On December 15, 2019, new rules went into effect that may limit employers’ ability to enter agreements with employees about the final payout of accrued, unused vacation. The new rules, issued by the Colorado Department of Labor and Employment (CDLE), clarify that employees cannot forfeit any earned, unused vacation, even if they have a valid agreement from the employer providing for such a forfeiture.
This rule change comes in response to a recent decision by the Colorado Court of Appeals, which ruled that forfeiture of accrued vacation pay upon termination of an employee is allowed if the forfeiture took place in accordance with the terms of an agreement between the employer and employee. Nieto v. Clark’s Market (Colo. App. 2019). The Nieto decision is currently being appealed.
While the new CDLE rule does not allow for forfeiture of any accrued, unpaid leave, employers are still free to make decisions about how vacation is earned, including: (1) whether there is any vacation pay at all; (2) the amount of vacation pay per year or other period; (3) whether vacation pay accrues all at once, proportionally each week, month, or other period; and (4) whether there is a cap of one year’s worth (or more) of vacation pay.
Given the conflict between the final rule and recent court decisions, it is likely that the courts will revisit this issue, but in the meantime, members should assess their vacation payout practices. If your practices conflict with the rule, it may be prudent to update them until the courts have decided whether the CDLE’s rules will stand.