mid-June through 

August when the summer program was underway, and returned 

at the start of the year and in spring or fall for trainings and 

meetings.

Heimann wanted to take time off before she retired. EHP’s 

then-president Matthew Smith agreed she could take 20 days. 

When Heimann was able to take only six days of vacation before 

3 Plaintiffs had worked part-time or seasonally for EHP—

between three and 10 years—before becoming full-time, salaried 

employees.

4 We refer to both area managers and the west coast 

manager as “area managers.” The same vacation policy applied 

to both positions.
5

she retired, Smith agreed to pay her for the 14 remaining days 

as “vacation pay.”

McPherson worked as an area manager from 2003 to 2004 

and again from 2005 to 2014. From late 2014 to fall 2015, 

McPherson worked in an administrative “program support” 

position as part of a one-year pilot program (program manager). 

EHP did not have the budget to extend the program manager 

position past September 30, 2015, when it was set to expire.

McPherson sent EHP a proposal to retain her in a new position 

for the next season. On September 23, 2015, EHP’s president

Robert Hart left McPherson a voicemail that he needed more 

time to consider the proposal. EHP continued to pay McPherson 

in October 2015.

On November 6, 2015, Hart told McPherson that EHP had 

no budget for her proposed position for the 2015-2016 season. 

Hart then sent her a severance agreement/termination letter 

on November 19, 2015, stating her employment with EHP had 

ended as of September 30, 2015.

2. EF’s Vacation Policy

EF has an employee handbook. It covered EHP employees

who worked at the main office in Cambridge and “bosses,” such 

as regional directors, as well as operations managers. The 2014 

handbook contains a vacation policy that provides salaried 

employees with a fixed amount of vacation days per month based 

on their length of service.5 Employees could carry over 10 

accrued, unused vacation days from one year to the next. If an 

employee carried over more than 10 accrued vacation days, EF 

5 An earlier version or versions of the handbook included the 

same or a similar vacation policy.
6

paid the employee 70 to 100 percent of the value of those days.

6

Once an employee reached the maximum of yearly accruable 

vacation plus the 10 carryover days, the employee no longer 

accrued vacation until he or she used a portion of the accrued 

time. Employees subject to this policy were required to use an 

online scheduling tool that kept track of their accrued vacation 

balance to request and obtain approval for vacation.

This accrued vacation policy did not apply to area 

managers or the west coast manager. Instead, plaintiffs could 

take time off with pay, but they did not accrue vacation days. 

Area managers did not use the online system to request time off 

or to track the number of days they had taken. Instead, they 

were required to notify their supervisors before taking time off. 

Taking time off during EHP’s peak season was “strongly 

discouraged,” but was approved in some circumstances.

3. Plaintiffs’ complaint

On February 3, 2016, plaintiffs sued EF alleging it failed 

to pay them accrued but unused vacation wages. McPherson also 

alleged EF failed to pay her regular wages earned in November 

2015. The complaint asserts causes of action for (1) violation of 

Labor Code section 227.3 (denial of vacation wages), (2) breach of 

implied contract, (3) breach of the implied covenant of good faith 

and fair dealing, (4) violation of Labor Code sections 201 and 

203 (unpaid wages at discharge and waiting time penalties), and 

(5) violation of Business and Professions Code section 17200 

et seq. (unfair competition).

In February 2017, EF moved for summary judgment. 

Plaintiffs shifted the focus of their legal theory for recovery of 

6 Employees residing in California who paid California 

payroll taxes were paid 100 percent of the value of that time.
7

accrued vacation wages under section 227.3 from EF’s express 

vacation policy to EF’s unwritten policy of providing plaintiffs 

“unlimited” vacation, contending it was a “de facto ‘use it or lose 

it’ policy.” The court granted summary adjudication on plaintiffs’ 

claim for breach of the covenant of good faith and fair dealing, 

but otherwise denied EF’s motion.

4. Bench trial and court’s statements of decision

The case proceeded to a bifurcated bench trial. The 

liability phase took place in June 2017. After filing posttrial 

briefs, the parties presented closing arguments on October 20, 

2017. On December 11, 2017, after issuing a tentative ruling 

and considering further submissions from the parties,

7 the court 

issued its statement of decision on the first phase of the trial,

finding EF liable for vacation wages. On March 12, 2018, 

following the second phase of the trial on damages—conducted

by documents and oral argument—the court issued its tentative 

decision, which reconsidered parts of its first statement of 

decision on liability and addressed plaintiffs’ damages.8

7 When it issued its December 11 statement of decision, 

the court had not seen some of the parties’ additional briefing, 

including EF’s proposed statement of decision as to controverted 

issues not addressed in the court’s tentative ruling. The court 

considered the mistakenly missed briefing when it issued its 

statement of decision on the second phase of the trial.

8 The trial court ordered plaintiffs to prepare a “portion of 

a statement of decision” calculating their damages based on the 

court’s findings. The court stated the combination of its tentative 

ruling and plaintiffs’ proposed statement of decision would serve 

as the proposed statement of decision for the second phase of 

trial. That became the final statement of decision under rule 

3.1590 of the California Rules of Court.
8

a. Plaintiffs’ entitlement to vacation wages under 

EF’s policy

In its first statement of decision, the trial court termed

EF’s policy of providing vacation time that did not accrue as 

an “undefined” rather than an “unlimited” vacation policy. The 

court reasoned “[p]laintiffs’ vacation requests here needed to be 

approved, there is no evidence that more than a typical amount 

of vacation was requested or approved, and no one told plaintiffs 

that they had the right to take any large amount of vacation. 

It appears to the Court that the parties proceeded on an 

understanding that the policy was that plaintiffs had the right 

to take an amount of approved vacation that was within the 

amounts typical of most jobs at the company—perhaps the 

amount in the employee handbook—even if there was no precise 

amount expressly stated or agreed upon.”

The court then concluded “vacation time vests under 

a policy where vacation time is provided, even if the precise 

amount is not expressly defined by the employer in statements 

to employees.” It found “EF had a ‘policy [that] provides for 

paid vacations’ under section 227.3.” The court reasoned that,

“[b]ecause vacation time vests under California law if an 

employee is told the precise amount she has a right to (e.g., 

‘two weeks annually’), it does not make sense that vesting can be 

avoided if the employee would in fact receive the same amount if 

she asked for it, but is simply not told that precise amount would 

be approved. Either way, the employer has a policy of providing 

at least that much vacation.” The court found “there could be no 

dispute that plaintiffs would receive (at least) a couple of weeks 

of paid vacation annually under EF’s policy, and there likewise 

could not be a serious belief that EF would approve as much as 

several months[ ] of paid vacation—the plaintiffs would not have 

dared ask for anything like that. [¶] If a policy of undefined 
9

vacation could avoid vesting, an employee could lose 

compensation that another identically situated employee was 

given, contrary to California law that vacation is to be treated 

as a wage.”

The court further reasoned “offering vacation time in an 

undefined amount simply presents a problem of proof as to what 

the employer’s policy was. That policy is implied through conduct 

and the circumstances, rather than through an articulated 

statement. The Court must determine the amount of vacation 

time that the employer’s policy actually made available to 

plaintiffs, if necessary using principles of ‘equity and fairness’ 

(section 227.3) based on the circumstances.” (Footnote omitted.)9

The court initially found that “EF’s policy was to approve 

the amount of vacation provided in the employee handbook for 

plaintiffs, even though EF may not have expressly stated that 

amount would be approved.” It thus concluded plaintiffs could 

“recover vacation as proven under the policy in EF’s employee 

handbook, including the cap on accrual.”

In its second statement of decision, the court reconsidered 

this conclusion. The court noted “[p]laintiffs testified that, 

through about forty work-years in total for the three of them, 

they actually were approved to take between one and twenty 

vacation days per year.” Based on that testimony, the court 

concluded that “[s]ince twenty days’ annual vacation was 

9 The court noted section 227.3 requires the Labor 

Commissioner to apply the “ ‘principles of equity and fairness’ 

to resolve ‘any dispute with regard to vested vacation time.’ ” 

The court concluded section 227.3 therefore also permitted the 

court to “use equity and fairness to determine, for purposes of 

vesting, the amount of vacation time that an employer’s policy 

allowed.”
10

approved at least once, . . . at least that much vacation was 

actually available to plaintiffs under the EF policy applied 

to them.”

The court determined application of the employee 

handbook’s vacation policy to plaintiffs was “not the best course 

in this case.” It noted the parties’ second-phase arguments 

“concern[ed] the application of the statute of limitations to the 

annual ‘payouts’ [of vacation accrued over the carryover limit] 

under the handbook policy.” The court concluded the application 

of the statute of limitations “in this situation seems too arbitrary 

to best serve the purpose of determining what amounts of 

vacation actually vested,” noting neither EF nor plaintiffs 

“thought at the time that the handbook actually applied to 

the plaintiffs.”

The court concluded “the best approach is a more 

straightforward one: 20 days of vacation vested annually for 

each plaintiff, and any unused portion is payable at termination. 

See Church v. Jamison (2006) 143 Cal.App.4th 1568.” The court 

based its conclusion on law and equity under section 227.3. As a 

legal determination, the court found the evidence demonstrated 

20 days’ annual vacation was available to plaintiffs under EF’s

policy. Under principles of equity and fairness, the court stated 

it was “attempting to provide plaintiffs with adequate 

compensation for unused vacation time, without overcompensation, in circumstances where the amount of vacation 

time available was not expressly defined.”

b. Brenden’s release and severance

At trial EF argued Brenden’s claims were barred by the 

written release of known and unknown claims she signed as a 

condition of her severance. The court concluded section 206.5, 
11

subdivision (a)10 rendered Brenden’s purported release of her 

vacation wage claims “ ‘null and void’ ” because “there was no 

vacation-pay dispute that was being settled at the time of 

the release.” The court acknowledged the statute “has been 

interpreted as meaning, ‘wages are not “due” if there is a good 

faith dispute as to whether they are owed.’ ” The court found the 

case law also supported its interpretation that a release is invalid 

under section 206.5 if it “pre-emptively waives then-unrecognized 

claims,” as was the case here.

The court also rejected EF’s contention Brenden’s damages 

should be reduced by the $11,362.50 severance payment because 

it was consideration for the release of wage claims the court had 

found invalid. The court found persuasive Brenden’s argument

that the severance amount paid her also to release non-wage 

claims and thus she need not return it.

c. Heimann’s Virginia residency

EF argued California’s wage and hour laws did not apply 

to Heimann because she lived in Virginia. The court agreed with 

EF that California’s wage and hour laws do not cover all work 

with some connection to California. But it disagreed “that the 

standard is so high that the employee’s work must be ‘entirely’ in 

California.” The court had “no doubt” that Heimann was covered 

by California’s employment laws. It found her work was focused 

10 Section 206.5, subdivision (a) provides: “An employer 

shall not require the execution of a release of a claim or right on 

account of wages due, or to become due, or made as an advance 

on wages to be earned, unless payment of those wages has 

been made. A release required or executed in violation of the 

provisions of this section shall be null and void as between the 

employer and the employee. Violation of this section by the 

employer is a misdemeanor.”
12

on people and activities in California and required her to reside 

temporarily in California for significant periods.

d. McPherson’s salary

EF argued McPherson’s employment ended September 30, 

2015, when her program manager contract expired. McPherson 

argued it ended November 19, 2015, when she received her 

termination letter. The court concluded EF terminated 

McPherson’s employment on November 6, 2015, the day EF 

management told her she would not be continuing with the 

company, and it owed her unpaid wages from November 1 

through November 6, 2015. The court found that—had EF 

intended McPherson’s employment to end on September 30, 2015, 

even while it considered her proposal for a new position—

“it merely had to either (a) expressly tell her that or (b) make a 

decision on extending her by September 30, rather than taking 

until November to do so.” The court also found EF’s payment of 

McPherson’s salary in October 2015 “an important reason why an 

objective employee in McPherson’s position would have concluded 

she was still employed.”11

e. Amount of unused vacation wages owed

EF did not track the number of vacation days plaintiffs 

used during their employment. Plaintiffs did not use the online 

tracking system that employees subject to the handbook’s 

vacation policy used. The court found Heimann “highly credible.” 

It adopted her testimony on the number of vacation days she took 

during her employment.

11 The court concluded EF did not owe McPherson waiting 

time penalties on the unpaid wages. EF had a good faith belief 

that wages were not owed based on the expiration of McPherson’s 

contract on September 30, 2015.
13

The court found Brenden and McPherson credible, but 

was “less convince[ed] that their recollection and accounts of 

their vacation usage should be credited wholesale.” Without 

recordkeeping, there was no way for the court to determine 

“with certainty” the amount of vacation each actually took. The 

court found “eight days’ vacation are to be added to each of the 

amounts that these two plaintiffs recall that they took each year, 

to best reflect how much vacation she actually took, based on 

their testimony.”

The court concluded plaintiffs were not owed waiting time 

penalties. The court found EF had a reasonable, good faith belief 

that vacation wages were not owed, as no California authority 

specifically has addressed “undefined-amount vacation policies.”

The court ordered plaintiffs to prepare a proposed 

statement of decision calculating the mathematical application 

of the court’s findings to determine each plaintiff’s damages.

5. Judgment and appeal

On April 17, 2018, the court entered judgment in the total 

sum of $88,594.65, including prejudgment interest, in favor of 

plaintiffs. McPherson was awarded $9,780.98 in regular and 

vacation wages and interest; Heimann was awarded $52,149.10 

in vacation wages and interest; and Brenden was awarded 

$26,664.57 in vacation wages and interest.12 On May 17, 2018, 

the court awarded plaintiffs $397,742.33 in attorney fees. On 

June 20, 2018, EF filed a notice of appeal from the April 17 

judgment.

12 The vacation wages were based on 44.27 days of accrued 

vacation for McPherson, 199.7 days for Heimann, and 106 days 

for Brenden.
14

EF filed a motion with its reply brief asking us to take

judicial notice of documents that are part of the legislative 

history of section 227.3. EF argued the documents are necessary 

to respond to plaintiffs’ contentions about the meaning of 

“ ‘accrued’ ” and “ ‘vested’ ” and the statute’s provision about

“ ‘principles of equity and fairness.’ ” Plaintiffs opposed the 

motion, asserting EF did not introduce the documents in the 

trial court, the plain language of section 227.3 is unambiguous, 

and the letters and statements from individual legislators EF 

submitted are not proper subjects for judicial notice. We 

deferred our ruling pending consideration of the merits of EF’s 

appeal. We now grant EF’s motion and take judicial notice of 

the exhibits attached to its application. 

DISCUSSION

EF asks us to reverse the judgment because (1) California 

law does not prohibit “ ‘unlimited’ or ‘uncapped’ time off policies 

like EHP’s”; (2) neither EHP’s policy nor the parties’ contracts 

gave plaintiffs “vested vacation rights”; and (3) the trial court 

“arbitrarily created vested vacation rights” and “adopt[ed] an 

incorrect and unworkable legal standard.” EF also asks us to 

reverse the judgment on the separate grounds (a) as to Brenden 

that she released her vacation wage claims, (b) as to Heimann 

that section 227.3 did not apply to her after she moved to 

Virginia in 2005, and (c) as to McPherson that she is not entitled 

to unpaid wages from November 2015 because her employment 

ended September 30, 2015, and she performed no work in 

November 2015.

1. Standard of Review

On appeal from a judgment based on a statement of 

decision after a bench trial, we review the trial court’s 

conclusions of law de novo and its findings of fact for substantial 

evidence. (Thompson v. Asimos (2016) 6 Cal.App.5th 970, 981.) 
15

Under the deferential substantial evidence standard of review, 

we “liberally construe[ ]” findings of fact “to support the judgment 

and we consider the evidence in the light most favorable to the 

prevailing party, drawing all reasonable inferences in support of 

the findings.” (Ibid.) “We may not reweigh the evidence and are 

bound by the trial court’s credibility determinations.” (Estate of 

Young (2008) 160 Cal.App.4th 62, 76.) Testimony believed by the 

trial court “may be rejected only when it is inherently improbable

or incredible, i.e., ‘ “unbelievable per se,” ’ physically impossible 

or ‘ “wholly unacceptable to reasonable minds.” ’ ” (Oldham v. 

Kizer (1991) 235 Cal.App.3d 1046, 1065.) “ ‘The ultimate 

determination is whether a reasonable trier of fact could have 

found for the respondent based on the whole record.’ ” (Estate of 

Young, at p. 76.) 

“A judgment or order of a lower court is presumed to be 

correct on appeal, and all intendments and presumptions are 

indulged in favor of its correctness.” (In re Marriage of Arceneaux 

(1990) 51 Cal.3d 1130, 1133.) “Under the doctrine of implied 

findings, the reviewing court must infer . . . that the trial court 

impliedly made every factual finding necessary to support its 

decision.” (Fladeboe v. American Isuzu Motors Inc. (2007) 150 

Cal.App.4th 42, 48.) We affirm a judgment if correct on any 

ground. (Mike Davidov Co. v. Issod (2000) 78 Cal.App.4th 597, 

610.)

We review questions of statutory construction de novo. 

(Kirby v. Immoos Fire Protection, Inc. (2012) 53 Cal.4th 1244, 

1251 (Kirby).) “Our primary task when faced with a question 

of statutory construction is to determine the intent of 

the Legislature, and we begin by looking to the statutory 

language. . . . ‘The words of the statute must be construed 

in context, keeping in mind the statutory purpose.’ ” (McCarther 

v. Pacific Telesis Group (2010) 48 Cal.4th 104, 110 (McCarther).)
16

“ ‘ “If there is no ambiguity in the language, we presume 

the Legislature meant what it said and the plain meaning of 

the statute governs.” [Citations.] In reading statutes, we are 

mindful that words are to be given their plain and commonsense 

meaning. [Citation.] We have also recognized that statutes

governing conditions of employment are to be construed broadly 

in favor of protecting employees.’ ” (Kirby, supra, 53 Cal.4th at 

p. 1250.)

2. The court did not err when it concluded EF owed 

plaintiffs vacation wages under section 227.3

EF styles the legal question before us as “whether EHP’s 

practice of permitting [p]laintiffs to take ‘uncapped’ time off 

without accruing vacation wages complies with California law.” 

It argues that if we conclude this practice is lawful, then EF had 

no obligation to pay plaintiffs vacation wages at their termination 

because “nothing ‘vested’ in the first place.” In essence, we must 

determine if EHP’s policy to provide certain employees unaccrued 

paid time off is subject to section 227.3. On the particular, 

unusual facts of this case, we conclude it is.

a. Section 227.3 and the case law interpreting it

No California authority has addressed whether a 

nonaccrual, unlimited paid time off13 policy is subject to 

section 227.3. We first describe current California law on paid 

vacation policies.

13 We refer to “paid time off” and “vacation” interchangeably. 

(See Dept. of Industrial Relations, Div. of Labor Standards 

Enforcement (DLSE) Opn. Letter No. 1990.09.24 (Sept. 24, 1990) 

p. 3, archived at <https://perma.cc/DJ4Q-NTCL> [“Any employer 

policy which provides leave time is presumed to be vacation 

unless clearly defined otherwise.”].)
17

California law does not require employers to provide 

employees with paid vacation. (Owen v. Macy’s, Inc. (2009) 175 

Cal.App.4th 462, 468 (Owen).) “[W]henever” an employer does 

have a policy of providing its employees with paid vacation, 

however, section 227.3 requires the employer to pay as wages 

any “vested” vacation time a terminated employee has not used. 

Section 227.3 provides,

“Unless otherwise provided by a collectivebargaining agreement, whenever a contract of 

employment or employer policy provides for 

paid vacations, and an employee is terminated 

without having taken off his vested vacation 

time, all vested vacation shall be paid to him 

as wages at his final rate in accordance with 

such contract of employment or employer policy

respecting eligibility or time served; provided, 

however, that an employment contract or 

employer policy shall not provide for forfeiture 

of vested vacation time upon termination. 

The Labor Commissioner or a designated 

representative, in the resolution of any dispute 

with regard to vested vacation time, shall apply 

the principles of equity and fairness.”

Our Supreme Court addressed the question of when the 

right to vacation “ ‘vest[s]’ ” under section 227.3 in Suastez v. 

Plastic Dress-Up Co. (1982) 31 Cal.3d 774, 776 (Suastez). The 

Court held, “The right to a paid vacation, when offered in an 

employer’s policy or contract of employment, constitutes deferred 

wages for services rendered. Case law from this state and others, 

as well as principles of equity and justice, compel the conclusion 

that a proportionate right to a paid vacation ‘vests’ as the labor 

is rendered. Once vested, the right is protected from forfeiture 
18

by section 227.3. On termination of employment, therefore, the 

statute requires that an employee be paid in wages for a pro rata 

share of his vacation pay.” (Id. at p. 784.)

There, the company’s policy permitted employees to take

one to four weeks of paid vacation annually depending on their 

length of employment, but employees were not eligible to take 

vacation until the anniversary of their employment. (Suastez, 

supra, 31 Cal.3d at p. 776 & fn. 2.) When plaintiff’s employment 

ended before his anniversary date, the company refused to pay 

him any pro rata share of vacation for that year. (Id. at p. 777.)

The company argued employees terminated before their 

anniversary date had no right to vacation pay under section 227.3 

because employment on that date “is a condition precedent to the 

‘vesting’ of vacation rights.” (Suastez, supra, 31 Cal.3d at p. 778.) 

The employee contended annual vacation is earned by work 

performed throughout the year and vests as it is earned. (Id.

at p. 779.) 

The Court agreed with the employee. It noted vacation pay 

“is, in effect, additional wages for services performed.” (Suastez, 

supra, 31 Cal.3d at p. 779.) The Court explained, “The 

consideration for an annual vacation is the employee’s year-long 

labor. Only the time of receiving these ‘wages’ is postponed.” 

(Ibid.) In other words, “vacation pay is simply a form of deferred 

compensation.” (Id. at p. 780.) The Court likened “vacation pay” 

to “pension or retirement benefits, another form of deferred 

compensation” the right to which “ ‘vests upon the acceptance 

of employment [citations], even though the right to immediate 

payment of a full pension may not mature until certain 

conditions are satisfied.’ ” (Ibid.)

The Court recognized that “since the consideration for an 

annual vacation is the labor performed throughout the year, 

an employee whose employment is terminated midyear has not 
19

earned a full vacation. Nonetheless, the employee has earned 

some vacation rights ‘ “as soon as he has performed substantial 

services for his employer.” ’ ” (Suastez, supra, 31 Cal.3d at 

p. 780.) The Court explained that because the “right to some 

share of vacation pay vests, like pension rights, on acceptance of 

employment,” the “[n]onperformance of a condition subsequent, 

such as [the company’s] requirement that employees remain until 

their anniversary, can, at most, result in a forfeiture of the right 

to a vacation; it cannot prevent that right from vesting.” (Id.

at p. 781.) Because section 227.3 prohibits forfeiture of vested 

vacation time on termination, the company’s policy was 

impermissible. (Suastez, at p. 781.)

The company nevertheless argued its eligibility 

requirement was “a condition precedent that prevents those 

rights from vesting at all.” (Suastez, supra, 31 Cal.3d at pp. 781-

782, italics omitted.) The Court rejected that contention, 

reasoning “once it is acknowledged that vacation pay is not 

an inducement for future services, but is compensation for past 

services, the justification for demanding that employees remain 

for the entire year disappears.” (Id. at p. 782.) Moreover, the 

Court interpreted the passage in section 227.3 that “all vested 

vacation shall be paid to [the employee] . . . in accordance with 

[the] contract of employment or employer policy respecting 

eligibility or time served” to mean “the amount of vacation pay an 

employee is entitled to be paid as wages,” not the time of vesting

as the company had argued. (Id. at pp. 782-783.)

Because “vacation pay vests as it is earned, under . . . 

section 227.3,” after Suastez, employer policies such as those 

“ ‘allowing the forfeiture of vacation pay before one full year of 

service or which require[ ] employees to “use or lose” vacation 

pay by a specific date’ ” are prohibited. (Owen, supra, 175 

Cal.App.4th at pp. 469-470.) Employers legitimately may limit 
20

the amount of vacation pay an employee accrues, however, by

precluding accrual of additional vacation time once employees

have reached an announced maximum. (Boothby v. Atlas 

Mechanical, Inc. (1992) 6 Cal.App.4th 1595, 1602 (Boothby).) 

Under such a “ ‘no additional accrual’ policy,” the employee 

does not forfeit vested vacation pay because “no more vacation 

is earned” once the maximum is reached; thus, “no more vests.” 

(Ibid.)

An employer also may adopt a policy that expressly 

provides new employees do not earn vacation time “during their 

initial employment.” (Owen, supra, 175 Cal.App.4th at p. 464; 

Minnick v. Automotive Creations, Inc. (2017) 13 Cal.App.5th 

1000, 1003.) Again, because “no vacation pay is earned” during 

the waiting period, “none is vested.” (Owen, at p. 464.) Under 

such a policy, “employees cannot claim any right to vested 

vacation during their initial employment, because they know 

in advance that they will not earn or vest vacation pay during 

this period.” (Id. at p. 465.)14 But “once an employee becomes 

eligible to earn vacation benefits he or she is simultaneously 

entitled to payment for unused vacation upon separation.”

(Minnick, at p. 1007.)

14 The policies found permissible in both Owen and Minnick

expressly provided in writing that new employees did not earn 

vacation until after they had been employed for a specific length 

of time. (Owen, supra, 175 Cal.App.4th at p. 465 [employees 

“ ‘earn and vest in paid vacation after they have completed 

six months of continuous employment’ ”]; Minnick, supra, 13 

Cal.App.5th at p. 1002 [“ ‘You must complete one year of service 

with the company to be entitled to one week vacation.’ ”].) 

“[T]he policy language reasonably inform[ed] employees that 

their vacation accrual begins after the completion of” the stated 

period. (Minnick, at p. 1008.)
21

b. Section 227.3 applies to EF’s policy because it 

was neither unlimited in practice nor conveyed 

as unlimited 

It is undisputed EF had a policy of providing paid vacation 

or time off to area managers, including plaintiffs, triggering the 

first prong of section 227.3: “whenever . . . [an] employer policy 

provides for paid vacations . . . .” It also is undisputed that EF 

did not promise plaintiffs a specific amount of paid vacation that 

they would accrue over time or expressly tell them they were 

limited to a maximum amount of paid time off. EF and amici 

contend the second prong of section 227.3—“and an employee is 

terminated without having taken off his vested vacation time”—

does not apply to unlimited vacation policies because no vacation 

time vests “if there is no fixed vacation bank.” In other words, 

they contend an accrued, fixed amount of vacation time is a 

precondition to the vesting of vacation wages.

Once EF opted to provide plaintiffs with paid vacation, 

by default that paid time off constituted additional wages 

attributable to the services plaintiffs rendered during the year, 

vesting as they labored under Suastez. (Suastez, supra, 31 Cal.3d 

at pp. 779, 782, 784; see Minnick, supra, 13 Cal.App.5th at 

p. 1007 [under Suastez “all vacation pay is vested when earned”].) 

EF argues plaintiffs earned no vacation time—and thus none 

vested—to invoke section 227.3 because they did not labor 

“in exchange for a promise of a specific amount of vacation,” 

as in Suastez.

Under Owen, Minnick, and Boothby, an employer’s policy

certainly may limit an employee’s ability to earn vacation during 

a specified period—whether at the start of employment or after a 

certain amount of vacation time has accrued. No vacation wages 

vest during such a period because the employee earns no vacation 

during that specified time. (Owen, supra, 175 Cal.App.4th at 
22

pp. 464, 471-472; Minnick, supra, 13 Cal.App.5th at p. 1002; 

Boothby, supra, 6 Cal.App.4th at p. 1602.)15 It is unclear, 

15 EF and amici rely on McCarther, supra, 48 Cal.4th 104 

in support of their contention that section 227.3 does not apply 

to unlimited vacation policies. There, our Supreme Court held a 

sick leave policy that provided an uncapped number of paid days 

off was not subject to section 233 because employees did not 

“ ‘accrue[ ] increments of compensated leave.’ ” (McCarther, 

at p. 116.) Section 233 requires employers who provide paid sick 

leave to allow employees “to use . . . accrued and available sick 

leave . . . in an amount not less than the sick leave that would be 

accrued during six months at the employee’s then current rate 

of entitlement” to care for an ill family member. (§ 233, subd. (a); 

McCarther, at pp. 110-111.) The statute defines sick leave as 

“accrued increments of compensated leave.” (§ 233, subd. 

(b)(3)(A).) The Court interpreted the term “ ‘accrued’ ” to have 

the “commonsense meaning of ‘accumulated.’ ” (McCarther, 

at p. 115.) 

We do not find McCarther’s analysis of uncapped paid sick 

leave applicable to the vacation policy before us. First, section 

233 plainly states it applies only to sick leave policies with 

“accrued increments of compensated leave.” In contrast, the 

plain language of section 227.3 does not require vacation time to 

be accrued incrementally. Nor does section 227.3—unlike section 

233—require vested vacation time to be calculated based on a 

precise, stated formula. The Court in McCarther concluded 

the Legislature intended to limit section 233 “to employers that 

provide a measurable, banked amount of sick leave,” rather than 

uncapped sick leave, because the statute requires the amount of 

sick leave employers must allow employees to use for kin care 

to be calculated using a precise formula based on accrued time. 

(McCarther, supra, 48 Cal.4th at p. 111.) Finally, paid sick leave 

is conditional; paid vacation is not. Sick leave does not vest 

until the qualifying event—the employee’s illness—occurs. 

An employee’s right to paid time off, in contrast, has no 

preconditions; it vests as the employee labors. (See Paton v. 
23

however, whether an employer that has a paid time off policy

may limit an employee’s ability to earn vacation indefinitely. 

(The policies in Owen and Minnick did not permit employees to 

earn vacation for an initial probationary period—their first six 

and 12 months, respectively.) But once paid vacation is offered, 

any limit on an employee’s entitlement to it must be expressed 

in a clear, written policy from the get-go. (Owen, at pp. 464-465; 

Minnick, at p. 1002; cf. Boothby, supra, 6 Cal.App.4th at p. 1598 

[“accumulation of vacation time does not depend on an agreement 

which expressly permits it[;] . . . unused vacation accumulates 

unless the employment agreement legally prevents it”].)

In any event, we need not decide whether vacation wages 

are earned under an unlimited policy—whether “uncapped time 

off equate[s] to ‘vested vacation’ ”—as that is not the policy here. 

Not only was EF’s policy not in writing, but the record 

demonstrates EF never told plaintiffs it had an “unlimited” 

vacation policy or that their paid time off was not part of their

compensation. EF may call its vacation policy “unlimited” or 

“uncapped,” but substantial evidence supports the trial court’s 

finding that it was not. 

Advanced Micro Devices, Inc. (2011) 197 Cal.App.4th 1505, 1519 

[unlike paid vacation, other types of paid leave, such as sick 

leave, bereavement leave, or paid holidays vest upon the 

occurrence of an event or condition or are limited to use for 

a specific purpose].) Moreover, because paid sick leave is not 

considered a form of “wages,” employers are not required to pay 

employees their unused sick leave on termination—accrued 

or not. (§ 246, subd. (g)(1).) In any event, we need not decide 

whether section 227.3 is sufficiently similar to section 233, 

as we conclude EF’s policy was not unlimited.
24

i. EF’s vacation policy had an implied limit

EF’s policy in practice was to give plaintiffs some fixed 

amount of vacation time. As the court said, EF expected 

plaintiffs to take vacation in the range typically available 

to corporate employees (such as two to six weeks), not an 

“unlimited” amount—for example, more than would be available 

under a traditional accrual policy—along the lines amici 

describe.16 See part 2.c. post. The trial testimony supports 

the court’s finding.

EHP operations manager Nicole Halverson testified she 

expected area managers would take “between two and four 

weeks” of vacation per year. When the court asked Halverson

if area mangers, in her experience, ever took more than four 

weeks off, she responded, “potentially.” She could not say with 

certainty, however, whether she was aware of any area managers 

who had taken more than four weeks off. She believed one of her 

area mangers may have “gotten somewhat close to that.” Smith 

also approved 20 days (four weeks) of vacation for Heimann 

before she retired; he believed that amount was reasonable and 

16 By “unlimited,” we do not suggest EF intended to permit 

area managers to take vacation 365 days a year. After all, the 

premise behind vacation pay is that it is deferred payment for the 

employee’s labor. And, as our Supreme Court has acknowledged, 

section 227.3 “does not purport to limit an employer’s right to 

control the scheduling of its employees’ vacations.” (Suastez, 

supra, 31 Cal.3d at p. 778, fn. 7.) But as amici have described 

them, and the trial court noted, one would expect unlimited time 

off policies at least to afford employees the ability to take longer 

or more frequent periods of time off than a traditional accrual 

policy or allow employees to work fewer hours in lieu of having 

more vacation days.
25

wanted “to make the last few months that she was working with 

[EHP] good.”

Plaintiffs—who collectively worked for a total of almost 40

years—presented evidence they took about two weeks of vacation 

each year on average,17 but the record established they never 

sought or received more than four weeks (20 work days), as the 

trial court found. Moreover, substantial evidence supports the 

court’s implicit finding that plaintiffs’ schedules precluded them 

from taking advantage of EF’s purported unlimited time off 

policy. (Cf. Dept. of Industrial Relations, DLSE Opn. Letter

No. 1991.01.07 (Jan. 7, 1991) p. 2, archived at <https://perma.cc/

8PTR-GKBU> [where policy places a cap on the accumulation of 

accrued vacation, “ ‘an employee must be given a fair opportunity 

to take vacation at reasonable periods of time so that he or she 

can stay below the cap and continue vacation accruals’ ”].)

For example, the trial court asked Heimann why she 

took two weeks of vacation each year rather than four weeks or 

something else. She responded, “Basically, it was approximately 

all the time I could take off based on my schedule. And I knew 

I was entitled to at least two weeks off because no one ever told 

me exactly how much vacation time I had.” She also testified 

that it would have been “nice to be able to take unlimited time 

off,” but professed “the restrictions of the job probably wouldn’t 

17 According to their testimony and trial exhibits, plaintiffs 

took fewer than two weeks in some years—e.g., six to nine days—

and more than two weeks in others—e.g., 11 to 14 days. Brenden 

took less vacation on average than the other plaintiffs because 

her husband’s busy season and children’s school schedule 

prevented her from taking vacation during EF’s nonpeak season.
26

have allowed [her] to take unlimited time off because [she] would 

not have been able to complete all [her] duties.”

McPherson testified similarly: “We were allowed to 

take vacation and get paid for that vacation. Certainly wasn’t 

unlimited and to the contrary it was very difficult to take much 

vacation at all due to the rigors of the job.” Former EHP regional 

director Joyce Dallam, who supervised area managers, testified, 

“It was very difficult for anyone to take any extended period 

of time. And most times, . . . [area managers] would take days 

added onto trips that the company gave us.” For example, area 

managers often added three or four extra days to the company’s 

annual November conferences, held in attractive travel 

destinations.

The testimony also established that EHP’s “peak season” 

started around April and lasted until the middle or end of 

August. Some regions, including McPherson’s and Brenden’s, 

also ran shorter winter programs in December, January, and/or 

February. During the peak season plaintiffs worked more than 

100 hours a week, seven days a week, up to 18 hours per day. 

Although plaintiffs’ heaviest workload was during the April to 

August peak season, they presented evidence they worked fulltime all year. Plaintiffs may have had more flexibility to take 

time off in the nonpeak season, but there was “still a lot of work 

. . . happening,” and no evidence they took extended vacations 

or substantially reduced their hours during that time.

McPherson moved from the area manager position to the 

program manager position in part because she “could no longer 

bear the burden of the[ ] hours.” She testified, “It was inhuman 

the amount of hours it required to have any kind of life.” 

Area managers also were encouraged to recruit host families 

throughout the year and to get work for the summer season 

finished earlier in the spring.
27

The court heard testimony from EF representatives, 

plaintiffs, and former and current EF employees about the 

nature of plaintiffs’ work. We can infer the court found credible 

plaintiffs’ description of the amount of work their jobs required

and their inability to take significant time off.

Moreover, the record simply does not show plaintiffs reaped 

the benefits that amici contend unlimited time off policies provide 

to employees.18 In contrast to the hypotheticals amici pose, there 

is no evidence plaintiffs’ schedule permitted—or EF would have 

approved—10 or 15 weeks off (or even three or four weeks at 

a time), significantly reduced hours during the off-peak season,

or months of vacation spread throughout the off-peak season.

18 Indeed, plaintiffs appear to have received fewer benefits 

under the “unlimited” time off policy than if the handbook’s 

accrual-based vacation policy had applied to them. The record 

does not suggest plaintiffs took more time off than they would 

have accrued had they been subject to the handbook’s policy. 

Under the handbook, plaintiffs would have been entitled to take 

20 days’ vacation after working for EHP for just one year. But 

there was no evidence plaintiffs ever took more than 20 days’ 

vacation per year or that they would have had insufficient 

accrued time to take the vacations they did, had the handbook 

applied. Moreover, at the time of their terminations, plaintiffs 

would have been entitled to between five and six weeks’ vacation 

per year (26 to 30 days). And, had they accrued vacation time 

they could not carry over, they would have been paid for it each 

year. Significantly, there is no evidence plaintiffs sought out

or negotiated for “unlimited” paid time off as an employment 

benefit, as amici assert is the current trend.
28

The record thus supports a finding that EF’s paid time off 

policy had an implied “cap” and was by no means “unlimited.”19 

As the trial court said, an employer cannot avoid section 227.3 

by leaving the amount of vacation time undefined in its policy 

while impliedly limiting the time actually available for approval.

ii. EF did not communicate the “unlimited” nature 

of its paid time off policy

Substantial evidence also supports the trial court’s finding 

that EF did not expressly convey the “unlimited” nature of its 

paid time off policy. In stark contrast to the accrual-based 

vacation policy in the EF handbook, which the parties agree did 

not apply to plaintiffs, EF conveyed its “unlimited” paid time off 

policy quite informally. According to the testimony, supervisors 

had a “side conversation” with newly hired area mangers to tell 

them about the vacation policy, or in some instances conveyed the 

policy by email. This is all plaintiffs were told: as area managers

they could take paid vacation outside of the busy season, but 

their vacation did not accrue.20 The only other parameters EF

clearly told plaintiffs were (1) they had to notify their supervisor 

before taking time off and ensure they could complete their work, 

and (2) they did not need to track their days off in the online 

system because they did not accrue vacation.

19 In so concluding we do not suggest EF engaged in a 

subterfuge to avoid section 227.3 or that the trial court found 

it did so.

20 The testimony established area managers could take time 

off during the peak season in limited circumstances with advance 

approval. Brenden received advance approval for a one week 

cruise to Alaska to celebrate her 30th wedding anniversary one 

June, for example.
29

But no one at EF, for example, told plaintiffs they did not 

accrue vacation because they—unlike employees subject to the 

accrual policy—could take as much vacation as they wanted. 

Although plaintiffs understood they could take time off when 

their schedule permitted, they testified they did not understand 

the policy to be “unlimited,” as EF contends it was.

21

Heimann testified no one told her she had unlimited

vacation or time off as either an area manager or the west coast 

manager. She said, “It would have been nice to know that.” 

“It would have been nice to have been able to take as much time 

as other salaried employees that had the same tenure as myself.” 

She knew she could take paid time off, but understood, “if I didn’t 

use the time, that I would lose it.” McPherson also testified 

she never was told she could “take as much vacation as [she] 

wanted.” She said, “I would have loved to have had as much 

[vacation] as my operations manager was receiving.” Former 

EHP employee Autumn Mostovoj, who supervised area managers 

at one point, also testified no one told her area managers were 

entitled to “unlimited vacation” or “unlimited time off at their 

discretion.” In fact, she found the policy “so confusing and 

so vague” that she used the vacation policy in the handbook 

to guide her even though she knew it did not apply to EHP 

area managers.

If EF intended to limit plaintiffs’ ability to earn vacation 

pay or treat their paid time off as something other than deferred 

21 Hart testified plaintiffs “were permitted to take as much 

or as little time off as they wanted.” He clarified they could take 

as much time as they wanted “[w]ithin reason to be able to still 

perform the duties of the job,” so as “[t]o not fall totally behind 

of their workload.”
30

wages, its “unlimited” policy had to be express and clear. (Cf.

Owen, supra, 175 Cal.App.4th at p. 470 [employer “[b]y making 

it clear in advance that vacation is not part of a new employee’s 

compensation” did not “run afoul of the rule that prohibits an 

employer from reducing an employee’s wages for services after 

the service has been performed” (italics added)]; Minnick, supra,

13 Cal.App.5th at p. 1007 [if “clearly stated” a policy that 

provides a waiting period before employee earns vacation is 

enforceable (italics added)].) It was not.

EF never expressly told plaintiffs that their ability to take 

paid vacation was not part of their compensation. EHP’s 2000 

and 2003 employee handbooks, “designed to address the unique 

needs of an at-home EF EHP employee,” refer to “[f]lextime,”

but they do not mention paid time off or vacation as part of that 

flextime. The paragraph on flextime states: “Since AMs [area 

managers] and RDs [regional directors] work at home, they are 

not required to hold specific ‘office hours.’ Instead, hours are 

determined more by the seasonal nature of the product. As with 

all salaried employees, AMs and RDs work the necessary number 

of hours to complete their work successfully.”22 The paragraph 

does not tell employees they may take unlimited paid time off 

as part of that “flextime,” or that their ability to do so is part of 

EF’s promise to allow flextime, not a promise of additional wages. 

And, as exempt employees, area managers were not subject to 

overtime, but expected to work as many hours as needed “to 

complete their work successfully.” EF may not have promised 

22 We understand this paragraph to refer to flexible daily 

hours, not an ability to take unlimited time off. For example, 

an area manager need not work the traditional 9:00 a.m. to 

5:00 p.m., but could work during any hours in the day or night.
31

plaintiffs a specific amount of vacation time, but it promised

them paid time off in some amount. Plaintiffs worked for EF 

in exchange for wages. Absent evidence to the contrary, under 

Suastez, those wages included the promised paid time off arising 

from the services they rendered during the year.

Moreover, EF’s policy gave plaintiffs no clear direction 

as to their rights or EF’s obligations under its “unlimited” paid 

time off policy. For example, EF did not warn plaintiffs of the 

consequences of failing to schedule a sufficient amount of time 

off, e.g., that they essentially would leave money on the table by 

working more hours for the same pay than those who scheduled 

more time off. (Cf. Owen, supra, 175 Cal.App.4th at p. 470 

[“courts have approved employer vacation policies that warn 

employees, in advance, that they will cease to accrue vacation 

time accumulated in excess of an announced limit” (italics 

added)].) And its policy was not written down anywhere, so 

plaintiffs had nothing to consult. (See generally Owen, and 

Minnick, supra, 13 Cal.App.5th 1000 [affirming express, written 

vacation policies with waiting periods].) 

Having failed to set out its purported unlimited vacation 

policy—or any limitations it imposed on earning vacation wages

—in a clear, express writing (or otherwise), EF has not 

demonstrated that section 227.3 does not apply to its policy 

of providing paid vacation to plaintiffs. (See Kirby, supra, 53 

Cal.4th at p. 1250 [courts must broadly construe employment 

statutes in favor of employees].)

c. Section 227.3 does not necessarily apply to all 

“unlimited” paid time off policies

Amici assert unlimited time off policies—which they 

contend do not result in vested vacation pay—“offer significant 

benefits to both employees and employers.” According to a 2019 
32

study amici provide, “[u]nlimited paid time off” is the “emerging 

benefit” that interests employees most.

Amici explain, through persuasive hypotheticals,

23 how the

unlimited policies they describe intentionally allow for different

employees doing the same job to take varying amounts of paid 

time off so that each employee may organize his or her time 

differently. Some may work longer hours and on weekends to 

be able to take more frequent and longer vacations throughout 

the year, while others may take fewer and shorter vacations to 

avoid working evenings and on weekends. In industries with a 

defined season, like accounting, employees may take significant 

time off during the off-season, having worked long hours during 

the busy season. As amici note, under an unlimited time off

policy, “[e]mployees are trusted to fulfill their job responsibilities 

and are otherwise free to come and go.”

23 Amici posit a hypothetical unlimited-leave policy where 

attorneys in a law firm can take unlimited time off during 

the year as long as they bill 2,000 hours. In the example, one 

associate—devoted to skiing and surfing—averages nine hours

of work a day, six days a week. At that pace, the attorney “can 

take 15 weeks of paid time off to ski and surf, and still meet his 

billable-hour budget.” At the other end of the spectrum, another 

attorney—a parent with family demands—averages eight hours 

of work on weekdays and does not work on weekends. Because 

he chooses to work fewer hours to spend time with his family, 

it will take him 50 weeks to bill 2,000 hours, so he takes just 

two weeks of vacation. The attorneys obviously benefit from the 

described unlimited-leave policy: the surfer-skier can take more 

than three months of vacation every year—an amount unheard of 

in a traditional accrual policy—and the parent can work fewer 

hours each week, freeing up evenings and weekends, in lieu of 

taking more vacation that he most likely would have accrued 

under a traditional policy.
33

We appreciate the benefit and understand the appeal 

the unlimited time off policies amici describe may have to some

employees. In concluding section 227.3 applies to EF’s vacation 

policy, we do not hold that section 227.3 necessarily applies to

truly unlimited time off policies. Such a policy may not trigger 

section 227.3 where, for example, in writing it (1) clearly provides 

that employees’ ability to take paid time off is not a form of 

additional wages for services performed, but perhaps part of 

the employer’s promise to provide a flexible work schedule—

including employees’ ability to decide when and how much 

time to take off; (2) spells out the rights and obligations of 

both employee and employer and the consequences of failing to 

schedule time off; (3) in practice allows sufficient opportunity for 

employees to take time off, or work fewer hours in lieu of taking 

time off; and (4) is administered fairly so that it neither becomes 

a de facto “use it or lose it policy” nor results in inequities, such 

as where one employee works many hours, taking minimal time 

off, and another works fewer hours and takes more time off. 

Unlimited paid time off under such a policy—depending on 

the facts of the case—very well may not constitute deferred 

compensation for past services requiring payment on termination 

under section 227.3.

d. Substantial evidence supports the court’s calculation 

of plaintiffs’ vacation wages

EF assigns several errors to the trial court’s finding that 

“20 days of vacation vested annually for each plaintiff, and any 

unused portion is payable at termination.” Substantial evidence 

supports the court’s finding.

i. The court’s finding that 20 days of vacation 

vested annually was proper 

EF contends the court erred by determining how much 

vacation vested annually based on the amount of vacation 
34

“ ‘actually available’ ” to plaintiffs. EF again relies on McCarther

where the Supreme Court rejected the Court of Appeal’s 

reasoning that an employer could calculate the amount of 

kin care required under section 233 based “on the amount of 

sick leave that the employee actually utilizes in one year.” 

(McCarther, supra, 48 Cal.4th at pp. 112-113.) As we have 

discussed, the Legislature made clear its intent that kin care 

available under section 233 be precisely ascertainable, while 

section 227.3 includes no such limitation on determining the 

amount of paid vacation due under the statute. (McCarther, at 

p. 111 [Legislature intended to limit section 233 “to employers 

that provide a measurable, banked amount of sick leave,” because 

the statute requires the amount of sick leave employers must 

allow employees to use for kin care to be calculated based on 

incrementally accrued time.].) We thus find McCarther’s holding

inapplicable to section 227.3, which does not require the amount 

of annual paid vacation time to be precisely ascertainable from 

the employer’s policy.

EF also argues the trial court arbitrarily chose the highest 

number of vacation days approved for one plaintiff and imposed 

its own policy judgment that EF should have expressly defined 

the amount of vacation plaintiffs could take. We reject EF’s 

contentions. As the court said, EF’s failure to define its vacation 

policy was “a problem of proof.” Having concluded EF’s policy 

was subject to section 227.3—a conclusion we affirm—the court 

had to determine the amount of vacation time that vested 

each year as plaintiffs worked. The court’s consideration of 

the parties’ conduct to determine that amount, where EF’s policy 

did not expressly provide for it, was proper. (See, e.g., Civ. Code,

§ 1655 [“Stipulations which are necessary to make a contract 

reasonable, or conformable to usage, are implied, in respect to 

matters concerning which the contract manifests no contrary 
35

intention.”]; Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 

336-337 [absent express agreement, parties’ conduct may 

evidence their understanding of particular employment terms, 

which “must be determined from the ‘totality of the 

circumstances’ ”]; Binder v. Aeta Life Ins. Co. (1999) 75 

Cal.App.4th 832, 852-855 [determining parties’ implicit meaning 

of “good cause” based on circumstances and conduct where 

parties impliedly agreed to terminate employment only for 

good cause].)

In Binder, the employer agreed not to terminate the 

employee except for good cause, but there was no “particularized

agreement” on what constituted good cause. (Binder, supra, 

75 Cal.App.4th at pp. 852, 853-854.) The trial court, therefore, 

was required “to supply a meaning which [was] reasonable under 

the circumstances” by considering the parties’ conduct and the 

surrounding circumstances. (Id. at pp. 852, 855.) The court 

had to do the same here. EF agreed to provide paid vacation 

to plaintiffs, but there was no “particularized agreement” on the 

amount of annual vacation to which plaintiffs were entitled. The 

court thus considered the parties’ conduct and the circumstances 

to imply that term.

Substantial evidence supports the court’s finding that EF 

impliedly agreed plaintiffs were entitled to at least 20 days’ paid 

vacation annually under its undefined policy. EF’s management 

expected area managers would take up to four weeks’ vacation, 

and EF actually approved 20 days’ vacation at least once. 

Moreover, as EF created the “problem of proof,” the court’s 

decision to calculate the amount of vested vacation time plaintiffs 

earned each year based on the maximum amount of paid vacation 

that had been approved was reasonable. (Cf. Civ. Code, § 1654 

[“language of a contract should be interpreted most strongly 

against the party who caused the uncertainty to exist”].
36

Because we conclude substantial evidence supports the 

court’s finding that 20 days of annual paid vacation was available 

to plaintiffs, we need not reach the issue of whether the 

Legislature intended section 227.3’s “ ‘principles of equity and 

fairness’ ” provision to apply in these circumstances.24

ii. The court did not err in calculating the amount 

of vacation wages EF owed plaintiffs

Substantial evidence also supports the court’s findings 

on the amount of vacation time each plaintiff actually used and 

the amount of vested time each had not used at the time of her 

termination. The court assessed plaintiffs’ credibility, considered 

the records submitted in evidence, and took into account failures 

of recollection elicited through cross-examination. The court 

found Heimann’s testimony particularly credible. As for

McPherson and Brenden, the court added eight days to the 

amounts of vacation each of them recalled they took each year

to account for misrecollections. Plaintiffs’ testimony is not

unbelievable to reasonable minds; thus, we are bound by the 

court’s credibility determinations.25

24 We do not find the court’s decision not to apply the 

handbook (and the accrual caps) inequitable or arbitrary. Had 

the handbook applied to plaintiffs, they would have received 

20 days’ vacation after one year and more than 20 days’ vacation 

after their fourth year of service. And, they would have been paid 

for any time they did not use and could not carry over.

25 EF contends plaintiffs have “invented” a standard to 

require vacation wages be paid when “there is a ‘reasonably 

ascertainable floor and ceiling for vacation entitlement.’ ” Amici 

contend the court’s calculation method will result in setting an 

employer’s liability for vacation wages on the amount of vacation 

its employees “chose to take” instead of its policy. EF’s and 
37

iii. Plaintiffs’ vacation wages are not time-barred

Finally, EF argues we should follow this district’s decision 

in Sequeira v. Rincon-Vitova Insectaris (1995) 32 Cal.App.4th 

632, 636-637, and find the statute of limitations bars plaintiffs’ 

claim for vacation wages that vested more than four years before 

their termination. We are not bound by Sequeira and decline to 

follow it. As the parties note, more recent court opinions have 

held a plaintiff’s cause of action for unpaid vacation wages does 

not accrue until the employee leaves her employment. (Church 

v. Jamison, supra, 143 Cal.App.4th at pp. 1572, 1576; Soto v. 

Motel 6 Operating, L.P. (2016) 4 Cal.App.5th 385, 391-392.) 

The trial court did not err when it followed Church and awarded 

plaintiffs vacation wages for the entire length of their

employment.

3. On this record, section 206.5 precluded Brenden’s 

general release from releasing her vacation wage 

claims

When EF terminated Brenden’s employment, she

negotiated and received a severance payment equal to three 

months’ salary ($11,362.50). The letter agreement Brenden 

signed included a general release of all claims, including those 

“under any federal or state labor . . . law[ ],” as well as an 

express waiver of her rights under Civil Code section 1542.26

Amici’s contentions are unfounded. The court’s approach to 

determine the amount of vested vacation time here was limited 

to the specific facts before it. We do not read the court’s ruling, 

or plaintiffs’ argument, to propose a standard to be applied to all 

“unlimited” vacation policies. 

26 At the time, Civil Code section 1542 provided, “A general 

release does not extend to claims which the creditor does not 

know or suspect to exist in his or her favor at the time of 
38

The agreement also stated: “You acknowledge that you have 

received your salary through September 30, 2015. No additional 

payments will be due or made to you for salary, bonus, 

commissions, benefits, severance, vacation, personal days,

or otherwise other than as specified in this agreement.” EF 

contends this release Brenden signed as a condition of receiving 

her severance payment—a payment to which she was not 

otherwise entitled—bars her vacation pay claims, and as a 

matter of law section 206.5 thus did not invalidate the release.

Section 206.5 prohibits an employer from requiring an 

employee to release a claim for wages that are due and unpaid

unless it has paid those wages. (§ 206.5, subd. (a).)27 Section 

206.5 thus provides an exception to a general release of wage 

claims—known or unknown. That exception is limited, however. 

Wages are not considered “due” under the statute if the employer 

and employee have “a bona fide dispute” as to whether they are 

owed. (Chindarah v. Pick Up Stix, Inc. (2009) 171 Cal.App.4th

796, 803 (Chindarah).) Section 206.5 therefore does not preclude 

an employer and employee from “ ‘compromis[ing] a bona fide 

dispute over wages.’ ” (Chindarah, at pp. 801, 803 [finding 

release valid and explaining that, although statutory right to 

receive overtime is unwaiveable, no statute prevents an employee 

from releasing “his claim to past overtime wages as part of a 

executing the release, which if known by him or her must have 

materially affected his or her settlement with the debtor.” (Stats. 

2004, ch. 183, § 28.)

27 Under section 206, “In case of a dispute over wages, the 

employer shall pay, without condition . . . all wages . . . conceded 

by him to be due, leaving to the employee all remedies he might 

otherwise be entitled as to any balance claimed.”
39

settlement of a bona fide dispute over those wages”].) 

Accordingly, an employer may obtain a valid release as part of 

a compromise of an employee’s wage claim, without paying the 

full amount of wages claimed, if the employer has a good faith 

dispute that it does not owe the unpaid wages. (Watkins v. 

Wachovia Corp. (2009) 172 Cal.App.4th 1576, 1587 (Watkins).)

The trial court concluded Brenden’s release was invalid 

under section 206.5 as to her vacation pay claims because “no 

vacation-pay dispute . . . was being settled at the time of the 

release.” In other words, no bona fide dispute as to vacation pay 

existed between EF and Brenden. The court relied on Watkins in 

reaching its conclusion. There, another panel of this court found 

an employee validly released her wage claims when she “believed 

she possessed a claim for further overtime pay” and elected to 

receive “enhanced severance benefits” in exchange for releasing 

all her claims against her employer. (Watkins, supra, 172 

Cal.App.4th at pp. 1586-1587.) The trial court here reasoned

the court in Watkins “would have no reason to emphasize the 

employee’s belief that she possessed an overtime pay claim if that 

belief were not required for a valid release. That requirement 

makes some sense, in that otherwise an employer could—with 

regard to any employee—pay all the wages that it believed ‘due’ 

as consideration for a broad waiver of all other claims.”

We agree. California courts may “routinely enforce 

releases of disputed wage claims” as EF contends, but as 

plaintiffs note, in those cases the releases arose from pending 

wage disputes or litigation where actual controversies existed 

between the parties. (Watkins, supra, 172 Cal.App.4th 1576; 

Chindarah, supra, 171 Cal.App.4th at p. 803; Villacres v. ABM 

Industries Inc. (2010) 189 Cal.App.4th 562, 569, 589 [courtapproved settlement of wage claims applied to later litigation 

of same cause of action]; Nordstrom Com. Cases (2010) 186 
40

Cal.App.4th 576, 579 [court-approved settlement of commissions 

claims]; Aleman v. Airtouch Cellular (2012) 209 Cal.App.4th 556, 

564-565, 578 [enforcing one plaintiff’s release of all claims 

made while lawsuit for reporting time and split-shift wages was 

pending where releasing plaintiff argued “ ‘she was undisputedly 

entitled’ ” to reporting time and split-shift pay, but defendant 

disputed the claims]; Shine v. Williams-Sonoma, Inc. (2018) 

23 Cal.App.5th 1070, 1077 [plaintiff collaterally estopped from

bringing reporting-time pay claim against employer based on 

settlement of earlier-filed class action for failure to provide meal 

and rest periods, overtime and minimum wages, timely wages, 

and final paychecks because reporting-time claim—which is a 

claim for wages due—could have been raised in earlier action

and employer disputed it owed reporting-time pay].) 

EF contends the trial court’s own findings that EF had a 

good faith dispute as to whether it owed vacation wages, and its 

payment to Brenden of “the amount of wages that it conceded 

was due at the time,” takes Brenden’s release outside of section

206.5 as a matter of law. We disagree. The court’s finding of a 

“good faith dispute” concerned its conclusion that waiting time 

penalties under section 20328 were unwarranted because EF 

28 An employer who willfully fails to pay an employee her 

wages after her employment ends must continue to pay the 

wages in the form of waiting time penalties. (§ 203, subd. (a); 

Cal. Code Regs., tit. 8, § 13520.) Waiting time penalties cannot 

be assessed against an employer who has “a good faith dispute 

that any wages are due,” however. (Cal. Code Regs., tit. 8, 

§ 13520.) For purposes of section 203, an employer has a “ ‘good 

faith dispute’ ” if it “presents a defense, based in law or fact 

which, if successful, would preclude any recovery” by the 

employee. (Cal. Code Regs., tit. 8, § 13520, subd. (a).)
41

“had a good faith dispute as to whether vacation wages were due”

given the “absence of on-point authority about undefined-amount

vacation policies.” In other words, the trial court concluded 

EF did not willfully withhold wages from plaintiffs, including

Brenden.

That finding, however, does not require us to conclude a 

bona fide dispute over wages existed for purpose of determining 

if section 206.5 invalidated Brenden’s release of her vacation pay 

claims. A “dispute” is “[a] conflict or controversy . . . .” (Black’s 

Law Dict. (11th ed. 2019) p. 593.) It necessarily requires two 

competing sides. So, for there to have been a releasable bona fide 

“dispute” over Brenden’s vacation wages, there must have been a 

disagreement between the parties about her right to those wages.

But when Brenden signed the severance agreement neither she 

nor EF knew EF owed her unpaid vacation wages. No conflict 

existed between them over vacation pay or any other earned, 

but unpaid wages, for that matter. There is no evidence that—

during the severance payment negotiations or when she signed 

the release—Brenden asserted an entitlement to vacation wages 

that EF disputed or that EF told Brenden she was not entitled 

to vacation wages that she asserted were owed.

The opening paragraph of the severance agreement 

confirms it was not a settlement of a disputed wage claim:

“We want you to know that your work here has been appreciated 

and in order to assist you as you make the transition to new 

employment, we would like to offer you the following package.” 

Paragraphs containing the severance payment, release, and other 

provisions follow. The release is made “[i]n exchange for salary 

continuation,” but nowhere does the agreement state its purpose

includes resolving a wage dispute between the parties. (See, e.g.,

Reynov v. ADP Claims Services Group, Inc. (N.D.Cal., Apr. 30, 

2007, No. C 06-2056 CW) 2007 U.S. Dist. Lexis 31631 at p. *3
42

(Reynov), relied on by EF [agreement’s stated purpose to provide 

employee “ ‘certain benefits that you would not otherwise 

receive, and resolve any remaining issues between you and 

[employer]’ ”].) Hart even increased Brenden’s severance 

payment from two months’ to three months’ salary after 

Brenden asked him, “Can you see it in your heart to give me 

three months[’] salary?”

In other words, Brenden did not accept the severance 

payment after negotiating “the consideration [she was] willing to 

accept in exchange” for her release of “claims for disputed wages.”

(Nordstrom Com. Cases, supra, 186 Cal.App.4th at p. 590 

[“Employees may release claims for disputed wages and 

may negotiate the consideration they are willing to accept in 

exchange.”].) Because Brenden released a claim for past wages 

EF owed her where no dispute over those wages existed, the trial 

court did not err in finding the release void as to her vacation pay 

claim under section 206.5. 

We do not find Brenden’s release is invalid in any other 

respect. We also do not hold a subjective belief in or enumeration 

of the specific wage claim necessarily is required at the time 

an employee signs a release of wage claims.29 We reject EF’s 

29 For example, in one of the unpublished federal cases on 

which EF relies the district court found a general release valid 

as to an employee’s allegedly unknown overtime claim based 

on his misclassification as an exempt employee. (Reynov, supra, 

2007 U.S. Dist. Lexis 31631.) Although there was evidence 

the employee was aware of his overtime claim, the court found 

the employee’s claimed lack of knowledge did not invalidate 

the release because the employer’s defense that the employee 

was exempt and not owed overtime created a good faith dispute.

(Id. at p. *10 & fn. 4.) There, however, the employee had 

complained to an attorney about the employer’s “ ‘Labor Code 
43

contention that finding the release here void under section 206.5

will result in nullifying express waivers of Civil Code section 

1542. An employee may agree to waive her rights and release 

unknown claims to settle a bona fide disagreement over whether 

her employer owes her wages. Based on the existing case law, 

however, there must exist at least a “bona fide” or “good faith” 

dispute between the parties at the time the employee releases 

a claim for past wages for the release to be valid under section 

206.5.

We also conclude the trial court did not err when it 

found EF not entitled to an offset of Brenden’s damages for

the severance payment. As plaintiffs contend, EF may enforce 

the general release as to non-wage claims not affected by section 

206.5. The court reasonably could conclude the consideration EF 

paid Brenden also purchased the release of nonwage claims—age 

discrimination or contract-based claims, for example—and thus 

no offset was required.30

Violations,’ ” and preemptively retained the attorney to represent 

him “ ‘in all claims for violations of the Labor Code and any other 

related laws’ ” against the employer a month before quitting his 

job and signing the release in issue in exchange for a severance.

(Id. at p. *3.) An actual dispute over whether the employer 

violated the Labor Code thus existed between the parties. 

The employer also paid the severance in part to “resolve any 

remaining issues” between it and the employee. (Id. at p. *3.)

30 Although the trial court did not decide the issue, as 

Brenden argued to the trial court and argues on appeal, EF also 

waived its defense of offset by failing to plead it as an affirmative 

defense in its answer. (Walsh v West Valley Mission Community 

College Dist. (1998) 66 Cal.App.4th 1532, 1546 [answer must 

plead as an affirmative defense any matter “ ‘not put in issue 
44

4. The trial court erred when it found section 227.3 

applied to Heimann after she moved to Virginia

EF appeals from the judgment awarding Heimann vacation 

wages on the separate ground that section 227.3 did not apply 

to her after she moved to Virginia in 2005. EF thus argues that,

if we affirm the trial court’s finding that section 227.3 applied to 

EF’s unlimited paid time off policy, Heimann’s damages award 

must be reduced to exclude vacation wages earned after she 

moved. Although substantial evidence31 supports the trial court’s 

factual findings that Heimann’s work “focused on activities and 

people actually in California,” and she temporarily resided in 

California for “weeks or months consecutively,”32 we conclude 

by the plaintiff,’ ” or “ ‘not responsive to essential allegations 

of the complaint’ ”].)

31 Heimann testified she moved to Virginia in June 2005, 

where she continued to work as EHP’s west coast manager until 

she retired in October 2014. She managed a staff located in 

California, who helped her collect money from students for their 

optional trips. Heimann opened and maintained for EHP a 

California bank account where hundreds of thousands of dollars 

were deposited for the trips. She also supported EHP programs 

in Washington and Vancouver, but 90 percent of her job focused 

on groups in California.

Heimann worked from her home in Virginia, but returned 

to California annually for the busy summer season. EHP paid 

for Heimann to live in a dormitory at California State University 

Long Beach (CSULB) or a hotel. She also had an office at 

CSULB, where the EHP program was held. Each summer she 

hired two or three seasonal employees whom she managed in 

California.

32 Heimann worked in California for two to two and one-half 

months consecutively during the summer, from mid-June 
45

the court erred in its application of Sullivan v. Oracle Corp.

(2011) 51 Cal.4th 1191 (Sullivan) to find section 227.3 applied 

to Heimann after she became a Virginia resident.

California’s Legislature expressly has declared that “[a]ll 

protections, rights, and remedies available under state law . . . 

are available to all individuals regardless of immigration status 

. . . who are or who have been employed, in this state.” (§ 1171.5, 

subd. (a); Sullivan, supra, 51 Cal.4th at p. 1198.) Although the 

Legislature enacted section 1171.5 to protect undocumented 

workers “from sharp practices,” our Supreme Court has 

interpreted that section as expressing the Legislature’s desire to 

protect all individuals employed in the state regardless of their 

residency. (Sullivan, at p. 1997 & fn. 3 [“no reason exists to 

believe the Legislature intended to afford stronger protection 

under employment laws to persons working illegally than to 

legal nonresident workers”].)

In Sullivan, our Supreme Court answered certified

questions from the United States Court of Appeals for the Ninth 

Circuit “about the applicability of California law to nonresident 

employees who work both [in California] and in other states for 

a California-based employer.” (Sullivan, supra, 51 Cal.4th at 

p. 1194.) After performing a conflict-of-laws analysis, the Court 

held California’s overtime law applied to nonresident employees 

who performed full days and weeks of work in California. 

(Sullivan, supra, 51 Cal.4th at pp. 1201, 1206, italics added.) 

In so holding, the Court examined California’s “strong interest 

through late August. She also traveled to California for meetings 

in January or February and in April or September. She spent 

days or weeks in California in total outside the summer season.
46

in governing overtime compensation for work performed in 

California.” (Id. at p. 1201.)

The Court cautioned that, although it had found 

California’s overtime laws applied to nonresidents performing 

work within California’s borders, “one cannot necessarily assume 

the same result would obtain for any other aspect of wage law.” 

(Sullivan, supra, 51 Cal.4th at p. 1201, italics added.) The Court 

explained, “California’s interest in . . . an out-of-state business’s 

. . . treatment of its employees’ vacation time, for example, may 

or may not be sufficient to justify choosing California law over 

the conflicting law of the employer’s home state.” (Ibid.)

In concluding section 227.3 applied to Heimann, the trial 

court agreed Sullivan did not mean to apply California wage laws 

to “all work with some connection to California,” but found “the 

standard [was] not so high that the employee’s work must be 

‘entirely’ in California.” Sullivan, however, does not support 

the court’s implicit finding that California wage laws should be 

applied to work performed outside of California by a nonresident

even if that work is “focused on activities and people actually 

in California.” Indeed, Sullivan reached the opposite result. 

Although the Court held California’s overtime law applied to 

overtime work the nonresident plaintiffs performed in the state, 

it also held California’s unfair competition law (UCL) did not 

apply to “overtime work performed outside California for 

a California-based employer by [the] out-of-state plaintiffs.” 

(Sullivan, supra, 51 Cal.4th at pp. 1208-1209.) The Court 

concluded neither the language of the UCL nor its legislative 

history indicated the Legislature intended the UCL to apply 

to “ ‘ “occurrences outside the state.” ’ ” (Id. at p. 1207.)

As with the UCL, “[n]either the language of [section 227.3] 

nor its legislative history provides any basis for concluding the 

Legislature intended [section 227.3] to operate extraterritorially.” 
47

(Sullivan, supra, 51 Cal.4th at p. 1207 [presumption against 

extraterritorial application of state law].) Most of Heimann’s 

work may have been to support programs in California, but as 

a Virginia resident she did not perform most of her work in 

California. Based on the record, at most Heimann worked in 

California for about 12 to 13 weeks per year—about two months 

or so in the summer and additional days, or perhaps a week at 

a time, in January or February and in April or September. She 

thus spent at least 75 percent of her time performing work in 

Virginia from June 2005 to October 2014.

 At a minimum, therefore, section 227.3 does not apply 

to work Heimann performed in Virginia or in any other state 

outside of California. (Norwest Mortgage, Inc. v. Superior Court

(1999) 72 Cal.App.4th 214, 222 (Norwest Mortgage) [“we do not 

construe a statute as regulating occurrences outside the state 

unless a contrary intention is clearly expressed or reasonably 

can be inferred from the language or purpose of the statute”].)

That leaves the question of whether section 227.3 applies to

vacation time Heimann earned during the time she temporarily 

worked in California each year. No California decision has 

considered whether section 227.3 applies to a nonresident 

employee of a non-California employer who periodically worked

in California. In ruling section 227.3 applied to all work 

Heimann performed for EHP while a Virginia resident, the trial 

court overstated Sullivan’s description of California’s interest in 

applying its wage laws. Quoting from Sullivan, the trial court 

stated, “ ‘California has, and has unambiguously asserted, 

a strong interest in applying its [wage and hour] law . . . to all 

work performed, within its borders.’ ” The trial court replaced 

“overtime” with “wage and hour” and omitted “to all nonexempt 

workers.” Our Supreme Court actually declared, “California has, 

and has unambiguously asserted, a strong interest in applying its 
48

overtime law to all nonexempt workers, and all work performed, 

within its borders.” (Sullivan, supra, 51 Cal.4th at p. 1203.)

The trial court’s substitution and omission change the 

meaning of the quotation. The statement referred only to 

California’s asserted interest in applying its overtime laws to 

all nonexempt workers performing work in the state—not all

of its wage and hour laws to all work performed in the state.

Moreover, earlier in its opinion the Court expressly stated it 

was not deciding “the applicability of any provision of California 

wage law other than the provisions governing overtime 

compensation.” (Sullivan, supra, 51 Cal.4th at p. 1201.)

The Court also found “of doubtful validity” the employer’s 

“assumption that, if out-of-state employers must pay overtime 

under California law, they must also comply with every other 

technical aspect of California wage law,” including “the accrual 

and forfeiture of vacation time.” (Id. at pp. 1200, 1202.)

We share the Court’s doubt. We cannot conclude California 

intended section 227.3—a law that governs the payment of 

unused vested vacation time when an employee’s employment 

ends—to apply under the circumstances here: where a 

nonresident, exempt employee of a non-California employer 

has periodically performed work within California, has received 

no California wages, and has paid no California income taxes 

on any wages earned. 

First, we do not believe California has an interest in 

ensuring an employee who voluntarily leaves California to 

become a resident of another state is paid vacation wages at 

the end of her employment by a non-California employer when 
49

she worked temporarily within the state.33 Heimann was not 

a California wage earner from mid-2005 until her retirement. 

She described herself as “relocating” to California every summer. 

But the record does not support a finding that Heimann was a 

part-time resident of California as she and the trial court seem to 

imply. For purposes of the Revenue & Taxation Code, a resident 

is an individual in the state “for other than a temporary or 

transitory purpose.” (Rev. & Tax. Code, § 17014, subd. (a)(1).) 

An individual in California “to complete a particular transaction, 

or perform a particular contract, or fulfill a particular 

engagement,” requiring her presence here for “a short period,” 

is considered in the state for a temporary or transitory purpose. 

(Cal. Code Regs., tit. 18, § 17014, subd. (b).) The Franchise Tax 

Board gives the example of an executive who lives in New York 

with his family, but travels to California for business for one 

or two weeks at a time, for a total of six weeks a year, as a 

nonresident. (Cal. Franchise Tax Bd., Pub. No. 1031, Guidelines 

for Determining Resident Status (2018), at p. 5.) Essentially, 

“the state with which a person has the closest connection during 

the taxable year is the state of his residence.” (Cal. Code Regs., 

tit. 18, § 17014, subd. (b).)

Heimann gave up her status as a California resident 

when she moved to Virginia. She lived in California during the 

summer for a particular, limited business purpose—to oversee 

student trips for the summer program. EF paid for Heimann 

33 We do not suggest that California’s interest in protecting 

its employees from forfeiting vacation wages is not a strong one. 

We simply conclude there is no indication that California 

intended to apply its vacation pay law under these 

circumstances.
50

to stay in a hotel or a dormitory for the summer. She did 

not maintain a home in California or own any property here.

Heimann had her mail temporarily forwarded from Virginia 

to California each summer, but there is no evidence she 

permanently changed her address or residence status. She also 

gave up her California driver’s license and registered to vote 

in Virginia after she moved. Heimann opened and maintained 

a California bank account on behalf of EHP as part of her job, but 

nothing in the record shows she had a personal bank account in 

California after she moved. There is no evidence that Heimann 

maintained any close ties to California after she moved so that 

she could be considered a “resident” for part of the year.

Moreover, a part-time resident must pay California taxes 

on all income earned while a California resident, regardless 

of source, and on income earned from California sources while 

a nonresident.34 (Rev. & Tax Code, §17041, subd. (i)(1)(A) & (B) 

[tax imposed on part-time residents and nonresidents].) If 

Heimann were a part-year California resident, as she seems to 

contend, she would have been required to pay California income 

taxes on income she earned from EF during her California stay. 

She did not.35 It is undisputed that (1) Heimann was not paid 

34 Heimann received no wages from a California source—

her income from EF was from a Massachusetts source. (Cf. 

Appeal of Blair S. Bindley (Cal. OTA, May 30, 2019, No. 2019-

OTA-179P) 2019 WL 3804280, at pp. *1, 3, 6-7 [self-employed 

Arizona resident who performed work in Arizona for California 

LLC’s had taxable California-source income].)

35 Heimann testified she did not pay California income tax 

on income earned after she moved and did not file a California 
51

California wages for work she performed here while a Virginia 

resident; (2) she has not paid California income taxes since the 

2005 tax year; and (3) she has paid Virginia state income tax 

on her wages since 2005.

Nor was Heimann operating under a California 

employment contract after she moved to Virginia. EHP retained 

its area managers (including the west coast manager) from year 

to year, orally informing the manager about the company’s intent 

to retain her, followed up with a letter agreement. Heimann 

testified she usually (but not always) received offer letters for 

her west coast manager position annually. The record includes 

an October 2007 offer letter from EHP’s director of operations 

in Massachusetts sent to Heimann at her Virginia address, 

confirming her salary for that fiscal year. Nothing in the record, 

however, demonstrates Heimann received or accepted her annual 

employment renewal in California after 2005 so that she would 

have expected California law to apply to her employment after 

she moved.

The exclusion of a nonresident, temporary worker from 

section 227.3 does not implicate the same concerns as the

exclusion of nonresidents from California’s overtime laws. 

Although section 227.3 serves the important goal of ensuring 

California workers do not forfeit vacation wages when their 

employment ends, it does not protect workers’ and the public’s 

health and safety or “expand[ ] the job market by giving 

employers an economic incentive to spread employment 

throughout the workforce” as do California’s overtime laws. 

tax return after the 2005 tax year. At oral argument counsel 

confirmed Heimann never paid California income tax after she 

moved to Virginia.
52

(Sullivan, supra, 51 Cal.4th at p. 1198.) As the Sullivan Court 

explained, “[t]o exclude nonresidents from the overtime laws’ 

protection would tend to defeat their purpose by encouraging 

employers to import unprotected workers from other states.” 

(Ibid.) No such concern exists with section 227.3 on the facts 

here. EF did not “import” Heimann to work in California to avoid 

section 227.3. Heimann voluntarily moved from California, and 

EF let her keep her position even though it meant having to pay 

for Heimann to stay in California during the summer.

California’s overtime law and vacation pay law also apply

differently to nonresidents as a practical matter. California’s 

wage laws governing nonexempt employees—overtime, meal and 

rest breaks, etc.—apply as the employee performs work within 

the state. The moment the nonresident employee has worked 

more hours in a day or week than permitted, the overtime law’s 

application is mandatory unless a statutory exception applies. 

(§ 510, subd. (a).) Nor may the employee and employer contract

around the right to overtime. (Sullivan, supra, 51 Cal.4th at 

p. 1198, citing § 1194.)

The right to paid vacation, on the other hand, is governed

by contract. California does not require employers to provide 

paid vacation to employees. (Owen, supra, 175 Cal.App.4th at 

p. 468.) Thus, section 227.3 does not come into play unless (1) the 

employer’s contract or policy provides employees paid vacation, 

(2) the employee’s employment has terminated, and (3) the 

employee has unused, vested vacation time. An employer, 

therefore, will not know if it must pay unused vacation wages 

under California’s law to a non-California employee until she

quits, retires, is laid off, or is fired, and that may not happen

until long after the employee has performed any work in 

California. By contrast, an employer can determine immediately 

whether California’s overtime law is implicated.
53

It simply is not practical to require a non-California 

employer to apply section 227.3 to a non-California resident who 

periodically works in California. As EF notes, applying section 

227.3 in these circumstances would create an administrative 

nightmare the Legislature surely could not have intended. 

For example, an employer whose employee works on projects in 

different states not only would have to keep track of how much 

proportionate vacation time the employee earned in each state 

based on how long she worked in that state, but also treat those 

portions of vested vacation time differently depending on the law 

of the state where the vacation vested.

The employer also would have to determine which earned 

vacation days from which state the employee had used. Let’s 

assume an employee earned three weeks of vacation based on 

work performed in the state of Virginia, earned one week of 

vacation based on time worked in California, took one week of 

vacation that year, and then retired. Does the employer owe 

the employee nothing under section 227.3 because the employee 

used up the one week of vacation earned while in California? Or, 

must the employer split the used week between the time earned 

in California and in Virginia so that a portion of that week is 

considered unused and owing to the employee under section 

227.3? How would the employer decide whether the employee

had any unused vacation pay earned from work in California

when her employment ended? Applying section 227.3 under 

these circumstances would require the Legislature or courts 

to become involved in the administration of a non-California 

employer’s contractual vacation policy with nonresidents.

We do not find this tenable. 

These practical problems simply do not arise from 

Sullivan’s application of an hourly wage law to nonresidents 

temporarily working in the state. An employer like that in 
54

Sullivan could not be faced with applying two different overtime 

laws to an employee because the employee obviously cannot 

perform the same hours of work in two different states.

Because we conclude section 227.3 does not apply to 

vacation Heimann earned, but did not use, after she moved 

to Virginia in 2005,36 we need not engage in a conflict of laws 

analysis. (See Norwest Mortgage, supra, 72 Cal.App.4th at 

p. 228.)

Accordingly, Heimann’s damages for unpaid vacation 

wages must be reduced by the amount of vacation time she 

earned, but did not use, after she became a Virginia resident.

5. Substantial evidence supports the trial court’s 

finding that EF terminated McPherson’s employment 

on November 6, 2015

EF also appeals from the judgment awarding McPherson 

her unpaid salary for November 1 through 6, 2015. EF contends 

36 In any event, Heimann did not meet her burden to prove 

she had any unused, vested vacation pay arising from work 

she performed in California after she moved to Virginia. She 

presented no evidence the vacation time she earned but did 

not use was attributable to the proportion of vacation time she 

earned while working in California from mid-2005 through 2014. 

At most, Heimann earned a week (five work days) of vacation 

based on the roughly 12 weeks she spent in California. (Twelve 

weeks is almost 25 percent of a 52-week year, and 25 percent 

of 20 days of annual vacation is five days.) Based on Heimann’s 

estimates, the least amount of annual vacation she took from 

2005 to 2014 was nine days—more than the maximum number 

of days she could have earned proportionally from the time she 

spent in California each year. Accordingly, if EF first applied the 

vacation time Heimann earned from work in California to what 

she used each year, Heimann would have no unused, vested 

vacation time to pay out during that period.
55

the award must be reversed because (1) McPherson’s one-year 

program manager position expired on September 30, 2015, the 

end date stated in her offer letter, which coincided with the end 

of EF’s fiscal year, and (2) McPherson performed no work during 

November. The trial court concluded McPherson was terminated

not on September 30 but on November 6, 2015. Substantial 

evidence supports the trial court’s findings and judgment in 

McPherson’s favor.

EF contends McPherson’s employment automatically 

ended on September 30 because it was a “fixed-term employment 

contract.” EF relies on Schimmel v. NORCAL Mutual Ins. Co.

(1995) 39 Cal.App.4th 1282, 1285 (referring to nature of fixedterm employment contract in considering question of tort liability 

for nonrenewal of a fixed term insurance policy). Schimmel cited 

section 2920, which provides “employment is terminated by . . . 

[¶] [e]xpiration of its appointed term.” Here, however, the trial 

court concluded that—based on EHP’s conduct—“an objective 

employee in McPherson’s position would have concluded she was 

still employed” after September 30. The court heard extensive 

testimony and considered several exhibits on this issue. We infer 

it resolved any credibility issue in McPherson’s favor. The 

evidence, summarized below, supports the court’s findings.

McPherson admitted the program manager position was 

a fixed, one-year trial position that would end on September 30, 

2015. She also understood, through conversations with EHP 

management, that she and EHP would evaluate the pilot

program at the end of the year to decide whether to continue it. 

On September 15, 2015, after Hart told McPherson there was 

no budget to continue the program manager position, he invited 

her to propose a different position for the 2015-2016 fiscal year. 

She did so by email two days later. On September 23, 2015, 

Hart left McPherson a voicemail message that he needed more 
56

time to review her proposal. He said, “ ‘Terri, I wanted to let you 

know if the answer were “no” you would have heard it by now.’ ” 

He hoped she had not looked for another job and told her to 

“ ‘hang tight.’ ” He hoped his message had “put[ ] [her] at ease.”

We conclude, a reasonable person would—as McPherson did—

consider this statement from EHP’s president a confirmation 

that EHP was in fact considering her proposal to continue her

employment for the 2015-2016 year.

McPherson sent Hart an email telling him she could wait. 

In the weeks that followed, McPherson continued to do some 

work, held off on looking for another job, and emailed Hart more 

than once asking about her status. He did not respond. Nor did 

EHP tell McPherson her employment would terminate on 

September 30, 2015. McPherson never saw an email announcing 

her termination, as EHP had done when other employees left. 

EF continued to pay McPherson’s salary in October 2015, 

although Hart testified the payment was an “oversight.” Hart 

did not affirmatively tell McPherson there was no budget to keep 

her on in a different position for the 2015-2016 season until 

November 6, 2015. As the trial court found, before that date EHP 

acted as if McPherson remained employed while EHP considered

whether it was able to extend her employment.

Moreover, the record demonstrates EHP did not have 

a practice of letting its employees’ (or at least area managers’)

employment automatically terminate at the end of the fiscal year. 

For example, when McPherson’s position changed from area 

manager to program manager, she was not terminated and then

rehired. She remained employed after September 30 even 

though she did not receive her employment letter for the program 

manager position until December 1, 2014. Before McPherson

became a program manager, she received letters each year 

renewing her employment for the next fiscal year. The letters
57

often did not arrive until October, November, or December. 

Instead, before the end of the fiscal year, EHP let McPherson 

know whether her contract would be renewed. Hart also

confirmed it was customary to renew area managers’ contracts 

after the fiscal year’s end.

Given the parties’ discussion of the possibility of another 

position, Hart’s assurances, EHP’s practices surrounding the 

renewal or nonrenewal of annual contracts, and EHP’s continued 

payment of McPherson’s salary, the trial court reasonably 

concluded EF did not terminate McPherson’s employment until 

November 6, 2015, when it told her it was doing so.

We also reject EF’s contention that McPherson is not 

entitled to her wages from November 1 to 6, 2015, because 

she was on vacation in New Orleans and performed no work.

As noted, the trial court reasonably concluded McPherson’s 

employment did not end until November 6. Under EF’s paid time 

off policy, McPherson was required only to notify her supervisor 

when she wanted to take time off, unless it was the busy season. 

November was not the busy season, and McPherson informed 

Hart of the days she was taking off and where she was going. 

That time was legitimate paid time off, according to EF’s policy, 

for which McPherson was not compensated.

6. The attorney fees award

EF contends that, if we reverse part of the judgment, 

we also must reverse the court’s postjudgment order awarding 

plaintiffs attorney fees. Although EF did not file a notice of 

appeal from that award—and thus we lack jurisdiction to review 

it—“this does not mean that an award of attorney fees to the 

party prevailing stands after reversal of the judgment.” (Allen v. 

Smith (2002) 94 Cal.App.4th 1270, 1284; see Ventas Finance I, 

LLC v. Franchise Tax Bd. (2008) 165 Cal.App.4th 1207, 1233-

1234 [reversing postjudgment order awarding attorney fees 
58

because court could not “say with certainty that the [trial] court 

would exercise its discretion the same way” in light of partial 

reversal of judgment].) Rather, “ ‘[a]n order awarding costs falls 

with a reversal of the judgment on which it is based.’ ” (Allen, 

at p. 1284.) Accordingly, the trial court should consider whether 

to modify the attorney fee award in light of our partial reversal 

of the judgment as to Heimann.

DISPOSITION

The judgment is reversed in part as to the amount 

of damages awarded Heimann for unpaid vacation wages. 

We remand the matter to the trial court with directions to 

(1) recalculate Heimann’s damages and prejudgment interest by 

excluding from that award any unused vacation time that vested 

after she moved to Virginia in June 2005; and (2) conduct further 

proceedings on whether to modify the attorney fee award in light 

of our partial reversal of the judgment. The judgment is affirmed 

in all other respects.

The parties are to bear their own costs on appeal.

CERTIFIED FOR PARTIAL PUBLICATION

EGERTON, J.

We concur:

LAVIN, Acting P. J. DHANIDINA, J.