On June 14, 2021, the Colorado Supreme Court issued a decision in Nieto v. Clark’s Market on use-it or lose-it vacation policies. The Court ruled that the Colorado Wage Claim Act prohibits the forfeiture of earned vacation pay at the end of employment, even when an employment agreement or policy provides that accrued vacation is not paid out upon separation.
As background, under Colorado’s wage law, employers are not required to provide a paid vacation benefit but to the extent an employer does provide a paid vacation benefit, the law prohibits forfeiture of accrued but unused vacation (use-it-or-lose it policies).The Nieto case arose when an employer, relying on its policy in the employee handbook, refused to pay an employee accrued vacation time upon the termination of the employment relationship.
The trial court and the Colorado Court of Appeals in Nieto held that forfeiture was permissible where vacation pay had not vested under company policy. In December 2019, Colorado’s Department of Labor and Employment issued a final rule prohibiting forfeiture of earned and determinable vacation pay, see prior Benefit Beat article.
Employers should review their policies or agreements and remove any provision conditioning when and how vacation pay is earned and determinable at separation. Any policy or agreement that purports to cause forfeiture of an employee's accrued but unused vacation pay upon the employee's separation is now void and unenforceable.
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