Colorado Supreme Court: Requires Payment of Earned Vacation Pay
On June 14, 2021, the Colorado Supreme Court issued its highly anticipated decision requiring employers to pay an employee for earned vacation pay and voiding all agreements or company policies, including “use it or lose it,” that forfeits vacation pay.FN1 The case involved a terminated employee who had earned vacation pay pursuant to the employer’s employee handbook. The employer refused to include her earned vacation pay in her final paycheck because the employee handbook contained a provision forfeiting vacation pay when an employee is discharged for any reason or if an employee fails to give a two-week written notice before departing.
In a unanimous decision, the Supreme Court held that under the Colorado Wage Claim Act (CWCA), an employer is required to pay an employee for earned vacation pay and any agreement or company policy that provides for the forfeiture of vacation pay is void under the CWCA. If vacation pay is earned and determinable (meaning it can be calculated), it becomes part of the compensation owed an employee. While Colorado statutes do not require employers to offer vacation pay, once they do, the earned and unused portion becomes part of an employee’s compensation.
Takeaway
Going forward, Colorado employers should be aware that earned vacation pay cannot be lost and must be paid to an employee. Employers should review their handbooks to ensure that any earned and determinable vacation pay is not forfeited either at year end or at termination. Any agreement between the employer and the employee, by contract or in an employee handbook, that forfeits vacation pay, including “use-it-or-lose-it” language is void. Please contact Campbell Litigation, P.C. for assistance in reviewing handbooks and policies.
FN1 - Nieto v. Clark’s Mkt., Inc., 2021 CO 48, 2021 WL 2414327 (Colo. Sup. Ct. June 14, 2021)