In Nieto v. Clark’s Market, Inc., the Colorado Court of Appeal stated that the employer and employee’s agreement determines how accrued vacation time is handled at termination. Specifically, the state Wage Claim Act, which states in part that the employer must pay all earned vacation upon termination “in accordance with the terms of any agreement between the employer and the employee,” does not create an independent right of employees to receive vacation payout upon termination.

There, the employer’s vacation policy provided for payout of earned vacation time upon termination if the employee provided at least two weeks’ advance notice of leaving employment; however, vacation benefits are forfeited if insufficient notice was provided or the employee is terminated. The court stated that the employer’s policy controlled, and the employee did not meet the requirements. Employers should have vacation policies reviewed accordingly, and should seek legal counsel before refusing to pay out earned vacation upon termination where a vacation policy is silent on those terms.

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