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Unchecked Baggage: Labor lawyers say that use-it-or-lose-it vacation policies may be illegal. Illustration by Erik Van Blokland Seeking Closure In Silicon Valley, the latest innovations are about finding ways to cut costs in hard economic times. Some of them fall on shaky legal ground, but employees are happy just to have their jobs. By Genevieve Roja GEORGE JOHNSON doesn't believe what his bosses say. He had been working as a graphic designer at a small firm in downtown San Jose for about a year, for about minimum wage. Then the company went through a few layoffs, until Johnson, the boss and two other designers were the only ones remaining. Then in May, Johnson (not his real name) was told he and another designer would be forced to take a vacation day at least once a month until things picked up. They never did. "His reasoning for the time off was because of the slowing economy, but I believe he was just using that as an excuse to cut down on employees, thinking he could get by with himself and the web designer," Johnson says. "Pretty foolish, and I took this personally because I knew his reasoning was not true, since we had a lot of business, an almost overwhelming amount." Johnson responded by looking for a new job, as a contract employee for a company in Silicon Valley. The truth is this: Very few companies nowadays can afford to maintain the staffing levels of a year ago. Choosing to avoid the bad press and morale deflation that can accompany layoffs, the current trend is about making ripples, not waves. So, valley companies are getting wily, crafty, even creative--and employees, more or less, are putting up with it even if some of the moves are illegal. Still, it beats a pink slip. The last time the valley's employers stood in quicksand like this was in the early '90s, when a recession--not Sept. 11--plunged the nation into disarray. Earlier this month, it was reported that the country's unemployment rate had reached 5.7 percent--the highest level in six years. That translated to 331,000 more unemployed Americans tacked onto the already 1.2 million who have been jobless since March. It's safe to assume that no one wants to see that number creep to the last high point, set in 1990-91, of 7.8 percent. Use the Force This past summer, Intel announced a plan to cut its workforce by 5,000, mostly by attrition (simply not replacing people who quit), says spokesperson Gail Dundas. The company has relied on tools already in place, including a program called Voluntary Separation that allows certain employees to exit the company for a generous severance package. Another option is the Redeployment Program, which has been used at Intel for years, Dundas says. An Intel employee reports to work, but his or her full-time job is to seek other employment opportunities within Intel. The bonus is that the employee is still paid during the four-month, in-house job search. At Arrow Electronics, a leading electronics distributor of semiconductor chips, management offered two options. According to an internal memo, the first option consisted of a salary reduction and taking extra, unpaid time off between Dec. 1, 2001, and March 1, 2002, according to a sliding salary scale. Those who make below $30,000 a year are not affected, but those paid between $30,000 and $74,999 take a 4.6 percent pay cut and about three days off without pay. Those above $75,000 receive a 10.8 percent salary cut. For all employees choosing this option, their accrued vacation time remains unchanged. The second option, Accrued Vacation Exchange, means employees avoid the pay cut and must take all of their new vacation time each quarter. For those in the $30,000-to-$74,999 bracket, for example, the allotted three days comes out of their total vacation-hours bucket. Though the option sounds beneficial, one employee (who asked not to be identified) said the option essentially eliminates the chance to take an extended vacation during the year. The employee at Arrow, with head offices in Melville, N.Y., and regional offices in Milpitas and Santa Clara, says she doesn't mind the furlough options, even though her curiosity is piqued when she is told that it is illegal in California for companies to enact "use it or lose it" vacation-time policies. "A forfeiture of accrued vacation is 100 percent illegal," says Miles Locker, the attorney for the state Labor Commissioner. "You cannot take away vacation time that's already accrued. It absolutely violates the California Labor Code." Pursuant to the case Boothby v. Atlas Mechanical Inc., it was decided that using and losing vacation time was against state law. In addition, California courts have ruled that vacation pay falls within the definition of wages and therefore cannot be forfeited. Employers have the right to cap accrued vacation, but they should also give employees "a reasonable amount of time to take" that vacation, Locker says. But it seems very few companies are obeying or bothering to familiarize themselves with the law. "What we're hearing, like your story, is just widespread violations," Locker says. "We're hearing things just like that--[in] letters, emails. It's very sad, because the laws on vacations are very well established. But as the Arrow employee said, staying out of the unemployment line is more important than anything to most workers right now. "[The furloughs are] fine if it helps myself and my co-workers keep our jobs and be employed," says the Arrow employee. "I personally don't have a problem with it." But the damage has been done to employee morale. "It's pretty low because business is down," says one employee of the company, which counts among its clients Cisco Systems Inc., Nokia and Exel. "The people like myself who are still around are very happy to have a job. We're understaffed, so people are taking in more work, but we're happy to do it. It's kind of funny." The line between legal and illegal in employment law--especially when it comes to deciding cutbacks like salary and work-week reductions--is thin. So although "use it or lose it" policies are inconsistent with California's labor codes, the codes may not necessarily apply to each workplace scenario. Labor codes are applied differently to certain classifications of employees: whether they are paid hourly or on salary, or if they are exempt--meaning that the employer is claiming an exemption from the payment of overtime--or nonexempt. Employees should know that they don't have to accept these "voluntary" cutback options, though they should know that they should be prepared for the consequences of refusal. According to the 1997 decision made in Digiacinto v. Ameriko-Omserv Corp., an employer can change an employee's vacation plan at any time, but they can't take away vacation time an employee has already earned. However, quitting and filing a claim against the employer is better than sticking around and fighting a company on its mandatory cutback plan, advises Richard Schramm, a San Jose employment law attorney and former wage and hour investigator. But if you decide to stay and fight, don't worry, he says. Firing someone for objecting to California labor law is illegal. Happy Holidays In a more traditional Silicon Valley vein, many companies are ordering shutdowns and paying employees to take two weeks off during the Christmas holiday. Over at Sun Microsystems Inc., an employee says that the company will shut down operations during the week of Christmas and after, and open Jan. 2, 2002. In addition, says the employee, there will be no companywide blowout holiday party as in the past. There may be independent parties by department, potluck in-office gatherings or a party at the house of a management head. Shuttering offices for the holidays isn't new; in April, Sun announced it would shut down its offices the week of July 4 and retain only a skeleton crew of its 38,000 U.S. workers. At Varian Medical Systems in Palo Alto, the world's leading manufacturer of integrated cancer therapy systems, an employee says the company will close the week of Christmas and reopen Jan. 2. Employees will be forced to use their accrued vacation days in order to be paid. If an employee doesn't have enough to cover the shutdown days, the employee receives no pay. In this particular scenario, nonexempt employees are not affected. If they have vacation time, they may use it; if they don't, they don't get paid. Exempt employees, if they have vacation time to cover the week of Christmas, may use it. However, Varian must pay exempt employees the full salary without any deduction for Dec. 31 and Jan. 1. "The employer cannot require the employees to use vacation time to cover the days off," says Locker. According to an employee at Cisco Systems Inc., employees are being forced to take paid time off each quarter. That puts pressure on long-standing employees who have accrued vacation time and are forced to use it, rather than hang onto it for the grand payout. Again, employers can curb accrued vacation time, but they may not mandate when an employee takes his or her vacation, or forfeit that vacation time by taking it away. The practice is inconsistent with state law, Locker says. Cutting Losses, Making Gains Nearly every major company in the United States and abroad has already enforced mandatory vacation time. Bridgestone/Firestone, Motorola, Charles Schwab, Terra Networks USA (the Mountain View-based company that owns the Lycos websites), Accenture Ltd. (formerly Andersen Consulting), Cathay Pacific Holidays, the EMC plant in Cork, Ireland, Hynix Semi Conductor in Korea--all have succumbed to reducing their employees' hours. But who knew reducing hours could be this innovative despite the pessimistic circumstances? Just ask Lonely Planet Publications, the purveyor of funky, anti-Fodor's travel books, which took the alternative route when it came to cost-cutting time. The Australian company, with its North American headquarters in Oakland and its offices in London, Paris and Melbourne, proposed several options to their employees. One is the extended-leave option, in which employees can take a leave of between one and six months, receive 15 percent of their pay and accrue vacation time while on leave. More incentive to take time off? The guarantee that an employee has a job upon returning. Other options include a four-day work week with a 20 percent decrease in pay, or doing nine days of work in a two-week period, for a 10 percent decrease. According to Lonely Planet's publicity manager, Cindy Cohen, the move has proven effective. The company met its goal to save at least $1 million Australian dollars (approximately $500,000) and, in doing so, impressed its bank. And employees, many of them savvy travelers in their own right, have planned elaborate getaways to make use of the time. One is planning a U.S. cross-country trip; another is spending five weeks in Brazil for Carnaval; yet another is participating in a nine-week actor-training program at the American Conservatory Theater. Over at Commerce One, whose headquarters are in Pleasanton, employees there are savoring paid time off this quarter, but, again, they must use a fixed amount of paid-time-off days per quarter to "help keep the company's finances manageable and more predictable," says one employee who did not want to be identified. Forced vacations, says the employee, are being issued by specific departments. Her boyfriend took one week off last quarter, and she will take hers between Christmas and New Years. "I hesitate to say 'forced,' " she says. "They are not mandatory, nor does anyone have to take the suggested amount of PTO [six days this quarter], if they do not have them already accrued." "This season, it's a request that most people are abiding by," says the Commerce One employee. "I think everyone feels pretty lucky just to have and keep their jobs." [ Silicon Valley | Metroactive Central | Archives ]