Most California companies offer employees vacation time. Vacation time is considered an employment benefit and also a form of compensation. Specifically, under California law, if an employee has unused accrued vacation at the end of his/her employment, the employer must pay out the unused but accrued vacation in their final paycheck.

Unless otherwise provided by a collective-bargaining agreement, whenever a contract of employment or employer policy provides for paid vacations, and 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 in accordance with such contract of employment or employer policy respecting eligibility or time served; provided, however, that an employment contract or employer policy shall not provide for forfeiture of vested vacation time upon termination. The Labor Commissioner or a designated representative, in the resolution of any dispute with regard to vested vacation time, shall apply the principles of equity and fairness.

Labor Code, section 227.3.
A small number of companies also offer a paid sabbatical program. Companies typically offer paid sabbatical leave when a long-time employee applies to take an extended time period off from work to pursue something that increases the employees value to the company. Or, in the alternative, pursue something where the company is a (potential) third party beneficiary of the effort — which may be as simple a benefit of getting back a valuable employee who has had time to relax, recharge, and refocus their energies when they return to the company. Sabbaticals in their private sector were adopted from those in education sector. Traditional sabbaticals were designed to allow professors and the like to gain new experiences and knowledge that would enhance the reputation of the colleges offering it.
Unlike vacation plans, most employers only offer sabbaticals on a case-by-case basis. The length of the sabbatical, the reporting/connectivity requirements, and even the design of the pursuit could condition the approval of the time away or the time away with pay. Even those with a more regimented policy typically adopt a “use it or lose it” policy with the available time off. And so, most employers do not treat paid sabbatical leave as vacation leave.
So, should they be able to? And why wouldn’t just all employers start treating vacation time as regimented sabbatical time for purposes of avoiding having to shell-it-out at termination?
In Paton v. Advanced Micro Devices, Inc. (2011) 197 CA4th 1505, one employee decided to dip their toe in the water. Specifically, Eric Paton, on behalf of himself and a class of others similarly situated sued his former employer, defendant Advanced Micro Devices, Inc., alleging that they had failed to pay him for an eight-week sabbatical he had earned but not used by the time he resigned. Under the company’s paid 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. Paton claimed that the company’s sabbatical program was really just extra vacation and that it was violating Labor Code, section 227.3, by forcing him to forfeit accrued vacation pay.
The trial court granted Advanced Micro Devices, Inc.’s motion for summary judgment. The Court of Appeal reversed, indicating that the matter could not be determined on the matter of law, and returned it to the trial court. In so doing, the Court examined the history of paid sabbaticals and a number of opinion letters from the Department of Labor Standards and Enforcement (“DLSE”). And as a result of that review, it announced a four-part test to determine whether a paid sabbatical really is a sabbatical and not a subterfuge to accrued vacation leave:

    1. The sabbatical leave should be granted infrequently and intended to retain experienced employees who have devoted a significant period of service to the employer.  The Court suggested a 7-year rule, allowing employees to take sabbatical every 7 years, but acknowledged that greater or shorter periods might be appropriate depending on industry standards.
    2. The length of sabbatical should be longer than that “normally” offered as vacation. Since regular vacation time may be used for rest, a sabbatical ought to provide the extended time off work that regular vacation does not. The Court did not indicate what length of time would suffice, but the employee in the case was entitled to a four-month sabbatical and the Court believed there was sufficient question as to the validity of the sabbatical policy for a jury to decide the issue.
    3. The sabbatical must be in addition to regular vacation.  According to the Court, because an employer could offer a minimal vacation plan and reward senior staff with sabbaticals as a way to avoid the financial liability of a more generous vacation plan, the employer’s regular vacation policy should be comparable to the average vacation benefit offered in the relevant market.
    4. The sabbatical program should incorporate some feature that demonstrates that the employee taking the sabbatical is expected to return to work for the employer after the leave is over. This was previously an element implied by the Labor Commissioner in its opinion letters, but not explicitly enunciated as a requirement for a valid sabbatical program.

In announcing this “four-part test”, the Court  rejected the idea that the sabbatical must be for specified purposes (i.e., continued education, career development, etc.) and be limited to upper management (an element previously identified by the Labor Commissioner as necessary for a true sabbatical).