Colorado Department of Labor Proposes Rule Prohibiting Forfeiture of Earned Vacation.

In Nieto v. Clark’s Mkt., Inc., 2019 COA 98 (Co. App., 6/27/2019), ), the Colorado Court of Appeals held that the Colorado Wage Act (“Wage Act”) was not violated by a vacation policy under which an employee lost the right to payment for earned vacation by resigning without two weeks’ notice. The court reasoned that the vacation policy conditioned payment on the two weeks’ notice requirement and, therefore, the vacation was not earned under the Wage Act. A more detailed discussion of the Nieto case may be found here.  Nieto Decision Analysis

The Colorado Department of Labor has now proposed amendments to the Wage Act Protection Rules that prohibit the kind of forfeiture policy at issue in the Nieto case. 

The proposed rules states:

“Vacation pay” … includes in the definition of “‘[w]ages’ or compensation’”:
“Vacation pay earned in accordance with the terms of any agreement. If 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.”

The “earned and determinable in accordance with the terms” rule does not allow a forfeiture of any earned vacation pay, but does allow agreements on matters such as: (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, or instead accrues proportionally each week, month, or other period; and (4) whether there is an accrual cap of one year’s worth (or more) of vacation pay. Thus, employers may have “use it or lose it” policies that disallow carryover after employees accrue a year of vacation pay, but that do not forfeit any of that year’s worth. For example, an agreement for ten vacation days per year:

(a) may provide that employees can accrue more than ten days, by allowing carryover of accrued vacation from year to year;
(b) may provide that employees cannot accrue more than ten days, by disallowing carryover of unused vacation from year to year; but
(c) may not provide that after an employee accrues ten days, that amount diminishes below ten days for any reason.

The proposed rule is in response to the Nieto decision. The Colorado Department of Labor believes that the decision is “contrary to the text and legislative intent of the vacation pay statute, which states that the “‘[w]ages’ or ‘compensation’” that cannot be forfeited include “[v]acation pay earned in accordance with the terms of any agreement.” The Department also cite legislative history which rejected a prior version of that provision that would have allowed an “agreement between the employer and the employee that requires or results in loss or forfeiture of accrued vacation pay.”

The Department held a public hearing on the proposed rules on October 15, 2019. Baird Quinn will follow developments on the proposed rule and report any developments.

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