By Steve Gutierrez

Steven Gutierrez

Colorado law has long been unsettled as to whether employers must pay out accrued but unused vacation time at separation of employment where the employer’s vacation policy recites that vacation time need not be paid out at separation (e.g., because certain conditions, like voluntary separation, or the employee’s provision of two weeks’ notice, are not satisfied). But no longer. The Colorado Supreme Court decided a case on June 14, 2021, addressing this issue head-on, and held that “all earned and determinable vacation pay must be paid upon separation and that any agreement purporting to forfeit earned vacation is void.” The Supreme Court’s decision also appears to invalidate “use-it-or-lose-it” vacation policies in Colorado going forward.

Background on Nieto v. Clark’s Market

The Supreme Court’s decision arose from the case of Nieto v. Clark’s Market, in which an employer declined to pay an employee’s accrued but unused vacation time at separation of employment because the employee had been discharged, and the employer’s vacation policy provided that, “[i]f you are discharged for any reason or do not give proper notice, you will forfeit all earned vacation pay benefits.” The employer argued that the terms of this vacation policy controlled whether accrued but unused vacation time must be paid out at separation of employment, and the employee argued that, under the Colorado Wage Claim Act (“CWCA”), vacation time which is earned and determinable must always be paid out at separation – regardless of what the employer’s vacation policy says about such payout. Read more >>