On June 14, 2021, the Colorado Supreme Court in Nieto v. Clark’s Mkt., Inc., 2021 CO 48, ¶ 37 reversed the lower court’s decision and held that the Colorado Wage Act (“CWA”) prohibits policies that cause employees to forfeit accrued vacation leave. Specifically, the Court determined an employment agreement violates the CWA when the agreement states an employee is not entitled to payment for accrued but unused vacation time if the employee is fired or fails to give two weeks’ notice of resignation.
In Nieto, the employer’s vacation leave policy dictated that an employee forfeited vacation leave if the employee was fired or resigned with fewer than two weeks’ notice. The employer’s use-it-or-lose it vacation policy, outlined in the employee handbook, also provided that vacation time did not carry over from year to year. In accordance with this policy, upon Ms. Nieto’s termination, her employer refused to pay her for vacation time she had accrued but not yet used. The Court determined that the employer’s policy violated the CWA and the forfeiture clause was void.
Colorado law does not require employers to provide vacation leave to employees; however, if an employer chooses to provide vacation leave then Nieto makes clear that no policy or agreement may require the employee to forfeit any such accrued but unused vacation leave. Ultimately, like wages, earned vacation time cannot be forfeited once earned and must be paid out upon an employee’s separation. Nieto makes it clear that an employer cannot contract around this obligation to pay out earned vacation time, and any employment agreements or policies that would make an employee forfeit earned vacation violate the CWA. Therefore, employers with “use-it-or-lose-it” vacation policies must review and revise their policies to eliminate forfeiture provisions and avoid civil liability under the CWA.
If you are interested in discussing this case further or exploring potential changes to your vacation leave policy, please contact employment law attorney Michelle B. Ferguson at mferguson@irelandstapleton.com or 303-628-3658.
The information provided herein is intended as general information and is not to be construed as legal advice. If legal advice is needed, you should consult an attorney.