Vacation Policies Conditioning Payment Upon Termination and the Colorado Wage Act

Does A Vacation Policy That Says That an Employee Is Not Entitled to Payment for Unused Vacation Upon Termination Under Certain Circumstances Violate the Colorado Wage Act?

In Nieto v. Clark’s Mkt., Inc., 2019 COA 98, 2019 Colo. App. LEXIS 968, (Co. App., 6/27/2019), the Colorado Court of Appeals considered whether the Colorado Wage Act was violated by a vacation policy that caused an employee for forfeit accrued vacation if the employee was discharged or resigned without giving two (2) weeks’ advance notice.  The Court ruled that such a policy does not violate the Colorado Wage Act.

The Colorado Wage Act provides that when an employer discharges an employee, “the wages or compensation for labor or service earned, vested and determinable, and unpaid at the time of such discharge is due and payable immediately.” C.R.S. § 8-4-109(1)(a). Section 8-4-101(14)(a)(III) includes “vacation” within the definition of wages. The Wage Act also provides that “[a]ny agreement, written or oral, by any employee purporting to waive or to modify such employee’s rights in violation of this article shall be void.”

In Nieto, the employer discharged Ms. Nieto and then refused to pay her for her unused vacation. Ms. Nieto sued, seeking payment for accrued vacation time and alleging that the employer’s vacation forfeiture policy violates sections 8-4-101(14)(a)(III) and 8-4-121, of the Colorado Wage Act because it denied her payment for earned wages. The Colorado Court of Appeals rejected Ms. Nieto’s argument. First, the Court of Appeals recognized that nothing in the CWCA creates a substantive right to payment for accrued but unused vacation time. Rather, quoting Barnes v. Van Schaak Mortg., Div. of Van Schaak & Co., 787 P.2d 207, 210 (Colo. App. 1990), “the employee’s substantive 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 the statute.” Put another way, the Colorado Wage Act merely establishes the minimal requirements concerning when and how agreed compensation must be paid.

Applying those principles, the Court of Appeals concluded that the parties’ agreement conditioned payment for accrued but unused vacation time and Ms. Nieto did not allege a plausible claim that an agreement with the employer entitled her to payment for unused vacation given her discharge. As a result, the vacation was not earned and Ms. Nieto was not entitled to payment.

Second, the Court held that the anti-waiver statute did not save Ms. Nieto’s claim. That section only prohibits waiver of an employee’s rights in violation of the Wage Act, and does not create a substantive entitlement to payment independent of the parties agreement. As the agreement in Nieto did not require payment of vacation in the event an employee was discharged (as was Ms. Nieto), it did not violate the Colorado Wage Act for the employer to withhold payment for the accrued vacation from her.

The Nieto decision reaffirms that the Colorado Wage Act does not create a substantive right to payment. The right to payment depends on the parties’ employment agreement. If payment is withheld because the payment has not been earned under the parties’ employment agreement, then the Colorado Wage Act is likely not violated.