The Colorado Court of Appeals clarifies whether policies regarding forfeiture of accrued vacation leave are enforceable… or did they?

Over the summer, the Colorado Court of Appeals issued an opinion in Nieto v. Clark’s Market, No. 18CA1154 (Colo. App. 2019), regarding whether a policy that provided for forfeiture of accrued vacation leave is lawful under the Colorado Wage Act (“CWA”). Specifically, the Court weighed in on whether an employment agreement that says an employee is not entitled to payment for accrued but unused vacation time if she is fired or fails to give two weeks’ notice violates the CWA.

In Nieto, the employer had a vacation leave policy that said vacation leave was forfeited if the employee was fired or failed to give the employer two weeks’ notice of the employee’s resignation. In accordance with such policy, the employer refused to pay Ms. Nieto for the vacation time she had accrued, but hadn’t used, when Ms. Nieto was terminated.

For years, most private Colorado employers have followed the principal that accrued but unused vacation leave must be paid out upon separation of employment, particularly in light of guidance issued in 2015 by the Colorado Department of Labor & Employment (“CDLE”) suggesting that “use-it-or-lose-it” vacation policies could not deprive employees of earned vacation time. However, the Court in Nieto held that the CWA “establishes minimal requirements concerning when and how agreed compensation must be paid” but that “[n]othing in the CWA creates a substantive right to payment for accrued but unused vacation time. Rather, ‘the employee’s substantive right to compensation and the conditions that must be satisfied to earn such compensation remain matters of negotiation and bargaining, and are determined by the parties’ employment agreement, rather than by the statute.’” After the Court issued its opinion in Nieto, the CDLE removed its prior guidance on “use-it-or-lose-it” vacation policies as it conflicted with the Court’s opinion.

As always, it is important that an employer’s policies are clear about what happens to accrued, but unused, vacation leave upon separation and/or from year to year, as ambiguous or silent policies could lead to an argument that there was no “agreement”.

But, it is important to note that the Court did not address whether an employee handbook constitutes an “agreement” as contemplated by the CWA. Ultimately, this question was not addressed by the Court because the parties in the Nieto case essentially agreed that such policy was an “agreement”. As such, there remains some uncertainty about whether policies in an employee handbook (particularly where such handbooks state they are not to be enforced as contracts) constitute an “agreement” for purposes of the CWA. Thus, if you contemplate changing your accrued leave policies in reliance upon this decision, we recommend that you consider either adopting a separate agreement related to vacation leave forfeiture and/or including language about this forfeiture agreement in the employee acknowledgment of the handbook, which should be signed by the employee. Further, adopting such policies without obtaining the employee’s signature on an employee acknowledgment could pose a risk that a court would find there is no “agreement” as contemplated by the CWA and that such forfeiture is unlawful.

If you are interested in discussing this case further and/or exploring changes to your vacation leave policy, contact employment law attorney Michelle B. Ferguson at or 303.628.3658.