In Nieto v. Clark’s Market, the Colorado Supreme Court ruled that employers cannot enforce vacation policies that cause employees to forfeit accrued, unused vacation pay upon termination. This long-awaited decision confirms that earned vacation pay is considered wages under the Colorado Wage Claim Act (CWCA) and must be paid out at the end of employment, regardless of an employer’s policy.
Background of Nieto v. Clark’s Market
The case involved a long-term employee, Nieto, whose employer had a policy stating that employees would forfeit any accrued vacation if they were terminated or failed to provide sufficient notice before resigning. Based on this policy, the employer refused to pay Nieto her earned vacation pay, valued at $2,244.00, upon her termination.
Nieto sued for her unpaid vacation wages but lost at both the District Court and the Colorado Court of Appeals. However, the Colorado Supreme Court accepted her appeal to determine whether an employer policy can override an employee’s right to accrued vacation pay under the CWCA.
Colorado Supreme Court’s Ruling on Vacation Pay
The Colorado Supreme Court ruled that an employer must pay out all earned and determinable vacation pay upon termination, regardless of company policy. In its decision, the Court stated:
“Although the CWCA does not entitle an employee to vacation pay, when an employer chooses to provide it, such pay is no less protected than other wages or compensation and, thus, cannot be forfeited once earned.”
“Accordingly, under the CWCA, all vacation pay that is earned and determinable must be paid at the end of the employment relationship … and any term of an agreement that purports to forfeit earned vacation pay is void.”
Impact of the Nieto Decision on Colorado Vacation Pay Laws
As a result of the Nieto ruling, any employer policy or agreement that attempts to forfeit earned vacation pay upon termination is void under the Colorado Wage Claim Act. Employers must:
- Pay all accrued and unused vacation pay upon termination, just as they would with regular wages.
- Ensure vacation payout policies comply with Colorado vacation payout laws.
- Avoid “use-it-or-lose-it” vacation policies that could cause an employee to forfeit vacation time accrued over a year.
This decision aligns Colorado case law with Colorado Department of Labor and Employment (CDLE) regulations, which previously stated that earned vacation pay could not be forfeited.
Colorado Employers: What This Means for Your Vacation Policies
While employers are not required to offer vacation pay, those that do must:
- Clearly define vacation accrual policies, including how and when vacation time is earned.
- Set reasonable caps on vacation accrual to prevent excessive accumulation.
- Ensure compliance with the Colorado Wage Claim Act to avoid potential wage disputes and penalties.
Employers cannot enforce policies that cause an automatic forfeiture of earned vacation pay. However, they may establish policies that:
- Limit the rate of vacation accrual.
- Cap the total amount of vacation that an employee can accrue.
- Specify that no additional vacation will accrue beyond a set limit.
These provisions must not retroactively take away vacation that has already been earned.
Need Help Navigating Colorado Wage and Vacation Laws?
The Nieto decision reinforces the importance of compliance with Colorado wage laws and ensures that employees receive the vacation pay they’ve earned.
If you need legal guidance on vacation policies, wage disputes, or employment law compliance, the experienced employment attorneys at Baird Quinn are here to help. Contact us today for expert legal assistance.