Colorado: Vacation Must be Paid on Separation; Use-it-or-Lose-it Policies Unenforceable

In Nieto v. Clark’s Market, the Colorado Supreme Court indicated that company policies that require employees to forfeit accrued, unused vacation pay are unlawful.  Earned vacation time is considered a type of compensation under the Colorado Wage Claim Act (CWCA) and cannot be forfeited.

As such, accrued and unused vacation hours must be paid out upon separation of employment. While Nieto specifically addresses vacation payout upon separation, the same reasoning appears to apply to use-it-or-lose it policies during employment as well. Employers may institute a maximum accrual cap of at least one years’ worth of accrual, but are prohibited from implementing policies that deprive employees of already earned vacation time.

Neither the Nieto case or the Colorado DOL currently address whether the same regulations apply to combined PTO buckets of vacation, sick, and other types of personal time off. Finally, while Colorado employers are not required to provide vacation time at all, those that do must abide by the Nieto decision and the CWCA.

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