Colorado Supreme Court Holds Employees Cannot Forfeit Vacation Pay Offered By Employer

Posted on: July 23, 2021
In: Labor & Employment

By: Zakary Griego & Joshua D. Kohler

In the last year, Colorado has, not surprisingly, experienced a dramatic increase in employment-related laws, rules, and regulations. Most recently, in June 2021, the Colorado Supreme Court issued a long-awaited ruling in the Nieto v. Clark’s Market matter, which concerns the forfeiture of vacation pay under the Colorado Wage Claim Act (CWCA). In Nieto, the court held that employers cannot implement policies that require employees to forfeit vacation pay that’s already been earned, even if the employer and employee contract otherwise. The decision invalidates most, if not all, “use-it-or-lose-it” vacation pay policies in Colorado.

In reaching its decision, the Colorado Supreme Court concluded that “vested” is synonymous with “earned” and therefore did not allow for forfeiture of vacation pay under the CWCA. To be sure, the court also noted that statutory interpretation principles suggested that the omission of the word “vested” from the vacation pay provision was an intentional choice by the Colorado legislature. Thus, although the “CWCA does not create an automatic right to vacation pay,” nor does it require employers to provide it, when an employer chooses to provide vacation pay, an employee’s accrued but unused vacation pay cannot be forfeited, and must be payed upon separation. Further, any agreement attempting to forfeit an employee’s unused vacation time is unenforceable. 

What This Means Going Forward

  • This decision does not affect an employer’s ability to place caps on how much unused vacation pay an employee may earn or accumulate, but employees cannot lose vacation pay once it accrues. 
  • Bonuses or commissions, like vacation pay, are subject to the terms of any agreement between an employer and employee. However, as in Nieto, once bonuses and commissions are earned and determinable, agreements or provision that might cause an employee to forfeit those earned bonuses or commissions may be unenforceable. 

Colorado employers are encouraged to review their employee handbooks, policies, and employment agreements to ensure “use-it-or-lose-it” provisions are revised or omitted appropriately so that vacation time is not forfeited or lost once earned by employees, before or after separation from employment. Similarly, Colorado employers are encouraged to evaluate current bonus and/or commission plans to ensure that they accurately articulate how and when bonuses and commissions are earned, and not just when those will be paid (or not paid).

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