Long-Standing Industry Practices Can Be a Trap
Too often employers have the view that a practice must be legally permissible because it is an industry standard or a practice that has been in effect for many years. Too often they are wrong. A California appellate case decided earlier this month brings home the point again. Choate v. Celite Corporation (2nd Civil No. B239160 May 2, 2013).
Celite mines and manufactures diatomaceous earth in Lompoc, California. Some of its employees are represented by the International Chemical Workers Union. Under the applicable collective bargaining agreements, Celite granted its employees between one and five weeks of paid vacation annually. Each January, Celite calculated a yearly “vacation allotment” based on each employee’s length of employment and the number of hours they worked in the prior year. The agreements provided that employees who were terminated from Celite were entitled to “receive whatever vacation allotment is due them upon separation.”
For 25 years, both Celite and the Union understood this provision to refer to the “vacation allotment” already allotted to the employees for the year of their termination, and not the vacation time they had accrued toward the next year’s allotment. So, employees who terminated mid-year were given the unused time allotted in January for the year (based upon an accrual from the prior year), but not given any earned vacation for the hours worked during the year of termination.
It wasn’t until several terminated employees filed a class action lawsuit challenging the practice that Celite even considered the possibility that the practice could violate California law. Given the Union’s acquiescence and the long history of the practice, Celite no doubt believed it was fully compliant. Obviously, once the lawsuit started, Celite argued that the practice was permissible under an exception to Labor Code section 227.3 which requires that all earned vacation must be paid immediately upon termination. That exception applies where the employer and the union agree to a contrary rule in a collective bargaining agreement. The exception, however, did not apply because Celite and the Union failed to “clearly and unmistakably” identify that the normal rule for payment of vacation at termination was inapplicable to the union employees.
The appellate decision does not discuss how much this mistake cost Celite. But, we can take an educated guess—A Lot! Because it was filed as a class action, even a small amount of unpaid vacation time per employee could aggregate into a big number. Add interest at 10% to that number. Add the cost of Celite’s attorneys to defend the case for three or four years. Add the cost of the plaintiffs’ attorneys’ fees which are awarded by right in wage cases. It is likely that Celite no longer views any practice, no matter how long-standing, to be de facto compliant.
The court’s decision can be viewed by following this link:
http://www.courts.ca.gov/opinions/documents/B239160.PDF