On June 14, 2021, the Colorado Supreme Court held that the Colorado Wage Claim Act (CWCA) requires Colorado employers to pay out employee vacation pay once earned—regardless of any relevant employment agreement or company policy. The court explained in Nieto v. Clark’s Market that, although employers are not required to offer their employees vacation pay, once they choose to provide it, vacation pay receives the same protections as other wages and compensation and cannot be forfeited when earned.

The CWCA requires Colorado employers to pay their employees earned wages in a timely manner. This includes payment of earned and determinable vacation pay upon separation from employment. Specifically, the statute provides that “the employer shall pay upon separation from employment all vacation pay earned and determinable in accordance with the terms of any agreement between the employer and the employee.” Colo. Rev. Stat. § 8-4-101(14)(a)(III).

In Nieto, the court considered the validity of an employer’s policy that, in certain circumstances, required employees to forfeit earned vacation pay benefits at termination of the employment relationship. The employer argued that the terms of the employment agreement dictated whether vacation pay must be paid upon separation because the CWCA does not require vacation pay to employees, and because Section 8-4-101(14)(a)(III) defers to the terms of the agreement between the employer and employee. The court concluded otherwise.

In a significant blow to Colorado employers, the court determined that the CWCA prevents forfeiture of earned vacation pay, and employers cannot contract around employees’ rights to earned vacation pay.

As a result of this decision, which provides long-awaited clarity, employees should immediately reassess existing vacation policies and employment agreements.

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