On June 14, 2021, the Colorado Supreme Court issued its highly anticipated decision in Nieto v. Clark’s Market, ruling that employers must pay out an employee’s earned but unused vacation pay upon separation of employment, even where an agreement or policy authorizing forfeiture of such pay exists. The impact of the ruling is significant, as so-called use-it-or-lose-it vacation policies, which have become commonplace for Colorado employers, are now prohibited as a matter of law under Colorado’s Wage Claim Act (the Act). The ruling also marks the end of an otherwise contentious legal and administrative battle involving the courts, interested parties and the Colorado Department of Labor and Employment (CDLE) regarding the propriety of use-it-or-lose-it policies, providing much-needed clarity to employers regarding their payment obligations.
Background on Colorado Wage Claim Act
As background, Section 8-4-101(14) of the Act defines “wages” and “compensation,” which must be paid out at separation from employment, to include “vacation pay earned in accordance with the terms of any agreement.” The Act further provides that if “an employer provides paid vacation for an employee, 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.” Continue Reading