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Beware Employment Policies Involving Loss of Vacation Time


A recent decision by the Colorado Supreme Court should remind employers everywhere to have a labor and employment attorney review their vacation policies to ensure they’re not violating the law.

This particular case involved an employer’s policy stating that workers who quit without giving two weeks’ notice or who were discharged for any reason would forfeit any earned-but-unused vacation time rather than being compensated for it upon departure.

The dispute arose when the employer, grocery chain Clark’s Market, terminated longtime employee Carmen Nieto while refusing to pay her any of the $2,344 in vacation time she had accrued but not used. Clark’s cited the forfeiture policy as grounds for doing so.

Nieto took the company to court, arguing that the policy violated Colorado’s wage act, which defines “vacation pay” as protected wages and compensation. A trial judge threw out Nieto’s suit and a division of the state court of appeal affirmed on the grounds that Nieto’s vacation pay had “accrued” but not “vested” due to her discharge. The court of appeal also said a worker’s vacation pay may never vest at all if he or she doesn’t meet the employer’s conditions.

But the state supreme court reversed. According to the high court, Colorado employers are not required to offer vacation time to employers, but if they do, any vacation time that is “earned” (in other words, owed in return for services performed, like Nieto’s vacation time apparently was) and “determinable” (meaning it’s possible to ascertain exactly how much is owed, as Nieto asserted was true of her own benefits) at the time of separation must be paid.

What does this mean for employers?

If you’re in Colorado and you have any forfeiture provisions in your vacation policy, they’ll probably be void. If you combine vacation and sick time, you’ll need to take a look at that policy and see how any forfeiture provisions impact it. The case also appears to bar “use it or lose it” provisions where workers forfeit any vacation time left unused by the end of the year.

If you’re not in Colorado, it’s a very good idea to meet with a lawyer to take a look at your own policies and the state of the law where you live to make sure you’re not walking into a wage claim that could leave you paying multiple times the worker’s damages, plus their attorney fees.