Colorado employers must now pay out earned vacation pay irrespective of contrary policy

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. Anyone with questions is encouraged to reach out to the authors of this article or the lawyer with whom they normally work at Hogan Lovells.

Authored by Tao Leung and Katy L. Forsstrom