This week, the Colorado Supreme Court issued a long-awaited decision holding that Colorado employers that choose to provide vacation pay must pay employees for any earned, unused vacation time upon separation from employment. Further, any agreement or policy which requires an employee to forfeit earned vacation pay is void.
Nieto v. Clark's Market Inc. involved a former Clark's Market Inc. (CMI) employee who sued for payment of 136 accumulated vacation hours following her termination. CMI's policy stated that if an employee quit without providing at least two weeks written notice or if the employee was discharged for any reason, the employee forfeited all earned vacation pay benefits. The district court dismissed Nieto's claims, and reasoned that the Colorado Wage Claim Act (CWCA) gives employers the right to enter into agreements with its employees regarding vacation pay, even those with forfeiture clauses. Nieto appealed, but the Court of Appeals affirmed the dismissal, stating that while Nieto's vacation pay was earned, it had not vested under CMI's policy.
The Colorado Supreme Court disagreed, holding that vacation pay is not subject to a vesting requirement, and further ruled that that the CWCA prohibits forfeiture of earned vacation pay. In reversing the Court of Appeals decision, the Supreme Court engaged in a lengthy statutory interpretation exercise considering the two applicable CWCA provisions, referencing the statute's plain language, purpose, structure, and legislative history. The Supreme Court also gave some deference to the Colorado Department of Labor's (DOL) interpretation.
While employers are not obligated to provide vacation pay under the CWCA, if an employer chooses to provide it, an employee is entitled to that pay at separation so long as it is earned and determinable. Given the shift in the labor market due to the COVID-19 pandemic, employers could face an increase in wage claims from recently-separated employees who did not receive vacation pay at termination. Employers should prepare to quickly address these claims, and revise current policies and practices to include earned vacation pay at separation.
Read the full Colorado Supreme Court opinion here: Nieto v. Clark's Market, Inc.
Originally published Jun 18th, 2021
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