The Colorado Supreme Court recently (June 14, 2021) issued a landmark ruling that an employer must pay an employee’s earned but unused vacation pay upon separation from employment. The ruling goes even further to provide that any agreement or policy forfeiting unused vacation pay is void as a matter of law. Like many states Colorado law does not mandate that an employer provide vacation pay. However, like many other states, Colorado law is now clear that once an employer chooses to offer vacation pay benefits, they cannot be forfeited once earned.

The court’s analysis focused on its finding that vacation pay does not have to be vested to be “earned and determinable” and therefore is not subject to forfeiture under the Colorado Wage Claim Act. Concluding that its Wage Act applies to all vacation pay, owed upon separation, as return for services rendered or work done by an employee, the court noted the purpose of the Act – to protect employees against “exploitation, fraud, and oppression” was satisfied.

What does this mean for Colorado employers? Some critical steps to consider:

• Review and revise handbook and benefit policies to ensure compliance (e.g., remove any existing “use-it-or-lose-it” language).
• Develop new separation procedures to ensure proper payouts of earned but unused vacation pay.
• Initiate training for all staff involved (at any level) with separations and wage and hour compliance.

Employers should keep in mind that the court’s ruling does not impact Colorado’s Healthy Families and Workplaces Act which does not require unused paid sick leave to be paid out at separation.

Growers seeking further information about their duty to payout earned but unused vacation at separation should contact Western Growers.