The following article appeared in the February 28, 1983 issue of the Los Angeles Business Journal

In what appears to be a sharp reversal of its earlier interpretation, the California Department of Industrial Relations has narrowed its broad guidlines established after last July's State Supreme Court decision on employee vacation pay, the Business Journal has learned.

In Suastez v. Plastic Dress-up Co., the court held that employers must give terminated workers a pro-rata share of vacation pay -- even if company vacation policy or other written labor agreements conflict with the ruling.

Now, however, the industrial relations department has altered its previous interpretation. It reversed a section of the state's labor code that granted this protection to employees covered by collective bargaining agreements. A department spokesman confirmed the reversal without additional comment.

However, Roger H. Schnapp, a parter in the Costa Mesa-based law firm of Rutan & Tucker, which specializes in labor law, does not believe the reversal goes far enough nor will affect that many employees.

He has drafted his own bill, which he hopes will be introduced in the California Legislature in this session, which would "reverse the Suastez ruling, totally and completely.

"Unless the legislature acts," he says, "I'm pessimistic that the California Supreme Court will read it [section 227.3 of the state's labor code] as covering situations where there is a labor agreement, as well as those where there isn't.

The Suastez case did not argue whether terminated employees are entitled to pro-rata vacation pay, but what constitutes vested vacation time, Schnapp explains. The defendants contended section 227.3 of the California Labor Code allows the employer's policy to determine the time of vesting.

But the court ruled that the statute permits the employer's policy to determine only the amount of vacation pay an employee is entitled to. Annual paid vacation, the justices opined, is not a gift or gratuity but additional wages for work performed which vests much like pension funds, as it is earned throughout the year.

Hence, they declared, an employee who works for some part of a year has a vested right to a proportionate share of

[Picture of Roger Schnapp followed by the words, "Schnapp: Not far enough"]

his or her vacation pay, and any vacation policy that denies terminated workers this benefit because they were not employed on a certain date or were not employed long enough is illegal.

The guidelines at issue never were announced formally, but were contained in an internal memorandum circulated by the-State Labor Commissioner Patrick Henning after the court denied a petition for rehearing Suastez on Sept. 22, Schnapp says. "These guidelines went well beyond the decision -- among other things, extending Suastez to employees covered by collective bargaining agreements."

Employers groups protested, claiming the State Industrial Relations Department went too far because the plaintiff in Suastez was not covered by a collective bargaining agreement. On Dec. 20, a coalition of employers associations filed suit in U.S. District Court for an injunction preventing the department from enforcing the guidelines.

The suit is still pending, but Schnapp believes the department's reversal "may be related to [the difficult of] defending the district court lawsuit" and the change of administrations in Sacramento. After the George Deukmejian administration arrived in January, along with a new State Labor Commissioner, "there was a decision that the Henning position was no longer going to be the department's policy."

Schnapp says eh and other lawyers here believe the state's highest court "misconstrued the legislature's intention with respect to section 227.3

"The statute makes it clear that the legislature's original intention was to permit employers to establish policies governing vacation vesting," he argues. "We're going to make it clear that if you have a written policy or labor agreement, then that governs."

Nevertheless, an ex-employee not covered by a collective bargaining agreement could take his former employer to court, Schnapp says.

"An employer can't take a lot of heart from a reversal because his employee is still likely to sue. And," the lawyer-counsels, "he [the employee] has a good chance of winning."