Colorado Court of Appeals Upholds Forfeiture of Accrued Vacation

A recent Colorado Court of Appeals case has reignited the debate around forfeiture of accrued but unused vacation time. Nieto v. Clark’s Market (Colo. Ct. App. 2019).

Carmen Nieto worked for Clark’s Market (the Market) and accrued vacation time in accordance with the store’s handbook policy. The policy stated that employees were entitled to accrued but unused vacation time at termination if they voluntarily resigned and provided two weeks’ notice. However, discharged employees and those who resigned but failed to give adequate notice forfeited all earned vacation under the policy.

The Market discharged Nieto and refused to pay out her accrued vacation time, citing the policy. Nieto sued, alleging that the Market’s vacation forfeiture policy violated portions of the Colorado Wage Claim Act (CWCA).

The CWCA says that when an employer discharges an employee, “the wages or compensation for labor or service earned, vested, determinable, and unpaid at the time of such discharge is due and payable immediately,” the court observed. Under the CWCA, the term “wages” includes “[v]acation pay earned in accordance with the terms of any agreement.” The CWCA also states that “[i]f an employer provides paid vacation for an employee, the employer shall pay upon separation from employment all vacation pay earned and determinable in accordance with the terms of any agreement between the employer and the employee,” but “[n]o amount is considered to be wages or compensation until such an amount is earned, vested, and determinable.”

Nieto argued that her accrued vacation pay was earned, vested, and determinable under the applicable statute. But nothing in the CWCA automatically creates a right to payment of accrued vacation time, the court observed. Instead, “the conditions that must be satisfied to earn such compensation remain matters of negotiation and bargaining, and are determined by the parties’ employment agreement, rather than by the statute.” Therefore, the court held that the Market’s written handbook policy of denying accrued vacation to employees who gave less than two weeks’ notice or were terminated was lawful.

This is a positive case for employers, as it builds on an enforcement position stated by the Colorado Department of Labor and Employment several years ago. However, it is still subject to further appeal before the Colorado Supreme Court. Note also that the parties agreed that Market’s policy constituted an “employment agreement.” Therefore, whether a handbook policy is or is not an employment agreement under Colorado law has not been definitively determined by this case. As always, Employers Council will watch this case closely.