Colorado Employers May Cap But Not Take Away Accrued Vacation Pay Under New Rule
By Dan Combs
The Colorado Department of Labor and Employment (CDLE) has finalized a new rule clarifying that companies may cap but not take away employees’ earned, unused vacation pay.FN1 The viability of “use-it-or-lose-it” vacation policies under the Colorado Wage Claim Act (the “Act”) has been in flux for years, with the latest conflict stemming from a 2019 Colorado Court of Appeals decision upholding a policy under which employees forfeited vacation pay in some circumstances (e.g., if they resigned without providing two weeks’ notice).FN2 The CDLE’s new rule rejects the Court of Appeals’ holding and clarifies that an employer may have a policy limiting how vacation pay accrues, but may not diminish earned vacation days other than through an employee’s actual use of vacation time.
Practical Takeaway
Colorado employers with conditional vacation payout policies should immediately consult with an employment attorney to assess compliance with the CDLE’s new rule (which is effective December 15, 2019). Companies that wish to bolster paid time off incentives without requiring large payouts on termination should talk with an attorney about options such as (i) implementing general “paid time off” policies (which the CDLE has historically treated differently than paid vacation policies);FN3 or (ii) crafting a policy that unequivocally sets forth conditions under which vacation pay is “earned.”
Footnotes:
FN1: 7 CCR 1103-7, Rule 2.15, https://www.sos.state.co.us/CCR/GenerateRulePdf.do?ruleVersionId=8402&fileName=7%20CCR%201103-7. The proposed rules were adopted as temporary rules, effective August 20, 2019, and were adopted as permanent on October 25, 2019, effective December 15, 2019. See https://www.colorado.gov/pacific/cdle/ProposedRules-Labor.
FN2: Nieto v. Clark’s Mkt., Inc., No. 18CA1154, 2019 WL 2621236 (Colo. App. Jun. 27, 2019); see also https://www.rockymountainemployersblog.com/blog/2019/8/15/employers-use-it-or-lose-it-vacation-pay-policy-upheld-by-colorado-court-of-appeals.
FN3: Notably, the CDLE’s new rule does not provide that general “paid time off” should be regarded as “vacation pay” under the Act, although an earlier version of the proposed rule had such a provision.