In a recent Colorado Supreme Court decision, the court determined that if an employer chooses to provide vacation pay, under the Colorado Wage Claim Act (“CWCA”) vacation pay cannot be forfeited by agreement or otherwise once the employee earns it. The CWCA is a statutory scheme designed to ensure the payment of employees’ earned compensation and wages in a timely manner and to protect employees from employer exploitation, fraud, and oppression. In 2003, Colorado’s General Assembly expressly defined “vacation pay” as a protected type of wage and compensation, but only if an employer agrees to paid vacation benefits; there is no statutory requirement that an employer pay this benefit. See Colo. Rev. Stat. § 8-4-101(14)(a)(III). The CWCA nullifies any effort by an employer to avoid its requirements by contract, stating that “any agreement . . . by any employee purporting to waive or to modify such employee’s rights in violation of this article shall be void.” Colo. Rev. Stat. § 8-4-121.
In Neito v. Clark’s Market, Inc., 2021 CO 48, ___ P.3d ___ (Colo. 2021), the employer, Clark’s Market, had a policy in its employee handbook that forfeited all earned vacation pay if the employee was let go for any reason or if the employee failed to give two-weeks’ notice before leaving. Clark’s Market terminated its employee, Carmen Neito, for undisclosed reasons. Pursuant to its employee handbook, Clark’s Market did not include any earned but unused vacation pay in Ms. Neito’s final paycheck and declined to pay her any vacation pay after she demanded it. Ms. Nieto sued, arguing Clark Market’s policy violated the CWCA. The Colorado Supreme Court agreed, concluding that all vacation pay that is earned and determinable must be paid out to the employee at the end of the employment relationship, and any term of an agreement that purports to forfeit earned vacation pay is void (even if the employee agrees to this forfeiture).
The Colorado Supreme Court interpreted the CWCA in a way that strongly favors protecting the employee’s right to compensation and agreed-to benefits, even in the face of an agreement or employee handbook provision. Ultimately, Colorado businesses should be aware that Colorado law looks disfavorably on employers that attempt to modify, forfeit, condition, or waive an employee’s compensation and wages once earned, including vacation pay.
What does this mean for Colorado employers? Upon termination, an employee is now unequivocally entitled to payment for any accrued vacation time, even if you have a policy denying accrued vacation to departing employees. Although the Colorado Supreme Court did not address “use it or lose it” vacation policies, they too may now be unenforceable because “when an employer chooses to provide vacation pay, it cannot be forfeited once earned by the employee.” In other words, if you require employees to use their vacation time before a specific date or they lose it—you are in danger of running afoul of the law, as it is now being applied under the Neito case.
If you have any questions on this topic, or need assistance navigating these changes, please contact our Labor & Employment Law Practice Group. We encourage you to subscribe to our Labor & Employment E-Briefs to keep up with the latest HR news, tips, and updates.