A California Court of Appeal recently addressed the issue of when the statute of limitations begins to run in an employee’s claim that his employer failed to compensate him for unused vested vacation time. The Court of Appeal held that the statute of limitations did not begin to run until the employee was terminated from his employment. (Church v. Jamison,, (06 Cal. Daily Op. Serv. 9880, Cal.App. 5 Dist., Oct. 23, 2006 (No. F048224))
Facts
John Church worked for Wilcox, Hokokian & Jackson (“Wilcox”) from May 1, 1998, through May 1, 2001. Church filed a lawsuit on April 30, 2002, alleging, among other things, that Wilcox violated the Labor Code because it failed to pay him for unused vacation time earned during his employment. A trial court granted judgment in favor of Wilcox on the ground that Church’s claim was barred by the applicable statute of limitations. Church then filed a malpractice lawsuit against the attorney who filed his lawsuit against Wilcox. The trial judge in the malpractice case found that Church’s cause of action for the Labor Code violation was not time-barred and, therefore, the attorney did not fail to timely file the lawsuit.
Decision
Labor Code section 227.3 provides, in part, that when “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.” The Court of Appeal concluded “termination of employment is the event that converts an employer’s obligation to allow an employee to take vacation from work into the monetary obligation to pay that employee for unused vested vacation time.” Therefore, the Court concluded, Church’s cause of action to enforce his right to be paid for the unused vacation time did not vest until his termination date. The Court further concluded that Church could not have filed a lawsuit to enforce his right to unpaid vacation time earlier than May 1, 2001.
The Court noted that there are three statutes of limitations that might apply to an employee’s claim for payment for unused vacation time. If the employment contract at issue is oral, a two-year limitations period applies. If the employment contract is written, a four-year limitations period applies. If the obligation to pay for unused vacation time is created by statute, a three-year limitations period applies. Here, the Court declined to determine which period applied because the lawsuit was filed within one year after Church’s employment was terminated and, therefore, “was filed within all of the potentially applicable limitation periods.”
The Court pointed out that its analysis conflicts with a previous decision of a California Court of Appeal and the position taken by California’s Division of Labor Standards Enforcement (DLSE). In Sequeira v. Rincon Vitova Insectaries, Inc., (1995) Cal.App.4th 632, an employee sought to recover payment for unused vacation time that he had accumulated during his 12 years of employment. The Sequeira Court held that the employer only had to pay for unused vacation time that the employee had earned but had not taken in the four years prior to his termination. The Sequeira Court based its decision on the ground that the “vacation time earned prior to that period was barred by the four-year statute of limitations applicable to written contracts.” In reaching its decision, the Sequeira Court relied on a DLSE bulletin which concluded “the statute of limitations begins to run as the vacation is earned or at the point when the employee is eligible to take the vacation because the employee can take an affirmative step to enforce his or her right to the vacation simply by using it.”
The Court noted that after the Sequeira decision was handed down, the California Supreme Court announced that the DLSE interpretive policies contained in its manual are void and courts should no longer give them deference. The Court also rejected a DLSE position that the statute of limitations should apply twice; “once at the outset of the review of the claim to limit the time within which the claim may be brought after termination, and again to limit the time–measured from the date of termination backward–the liability of the employer exists.” The Court determined that this DLSE policy is based on the idea that an employee has an obligation to use his or her vacation. The Court, however, concluded that no such obligation exists. The Court further determined that the policy runs contrary to well-established principles that the statute of limitations begins to run only when a cause of action accrues and that a cause of action based on a breach a contract does not accrue until a breach of contract actually occurs. The Court concluded “that the earning of vacation does not create a breach of contract.” The breach does not occur until the employment is terminated and the employer fails to pay the employee for his or her unused vacation time.
Accordingly, the Court held Church’s attorney did not commit legal malpractice because he filed the lawsuit within the applicable limitations period.
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