Payment of Employee Vacation Time in Colorado
| Publication year | 2022 |
| Pages | 37 |
LABOR AND EMPLOYMENT LAW
This article discusses recent Colorado Supreme Court and Colorado Department of Labor and Employment guidance on handling employees' vacation time when they separate from employment.
Colorado has had a long and tortuous history regarding how to handle an employee's accrued but unused vacation at the time of employment separation. Court decisions conflicted with Colorado Department of Labor and Employment (CDLE) policy guidance, creating uncertainty for both employers and employees. But the Colorado Supreme Court largely ended the confusion in Nieto v. Clark's Market, Inc. by stating that all earned and determinable vacation pay must be paid upon separation and that "any agreement purporting to forfeit earned vacation pay is void."[1] This article discusses Nieto and accompanying CDLE guidance.
The Nieto Backstory
In Nieto, an employer declined to pay an employee's accrued but unused vacation time when the employee had been discharged because the employer's vacation policy provided that, "[i]f you are discharged for any reason or do not give proper notice, you will forfeit all earned vacation pay benefits."[2] The employer argued that this vacation policy was an agreement between the employer and employee under which the employee's vacation pay had not "vested."[3]Conversely, the employee argued that, under the Colorado Wage Claim Act (CWCA or Act), vacation time that is earned and determinable must always be paid out at separation and the forfeiture clause purporting to waive the employee's right to such payment was void under CRS § 8-4-121.[4]The Colorado Court of Appeals agreed with the employer.
The issue before the Colorado Supreme Court was how to properly interpret the CWCA. In pertinent part, the Act defines "wages" or "compensation" to include
[v]acation pay earned in accordance with the terms of any agreement. If an employer provides paid vacation for an employee, the employer shall pay upon separation from employment all vacation pay earned and determinable in accordance with the terms of any agreement between the employer and the employee.[5]
Employers have long relied on the Act's reference to vacation pay earned "in accordance with the terms of any agreement between the employer and employee"[6] to support their vacation policies proscribing payment of earned but unused vacation time upon separation from employment.
Before the Court's decision in Nieto, employers successfully argued that vacation pay must not only be "earned" and "determinable" to be paid out at separation but must also be "vested."[7] This argument was based on the CWCA provision stating that "[n]o amount is considered to be wages or compensation until such amount is earned, vested, and determinable... "[8] Further, relying on a divorce case that addressed vacation pay in the context of dividing marital property,[9] employers successfully contended that vacation pay never vests when an employer's vacation policy does not require the payout of vacation time upon separation.
On the other hand, the CDLE's Division of Labor Standards and Statistics (Division) took the position that vacation time, once accrued, can never be taken a way from employees, either at separation of employment or pursuant to "use-it-or-lose-it" vacation policies,[10] which generally provide that all accrued vacation time must be used by the end of the benefit year or be forfeited. In rebutting employers' arguments that the terms of their vacation policies control the issue, the Division (and the employee in Nieto) pointed to a CWCA provision stating that "[a]ny agreement, written or oral, by any employee purporting to waive or to modify such employee's rights in violation of the [CWCA] shall be void."[11]
In response to Colorado Court of Appeals...
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