More on Vacation Pay in Colorado

Historically, based on the language contained in the Colorado Wage Claim Act (CWCA) and guidance from the Colorado Department of Labor and Employment (CDLE), Employers Council has recommended that our members pay out all accrued but unused vacation at the time of termination from employment. Whether this advice still holds was called into question when the Colorado Court of Appeals decided the case of Nieto v. Clark’s Market in June.

In this case, Clark’s Market discharged Ms. Nieto and refused to pay her vacation time she had accrued but not used at the time of her discharge, citing Clark Market’s vacation policy, which states that an employee isn’t entitled to payment for unused vacation time if the Market discharges the employee or the employee voluntarily quits without providing two weeks’ notice. Ms. Nieto sued, stating that her former employer violated the Colorado Wage Claim Act.

The court, agreeing with the employer, referred to the CWCA, which states 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.” Vacation pay is explicitly included in the definition of wages. However, the court determined that the employee’s right to compensation and 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 statute.” Thus, the court held that the parties’ agreement, found in its vacation policy located in the employee handbook, conditioned payment for accrued but unused vacation time. Since Ms. Nieto did not meet the conditions set forth in the handbook because she was discharged by the employer, she was not entitled to accrued, unused vacation pay.

In apparent response to the Appeals Court’s decision, the CDLE recently promulgated temporary rules specifically stating that vacation pay is earned in accordance with an agreement, but noting that if an employer provides paid vacation, upon separation the employer must provide vacation pay that is “earned and determinable” in accordance with an agreement. While the temporary rule specifies that no forfeiture of earned vacation pay is permitted, the rule permits an agreement on matters such as (1) whether to provide vacation pay at all; (2) the amount of vacation pay; (3) the manner of vacation accrual; and (4) whether there is an accrual cap. These temporary rules are effective until December 18, 2019.

In the meantime, the CDLE is engaging in the rule-making process, and the Nieto decision stands. Once the final rule is announced, Employers Council will keep you informed.