What is required to preclude shareholders that are employees from accruing vacation benefits

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What is required to preclude shareholders that are employees from accruing vacation benefits

The company was recently sold to a private equity firm. As part of the transaction certain key staff purchased stock in the new entity. They were then determined to be “owners” and no longer entitled to vacation benefits. Accrued balances were paid in a lump sum at the time but no further additions to their balances has occure. Is this legal?

Asked on June 24, 2009 under Employment Labor Law, California


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 13 years ago | Contributor

There is nothing legally saying that employees who are also stock holders cannot get vacations--almost every CEO, CFO, COO, etc. out there, for example, owns at least some stock in their business and *they* get vacations.

On the other hand, there's nothing saying that a company has to grant anyone vacation. And if the company does generally grant vacation, the contract with given employees may state that they do not receive it. But in that case, there would need to be a contract or agreement to that effect.

So if no one at the company gets vacation anymore, that is a legitimate and fairly implemented policy--an unfortunate one, but nothing wrong with it.

On the other hand, if most employees get vacation, then the company cannot arbitrarily deny it to employee-stockholders--if it want them to not get vacation, it needs to bargain with them and get their agreement. And the reason they give is simply incorrect.

Remember that vacation is part of your total comp: if you give up vacation or are asked to give up vacation, your compensation is reduced. If the company wants you to not vacation, they should give you something for it--additional stock or at least stock options, an increase to your base compensation, a bonus plan (or a better one, if you already have one), etc.

Or they could ask you and the other employee owners to give up vacation benefits to help the company, which will ultimately help you as stock holders--but it's up to you whether you agree.

However, before doing anything else, check *every* form you've signed with the company--any employment agreements, stock purchase forms, etc. Make sure that you have not in fact signed away vacation.

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