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Eric Paton et al v. Advanced Micro Devices

August 5, 2011


Trial Court: Santa Clara County Superior Court Superior Court No. 1-07-CV084838 Trial Judge: Hon. Jack Komar

The opinion of the court was delivered by: Premo, J.


(Santa Clara County Super. Ct. No. 1-07-CV084838)

I. Introduction

Plaintiff Eric Paton, on behalf of himself and a class of others similarly situated sued his former employer, defendant Advanced Micro Devices, Inc., alleging that defendant had failed to pay him for an eight-week sabbatical he had earned but not used by the time he resigned. Under defendant's sabbatical policy, salaried employees with seven years of service were eligible for an eight-week fully paid sabbatical. The leave was forfeited if the employee did not use it before employment terminated.

Plaintiff claimed that defendant's sabbatical program was really just extra vacation and under Labor Code section 227.3,*fn1 an employer may not require an employee to forfeit vested vacation pay. Citing Suastez v. Plastic Dress-Up Co. (1982) 31 Cal.3d 774 (Suastez), plaintiff claimed that his right to the sabbatical had vested over the seven years he worked for defendant and, therefore, he was entitled to be paid for it when he resigned. Class members who had worked for less than seven years were entitled to be paid for the unused sabbatical in proportion to the time they had worked.

The trial court granted defendant's motion for summary adjudication (Code Civ. Proc., § 437c), finding, as a matter of law, that the sabbatical program offered a true sabbatical that was not subject to section 227.3 and Suastez. We conclude that on this record the issue cannot be decided as a matter of law. Accordingly, we shall reverse.


Under sections 201 and 202, an employer must pay an employee all wages earned and unpaid at the time, or soon after, employment terminates. (§§ 201, subd. (a), 202, subd. (a).) Although an employer is not required to offer paid vacations, if the employer does offer vacation, section 227.3 provides that if an employee is terminated without having taken his vested vacation time, "all vested vacation shall be paid to him as wages at his final rate" and the employer's policy "shall not provide for forfeiture of vested vacation time upon termination."*fn2

Suastez explained what section 227.3 meant by "vested vacation time." In Suastez, the employer's vacation policy provided that employees were entitled to an annual paid vacation but the employee did not become eligible for the vacation until the employee's anniversary date. Suastez's employment was terminated prior to his anniversary date. He asked to be paid for the vacation time he had earned between his anniversary date and his last day of work but the employer refused. Suastez sued, seeking, among other things, a declaration that the company's refusal to pay him a pro rata share of his vacation pay violated section 227.3. (Suastez, supra, 31 Cal.3d at pp. 776-777.)

The employer in Suastez argued that under its vacation policy employment on the anniversary date was a condition precedent to the vesting of the vacation benefit. If employment was terminated before the anniversary date, vacation was not vested and, therefore, the employee was not entitled to be paid for it. The Supreme Court rejected the argument. "The consideration for an annual vacation is the employee's year-long labor. Only the time of receiving these 'wages' is postponed." (Suastez, supra, 31 Cal.3d at p. 779.) Vacation pay, if it is offered, is a type of deferred compensation, which vests pro rata as the employee renders the services for which he was employed. (Id. at p. 781.) "[O]nce 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. If some share of vacation pay is earned daily, it would be both inconsistent and inequitable to hold that employment on an arbitrary date is a condition precedent to the vesting of the right to such pay." (Id. at p. 782.) The requirement that the employee remain until his anniversary date was, in effect, a condition subsequent that purported to extinguish a right already earned. Such a provision is void under section 227.3.*fn3

After Suastez was decided, the California State Labor Commissioner (Labor Commissioner) was concerned that employers might decide to offer sabbaticals as a "subterfuge" to avoid having to pay vested vacation time to departing employees. On the other hand, as the Labor Commissioner implicitly recognized, some employers undoubtedly wanted to offer sabbaticals for legitimate reasons. The problem was that Suastez could be read to apply to many of the sabbatical programs that had become popular in the business sector, which were granted after a set number of years and did not require the employee to engage in any job-related pursuit while away from work. Requiring an employee to work for a period of time in order to be eligible to take a paid leave sounded much like the deferred vesting policy Suastez had rejected as an impermissible condition subsequent. The Labor Commissioner grappled with the question whether a sabbatical which was conditioned only upon a period of service and which did not require the employee to account for his use of the time away could ever be exempt from Suastez.

In attempting to answer the question the Labor Commissioner issued a series of three opinion letters in 1986 and 1987. The first of these letters broadly stated that the California Department of Labor Standards and Enforcement (DLSE) would find a sabbatical program to be exempt from Suastez if, "the sabbatical leave is substantially longer than the normal vacation period and is not in lieu of vacation. Also, the sabbatical should be granted only after a substantial period of employment. [¶] The point is that each case will have to be decided on its own facts. Generally speaking, [the DLSE] will not consider a traditional sabbatical arrangement (i.e., 4 months off after 7 years), to require proration." (DLSE Opn. Letter [as of Jul. 26, 2011].)

The second letter gave more detailed guidance and set forth what we shall refer to as the DLSE test: "[I]n order for a sabbatical not to be subject to [section] 227.3 and Suastez, the following criteria must be met. [1] The sabbatical must be for an extended period of time beyond what is normally granted for vacation. [2] It cannot replace or displace the vacation normally earned each year but must be in addition to a regular vacation program. [3] Sabbatical leave may only be provided to high level managers and professionals in advanced fields. [4] Finally, sabbatical leave should be granted infrequently, such as every 7 years, though in certain circumstances a shorter period may be acceptable." (DLSE Opn. Letter [as of Jul. 26, 2011].) The third letter stated that sabbatical programs "available across the board to all employees" would be considered vacation. (DLSE Opn. Letter [as of Jul. 26, 2011].)

To date, no published appellate opinion has adopted or interpreted the DLSE test or the Labor Commissioner's opinions on the issue. Much of the present dispute involves the validity of that test.


The trial court certified this matter as a class action. The class is defined as all salaried employees of defendant who were terminated after April 27, 2003, did not sign a release, and were not paid for a sabbatical benefit that was unused when their employment terminated. A total of 1,432 class members received notice of the action and have not excluded themselves from it.

The complaint contains six class-related causes of action and one independent claim. The first cause of action is a class claim for nonpayment of wages under section 227.3. The second, third, and fourth causes of action are for waiting time penalties (§§ 202-203) and unfair business practices (Bus. & Prof. Code, § 17200 et seq.), and the sixth and seventh are for equitable remedies. All the class claims depend upon the viability of the first cause of action and the assertion that the sabbatical is really disguised vacation that cannot be forfeited. The fifth cause of action was plaintiff's individual claim for breach of contract.

Shortly before trial defendant filed a motion for summary judgment or, in the alternative, summary adjudication. The motion was based upon the argument that defendant's sabbatical benefit "is not vacation within the meaning of Labor Code section 227.3."

Without expressly listing the four points of the DLSE test, and acknowledging that the test was not controlling, the trial court found that defendant's sabbatical policy "meets all of these guidelines as a matter of law." The court explained that the length of the leave was sufficient to qualify as a sabbatical and that the program was "consistent with other provision[s] of California Law that address sabbatical programs" such as California Rules of Court, rule 10.502 and Unemployment Insurance Code, section 12102.*fn4 The trial court granted summary adjudication of all but ...

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