The Colorado Supreme Court has ruled that state law requires that all earned vacation pay must be paid at the end of the employment relationship.
Background:
Under state law, wages cannot be forfeited once earned. Under the law, wages include vacation pay earned pursuant to any agreement. If an employer provides paid vacation, they must pay all earned vacation pay upon separation.
In June 2019, however, the Colorado Court of Appeals ruled that an employer's policy requiring employees to forfeit payment for unused vacation time if they resign without giving two weeks' notice didn't violate the law. The Colorado Court of Appeals found that whether compensation for unused vacation pay is required depends on the employment agreement between the employer and employee. The plaintiff appealed the decision to the Colorado Supreme Court.
After the Colorado Court of Appeals ruling, the Colorado Department of Labor and Employment (CDLE) adopted final rules that made clear that employers are prohibited from having a policy or practice that forces employees to forfeit accrued, unused vacation.
Colorado Supreme Court Decision:
The Colorado Supreme Court ruled (See Nieto v. Clark's Market) that although state law doesn't require employers to provide paid vacation to employees, when an employer chooses to provide it, the pay is no less protected under state law than other wages and therefore cannot be forfeited once earned.
Compliance Recommendations:
Colorado employers that provide vacation pay should review their policies and practices to ensure that earned vacation isn't forfeited. Please contact your dedicated service professional with any questions.