In a June 14, 2021 ruling, Colorado’s Supreme Court examined whether, under Colorado law, “an employer must pay an employee’s earned but unused vacation pay upon separation from employment despite an agreement purporting to forfeit the employee’s right to such payment.”
In this particular matter, Plaintiff Carmen Nieto was terminated from Clark’s Market, which had a policy stating that an employee who is discharged, or who resigns without proper, two-week notice, “forfeit[s] all earned vacation pay benefits.” Therefore, Clark’s Market did not include Ms. Nieto’s earned vacation time in calculation of her final paycheck and then, later, refused to pay the vacation time when she made a formal demand for her accrued vacation pay benefits.
In the decision, the Justices closely examined: 1) Colorado’s Wage Claim Act (“CWCA,” C.R.S. § 8-4-101 et seq.); 2) record of legislators’ intent when revising the CWCA in 2003 to include, among other revisions, a subsection about vacation pay (C.R.S. § 8-4-101(14)(a)(3)); dictionary definitions of key terms, like “earned”; and 3) Colorado Department of Labor and Employment administrative opinions about vacation pay.
Ultimately, the Court ruled in favor of the employee-Plaintiff. In the conclusion of the ruling, Justice Melissa Hart wrote, “Although the CWCA does not create an automatic right to vacation pay, when an employer chooses to provide such pay, it cannot be forfeited once earned by the employee” (emphasis added). Furthermore, in another blow to the employer, the Justices voided the employer’s policy stating that employees forfeited vacation pay if they were discharged or resigned without proper notice.
This recent ruling guarantees that, in the State of Colorado, vacation pay is, essentially, equivalent to wages. As such, an employee must be “paid out” for all earned and unused vacation time when that employee is fired (for any reason) or chooses to resign from a job, and employers cannot write handbook policies dictating that employees somehow lose rights to those earned wages. This landmark case, thus, serves as both a win for Colorado employees as well as a caution to employers about company policies for vacation pay.
Still unsettled in Colorado is the enforceability of “use-it-or-lose-it” vacation time policies. Given the Court’s Nieto ruling on vacation time constituting accrued wages, there is an argument that “use-it-or-lose-it” policies may be similarly voided under the law.
The employment law attorneys at Sears & Associates, P.C. are available for consultations regarding best labor practices. Please call us at 719-471-1984 if you are seeking legal advice regarding workplace policies about vacation pay.
